SHANGHAI, Feb. 21 (SMM) --
SHFE 1205 copper contract prices, the most active one, met resistance at the 20-day moving average of RMB 60,350/mt immediately after opening RMB 10/mt down at RMB 59,910/mt Monday. SHFE three-month copper contract prices fell all the way as large-scale selling pressures emerged, and as around 42,000 new positions were built in the session. In the afternoon business, Chinese stock prices narrowed daily gains and slid continuously, causing SHFE copper prices to drift lower further, down as low as RMB 59,270/mt. Finally, SHFE 1205 copper contract prices closed at RMB 59,340/mt, down RMB 580/mt or 0.97%. Positions for SHFE 1205 copper contracts were up 34,992 lots, and trading volumes were up 64,966 lots. Owing to rising selling pressures with resistance at RMB 60,000/mt for three consecutive days, SHFE copper prices would fluctuate between the 20 and 30-day moving averages for the near future.
Shanghai spot copper offers were reported between discounts of negative RMB 400-280/mt in Monday’s morning business. Traded prices for standard-quality copper were between RMB 58,900-59,100/mt, and RMB 58,950-59,150/mt for high-quality copper. SHFE copper prices moved lower after the opening, which depressed market optimism but propelled cargo-holders of spot copper to move goods aggressively. Spot copper supply remained sufficient as a consequence, and caused copper discounts expand all the way. Some traders with enough capital chose to purchase appropriately given increasing copper discounts, but downstream producers continued to be wary of buying. Hence, overall transaction volumes were still limited in the spot market, resulting in market surpluses. In the afternoon session, as SHFE copper prices continued to slide, and as spot copper consumption failed to improve, copper discounts continued to expand, increasing above negative RMB 300/mt for high-quality copper. Mainstream copper discounts were reported between negative RMB 400-320/mt in the afternoon business, while traded prices fell to between RMB 58,650-58,950/mt.
SMM conducted a survey with regard to this week’s copper price movements.
Based on this survey, 55% market insiders contacted by SMM believe copper prices will fluctuate this week, with LME copper prices expected between USD 8,200-8,450/mt and SHFE copper prices between RMB 59,000 -60,500/mt. Although Greek leaders finally approved severe austerity measures, markets remain pessimistic the country will get the second bailout funds. Bond yields in some euro zone countries such as Portugal and Spain stand high while there are too many uncertainties and risks in a default, which will keep the euro’s movements weak. However, positive economic data from the US will help boost US equities this week. The Dow Jones Average Index has surged to the highest since early 2008 and moved towards 13,000, which is positive for commodity prices, including copper. The US dollar faces increasing pressures to move higher after breaking out 80 temporarily, so it will impose limited pressures on copper prices. Gold prices have jumped owing to growing risk appetites, and crude oil prices are also surging due to political factors, both of which will bolster copper prices. In Chinese markets, a cut in Reserve Requirement Ration by China’s central bank will help Chinese stock markets hold firm at 2,300 points over the near term, but substantive relaxation in cash flows needs more days. Besides, long investors are unlikely to conduct operations hastily before any significant improvement in future consumption is visible. As such, these market insiders expect copper prices to fluctuate during this week.
45% market insiders SMM surveyed are pessimistic about the outlook, believing LME copper prices will retreat to USD 8,000/mt and SHFE copper prices will lose RMB 58,000/mt. Despite market optimism towards progress in Greek debt problems over the near term, it’s worth noticing there is still risk Greece can get the second bailout package, since Germany is reported to be drafting a plan to force the country to leave the euro zone area. Other euro zone countries also suffer debt woes, weighing on copper markets. LME and SHFE copper met selling pressures, and the SHFE/LME copper price ratio has fallen. Copper inventories in China’s, the world’s biggest copper consumer, are high for the time being, leaving market supply sufficient. Hedged copper comes into the market amid sliding copper prices, and spot copper discounts expand. On the copper fundamental side, downstream orders haven’t improved significantly, as easing in cash flows needs further confirmation. Copper consumption is unlikely to improve over the near term as a result, and market surpluses will sustain, which can easily cause sell-offs. Hence, copper prices will probably fall this week.
The most active SHFE three-month aluminum contract opened higher at RMB 16,210/mt on Monday supported by a reserve ratio cut from China’s central bank on Saturday. In the face of both domestic and overseas pressures, the contract failed to retain gains, however, and closed down RMB 45/mt or 0.28% at RMB 16,135/mt despite a slight rebound. Both longs and shorts are cautious since uncertainties in the macroeconomic side still exist. Only 7,968 contracts were transacted and total positions dropped by 1,360 lots to 59,138 lots. The intraday average’s drop to below the 30-day moving average last Friday also means low possibility that aluminum price will rebound in the near term.
Spot aluminum traded between RMB 15,860-15,900/mt, at discounts of RMB 100-130/mt over the SHFE current-month aluminum price in Shanghai on Monday. Low-iron aluminum traded between RMB 15,970-16,000/mt, with discounts over the SHFE current-month aluminum price rarely changed. The SHFE current-month aluminum contract’s failure to hold at RMB 16,000/mt after a return above the level and weak downstream demand have led to strong short selling interest, keep spot discounts above RMB 100/mt. Except active bargain hunting by a few middlemen, overall trading stayed light in the face of supply sufficiency.
In a February 20 SMM survey on this week’s aluminum prices, 2 (5%) of the 38 spot aluminum traders covered said aluminum price will gain, mainly supported by satisfactory recoveries in local demand. 26 (69%) respondents expect stability as the result of a draw between longs and shorts. Remaining 10 (26%) traders, however, hold pessimistic views in light of still weak downstream demand and continually climbing stocks.
On Monday, SHFE lead prices moved down after opening at RMB 15,600/mt. LME lead prices gapped higher and moved above the 5-day moving average, but SHFE lead prices did not increase accordingly. The final decision on Greek bailout plan will be made Monday night, and markets remained cautious before any actual result was reported. SHFE lead prices moved narrowly between RMB 15,650-15,700/mt, being more resilient compared with other base metals, and finally closed at RMB 15,685/mt, up RMB 30/mt. Trading volumes decreased by 200 lots to 254 lots and positions were up 10 to 1,976 lots.
In China’s domestic spot markets, quotations for well-known brands such as Chihong Zn & Ge, Chengyuan, Yuguang and Shuikoushan were RMB 15,650-15,700/mt, with premiums of RMB 0-30/mt against the most active SHFE lead contract price. Transactions were rarely seen due to higher prices, and quotations for lead from Gejiu were hardly reported. Other brands were mainly quoted at RMB 15,520/mt. In the afternoon, SHFE lead prices remained stable and spot prices changed little. Trading market improved moderately as lead prices tended to stabilize.
Opinions have been divided on lead price trends this week. 53% of market players are optimistic, believing lead prices will increase but to a limited degree, while spot prices will be above RMB 15,800/mt. Last week, LME lead prices surrendered the gains over the past month and rallied soon after hitting to a low of USD 2,002/mt, with a sign of stabilizing following the continuous fluctuations since September 2011. Besides, according to relevant reports, the Greek bailout plan will most likely be approved on Monday when final decision should be made on the issue. Furthermore, China’s central bank announced to lower banks’ reserve requirement ratio by 0.5 percentage points Saturday night, which is also favorable to the market. On the other hand, the production cuts in Yunnan caused by prolonged drought and the production suspension in Guangxi, as well as eased inventory pressure will reduce lead supply, so as to help support prices.
33% of market players hold that lead prices will remain fluctuations. Although China’s RRR cut will help inject liquidity to the market, the influence will be limited. China’s domestic stocks fell and commodity markets also showed a downtrend after opening higher on Monday, reflecting a lack of driving force from the injection of liquidity. Lead prices will mainly be dominated by the progress on the Greek debt issue. Hence, market may remain cautious before any actual result is reported. In addition, consumption of metals has not showed any improvement, and base metal prices, led by copper prices, are hard to rise with resistance. In this context, lead prices are not likely to rise. Despite low buying interest among downstream enterprises, some traders are still willing to replenish at lower prices. Purchases for branded lead were limited while transactions for lead from Gejiu were rarely seen. Given fewer supplies and weak demand, prices should continue to fluctuate between RMB 15,500-15,800/mt this week.
The remaining 13% are bearish on lead prices, saying investors are losing patience with the lingering Greek debt issue, and the RRR cut is hard to exert great influence on the market in short term. Besides, operating rates at downstream enterprises remain low due to the lack of orders and labor shortages, leaving few purchases for refined lead. Therefore, lead prices will be below RMB 15,500/mt with little chance of rising.
SHFE three-month zinc contract prices briefly climbed to hit RMB 15,790/mt after opening slightly higher at RMB 15,655/mt boosted by the People’s Bank of China’s announcement to cut the banks’ reserve requirement ratio last Saturday, with prices later falling gradually due to the exit of long investors from the market. As the Shanghai Composite Index advanced in the midday, SHFE three-month zinc contract prices tried to reverse previous losses, but slipped after only breaking through the daily moving average, with prices finally closing at RMB 15,605/mt, down RMB 50/mt.
In the spot market, #0 zinc was traded at RMB 15,400/mt, with discounts between RMB 250-270/mt against SHFE three-month zinc contract prices, while #1 zinc was traded between RMB 15,300-15,350/mt, with discounts of RMB 300/mt. Downstream buying interest remained strong, but transaction volumes were limited as SHFE zinc prices lacked upward momentum.
China’s central bank announced to cut deposit reserve ratio last Saturday, but the market did not give active response on Monday. SHFE three-month zinc contract prices inched down after opening.
With regard to zinc price trends this week, 70% market players believe SHFE three-month zinc contract prices should remain fluctuating, meeting resistance at RMB 16,000/mt but finding support at RMB 15,300/mt. SHFE three-month zinc contract prices plunged after opening higher, fluctuating around the 30-day moving average. The market remained cautious as euro zone finance ministers’ meeting made a decision on the second bailout plan for Greece. LME zinc prices rose to USD 2,200/mt but resisted increases as a large number of investors left the market with profit-taking. The market appreciate China will not actually loosen monetary policies. In this context, SHFE three-month zinc contract prices resisted increases at RMB 16,000/mt. inventories surged after the holiday, weighing down spot prices. On the other hand, downstream enterprises have restarted production, but are unwilling to purchase at RMB 15,500/mt, so zinc prices lack support. As a result, SHFE three-month zinc contract prices should remain between RMB 15,300-16,000/mt, with spot discounts between RMB 200-300/mt.
20% market players think SHFE three-month zinc contract prices should stand at RMB 16,000/mt. Euro zone finance ministers’ meeting made a decision on the second bailout plan for Greece on Monday, and Greece has finished credit tightening policies, while China’s leaders said China will aid Europe, causing market confidence to improve. Increasing consumption will support SHFE zinc prices. In this context, SHFE three-month zinc contract prices should stand at RMB 16,000/mt, with spot discounts between RMB 300-400/mt.
Only 10% market players think SHFE three-month zinc contract prices should dip. LME zinc prices are expected to fall as European debt will due in a few months, while the US dollar index should continue to rise. LME zinc prices should fall to USD 1,900/mt. Smelters have been actively moving goods to generate cash given high inventories, keeping spot discounts unchanged. SHFE three-month zinc contract prices should fall to test RMB 15,000/mt, with spot discounts between RMB 200-300/mt.
Mainstream spot tin prices were between RMB 172,000-176,000/mt and traded volume stayed light in Shanghai on Monday. The low end dropped to RMB 171,500/mt and Jiangxi tin brands, such as Nanshan, Jinlong and Kaiyuan, were major drivers. Yunxi and Yunheng branded tin traded between RMB 175,000-176,000/mt. Quotations at RMB 177,000/mt were heard but deals at such high prices were hardly concluded. SMM expects the metal to see further losses in the near term due to weak downstream demand, as reflected by low operating rates at downstream businesses.
In a survey on this week’s spot tin prices, 60% of market players covered expect downside risks as a result of losses in LME tin prices, staying weak demand after the Chinese New Year holiday and a wait-and-see attitude at downstream fostered by falling prices. Support from smelters’ withholding of goods at lower prices will also be limited in the face of weak demand. As such, these market players expect tin price to test support at RMB 170,000/mt in the near term.
Remaining 40% of respondents said tin price will stabilize this week as the second Greek bailout is high likely to be approved during the day’s euro zone finance ministers’ meeting, which would provide tremendous support for both LME and domestic tin prices.
LME nickel prices opened with significant gains during Monday’s Asian trading hours, despite of sharp decline last Friday, so domestic spot nickel prices were also flat from last Friday’s level. During the morning trading hours, mainstream traded prices of nickel from Jinchuan Group were between RMB 139,800-140,000/mt, and mainstream traded prices of nickel from Russia were between RMB 138,800-139,000/mt. During the afternoon trading hours, spot nickel prices were virtually unchanged, as LME nickel prices did not fluctuate widely. Wait-and-see sentiment was relatively strong amid recent LME nickel price vitality, so overall trading volumes were low.
Based on result of an SMM survey on market sentiment, 60% market players believe that LME nickel prices will continue to extend weak momentum in this coming week. Last week, LME nickel prices fell to hit a low of USD 19,410/mt, with support only at 60-day moving average. In addition, positions of LME nickel contracted significantly, showing players’ weak confidence towards market outlook. In addition, technical indicators suggested LME nickel prices were relatively weak and may meet resistance to rebound in the short term. With regard to the euro zone, negative news may be released at any time since current economic condition was weak and as the European debt crisis has been haunting market for a long time. With regard to domestic market, the steady decline in real estate price, stranded plan of pension fund, halted construction of high speed railway projects all suggested dim condition of domestic economy. The gloomy outlook of global economy may dampen risk appetite and may force funds turn to US dollar, gold and other risk aversion assets, which will weigh on LME nickel prices. In addition, the sluggish demand in spot nickel market will not lend support for nickel prices in the short term.
The remaining 40% market players expect that LME nickel prices will rebound in this coming week. In the euro zone, market expects that Greece will be able to receive the second round bailout fund since Greek parliament has passed austerity plan, fueling expectation that euro will rebound in the short term. Crude oil climbed to USD 105/barrel, and gold also advanced on risk version sentient. It is expected that commodity prices will stabilize, which will lend support for LME nickel prices to rebound. In China, China's central bank announced to cut bank requirement reserve ratio, which will improve liquidity in the short term. In this context, stock market and futures market will receive upward momentum and will be boosted to certain extent.