SMM Weekly Review and Forecast (Feb. 6-10)

SHANGHAI, Feb 13 (SMM) – Last Thursday, Greek leaders agreed to the procrastinated austerity measures finally, earning a new round bailout as well avoiding default risk in the near term. Therefore, market confidence was shored up. Besides, given the positive US employment rate and continuous rallies in the Dow Jones, the US dollar index fell from 79, driving metal prices to rise. SMMI increased by 1.99％, with SMMI.Cu leading the increase, rising by as much as 3.05％. SMMI.Ni also increased by 2.64％, and SMMI.Zn gained 1.28％. SMMI.Al only remained stable over the past week.

Copper
Chinese stocks closed nearly 1% higher last week, and SHFE copper prices hit a high of RMB 61,880/mt after stabilizing above RMB 60,000/mt. The most actively-traded contract was shifted to SHFE 1205 copper, and both trading volumes and positions increased significantly, helping boost copper prices. The SHFE/LME copper price ratio rallied from the lows last week as more speculators chose to buy near-term SHFE copper, as well as sell forward contracts.

As hedge trading was partly locked last week following the Chinese New Year holiday, domestic copper smelters became reluctant to move goods at discounts, opting instead to deliver goods. Losses for copper importers were between RMB 3,000-4,000/mt, so spot copper supply fell, but helped copper discounts narrow slightly. Speculative interest waned last week, and downstream producers chose to stay out of the market with prices near RMB 61,000/mt. Compared to the prior week, however, market transactions were still up last week.  

SMM anticipates SHFE copper prices to surge and move between RMB 60,000-62,500/mt in the coming week, while spot copper prices should hold stable at RMB 60,000/mt, but attempt to break above RMB 61,000/mt.   

Aluminum
SHFE 1205 aluminum contracts became the most actively traded contracts on Thursday, and although SHFE 1205 aluminum contract prices climbed to RMB 16,300/mt, upward momentum was limited. Domestic consumption failed to improve after the Lantern Festival on February 6th, dragging down spot aluminum prices and with SMM aluminum prices falling rapidly below RMB 15,900/mt. Although cargo-holders were reluctant to move goods at lower prices, spot discounts still hovered between RMB 100-50/mt due to low buying interest. Middlemen were actively chasing profits from the spread between futures and spot market prices, and large traders were delivering goods for SHFE current-month aluminum contracts to generate cash, with actual consumption extremely sluggish.

SHFE 1205 aluminum contract prices will fluctuate between RMB 16,200-16,400/mt, with prices unlikely to make any strong gains in the short term. The resumption of production at downstream aluminum processors is slow following the holiday, so traders will mainly deliver goods for SHFE current-month aluminum contracts, keeping spot aluminum prices below RMB 16,000/mt.

Lead
Last week, SHFE lead prices, influenced by LME lead price movements, moved between RMB 16,040-16,240/mt with strong support at RMB 16,000/mt. SHFE lead prices are expected to move between RMB 16,000-16,400/mt in the coming week.

In China’s domestic spot markets, smelters were active selling inventories built during the Chinese New Year holiday, but downstream demand was still relatively soft as production at SMEs was slow to recover to pre-holiday levels. Transactions in spot markets were modest, with prices for branded lead at RMB 15,950-16,100/mt, with discounts of RMB 150/mt against the most active SHFE lead contract price. Prices for lead from Gejiu were between RMB 15,800-15,900/mt. Transactions may improve in the coming week as downstream enterprises resume production and since smelters are now selling goods normally. With the approach of the delivery day, spot discounts against SHFE lead prices tend to narrow, with spot prices expected at RMB 15,900-16,250/mt in the coming week.   

Zinc
Downstream enterprises restarted production following the Chinese New Year holiday, but buying interest was low as spot prices rose with SHFE zinc prices. Spot prices struggled between RMB 15,700-15,800/mt, with discounts against SHFE three-month zinc contract prices between RMB 300-350/mt. The market preferred domestic zinc due to more favorable discounts, but discounts did not expand despite rising SHFE zinc prices. Imported zinc supply was sufficient, with discounts between RMB 450-500/mt, and domestic zinc prices remained high, so downstream enterprises preferred to buy imported zinc. Imported zinc prices even fell below domestic #1 zinc prices, leaving demand for domestic zinc extremely low. 

Last week, inventories growth slowed, with inventories in East China growing 16,000 mt to 459,400 mt, inventories in South China growing 1,500 mt to 144,300 mt, while inventories in North China fell by 1,000 mt to 15,000 mt. As zinc smelters are currently undergoing environmental protection inspections due to a recent cadmium pollution accident in the Longjiang River of Guangxi province, growth in South China spot inventories should slow.

Tin
Spot tin price dropped sharply and tin was the only base metal that weakened last week, with SMMI.Sn slipping 1.5%. Traded prices concentrated between RMB 177,500-181,000/mt last Thursday and deals above RMB 181,000/mt can hardly be reached, according to goods holders.

Jiangxi tin supplies entered the market last week, accelerating losses in tin prices already pressured by weak demand. Most smelters have resumed production but some are still maintaining low output in support of prices and also due to weak demand and high raw material prices. While quotations were held firm by most smelters, some smelting businesses were forced to lower prices due to sales difficulties.

Tin trading had been light last week excluding Friday as continually slipping prices caused a stronger wait-and-see attitude among downstream businesses. In addition, as the Lantern Festival has just passed, downstream demand still have not fully picked up, actual demand for the metal therefore is still to become clear in the following one to two weeks.

Tin prices climbed again last Friday as goods holders lifted quotations and downstream businesses increased purchases in the face of strong performance of LME tin and physical demand.

Nickel
Jinchuan Group raised ex-works nickel prices by RMB 2,000/mt to RMB 147,000/mt last Friday. Spot nickel prices advanced along with LME nickel prices during the first two days last week, turning investors bullish and caused a small number of downstream producers to enter the market and purchase nickel. Once LME nickel prices began to fall on Wednesday, transactions turned quiet.

After Greek leaders finally reached an agreement to avoid default, the euro surged on Thursday to a two month high against the US dollar of 1.3320. Although implementation of the second round of the bailout plan will take time, expectations are high that the euro will rise in the short term. The European Central Bank also decided to leave interest rates unchanged, a sign that the euro zone economy is stabilizing. Technically speaking, power of longs is slightly stronger than shorts at present. Both daily and weekly RSI indicators and all moving averages suggest an upward trend. Generally speaking, profit-taking may occur in the coming week following positive news from the euro zone, but LME nickel prices should continue to rise as well. However, since any positive impact from the euro zone has already been absorbed by markets and since prices are still meeting resistance, any increases in LME nickel prices will be limited. SMM expects LME nickel prices will test USD 22,450/mt if able to break through resistance at USD 22,000/mt, and will be supported at USD 21,100/mt and at the 10-day moving average.

In the Shanghai nickel spot market, a small number of traders already began to replenish stocks last week. Since LME nickel prices are expected to rise, the willingness by downstream enterprises to purchase raw materials will grow and boost transactions. Last week’s spot nickel prices were below LME nickel prices and the price spread between domestic and LME nickel prices expanded last week, but should narrow if downstream demand improves in the coming week. SMM expects spot nickel prices will continue to follow LME nickel price trends and will move between RMB 140,000-155,000/mt in the coming week.