SHANGHAI, Feb 27 (SMM) – SMMI jumped 0.25%. SMMI.Pb surged 1.28%. SMMI.CU and SMMI.Zn were up 0.21% and 0.19% respectively. SMMI.Sn fell 1.97%.
China's Shanghai Composite Index surged to 2,400 points and SHFE copper prices were boosted following news of a cut in banks' RRR by China's Central Bank. However, a large number of short investors entered the market at high prices, dampening SHFE copper prices, which met resistance at RMB 60,810/mt. Due to a lack of clear technical indicators, SHFE copper prices should continue to test RMB 60,000/mt.
In spot markets last week, copper supply was stable and traders using copper as a financing vehicle were actively moving goods. Spot copper discounts expanded to between RMB 400-500/mt as a consequence. Speculators took advantage of increasing copper discounts to buy high-quality copper. However, domestic copper smelters showed reluctance in selling owing to large discounts. Downstream buying interest heightened early last week at prices below RMB 59,000/mt, but then low-end copper price rallied gradually, depressing market sentiment and turning markets quiet.
SMM expects in the coming week LME copper prices to fluctuate between USD 8,300-8,500/mt and SHFE copper prices between RMB 59,000-61,000/mt.
The People's Bank of China announced a cut in banks' reserve requirement ratio, but this news failed to stimulate long investor buying interest in the SHFE aluminum market due to slow recovery of downstream consumption. Pessimism still dominated the market with spot discounts in excess of RMB 100/mt. SHFE aluminum prices only rose slightly and faced resistance at the 20-day moving average, with price gains less than those for LME aluminum prices.
Spot aluminum prices in Shanghai fluctuated between RMB 15,850-15,900/mt last week, but small gains in SHFE aluminum prices failed to boost spot aluminum prices. Spot aluminum prices met strong resistance at RMB 15,900/mt given growing aluminum inventories and sluggish downstream consumption, causing spot discounts to expand from RMB 100/mt, to more than RMB 150/mt. Market had a surplus in supply and transaction volumes were limited.
SMM predicts SHFE three-month aluminum contract prices will fluctuate narrowly around RMB 16,200/mt and trading activity will be quiet. Spot aluminum prices will face resistance at RMB 15,900/mt due to weak consumption and growing inventories. Speculative buying by middlemen will be limited, keeping spot discounts around RMB 150/mt.
Last week, spot discounts narrowed with falling SHFE three- month zinc contract prices. Traded prices fell to RMB 15,500/mt, but downstream buying interest improved. However, as SHFE zinc prices gained back losses and spot prices remained unchanged, discounts expanded from RMB 250-270/mt, to RMB 330-350/mt. Downstream buyers turned cautious as spot prices rose to RMB 15,500/mt and transactions fell compared to early week trading.
Last week, inventories continued to grow slightly due to sluggish spot markets. Inventories in East China grew 10,000 mt, to 466,400 mt, and inventories in North China grew by 1,000 mt, to 16,000 mt, but inventories in South China fell by 3,000 mt, to 141,500 mt. Inventories in South China were down since arrivals were down from closures at zinc-related smelters in Guangxi province. LME inventories remained at 850,000 mt early last week, but surged by 15,000 mt to hit 865,350 mt, a record high last seen in August 2011.
Last week, SHFE lead prices rose to RMB 15,900/mt mid-week from RMB 15,600/mt earlier and remained above the 10-day moving average. SHFE lead prices are expected to move around the RMB 16,000/mt mark this coming week.
In China's domestic spot markets, lead prices rose gradually from RMB 15,500/mt to RMB 15,800/mt last week, with spot discounts over SHFE lead prices between RMB 50-100/mt. Quotations for well-known brands were occasionally close to SHFE lead prices, and lead smelters were cautiously moving goods since they had less inventory pressure and since they expected lead prices to increase. Meanwhile, production at downstream enterprises was still in the process of returning to normal, so enterprises were more willing to purchase early last week, but later buying interest fell in mid-week as prices rose. Traded prices in spot markets should be between RMB 15,850-16,100/mt this coming week.
Spot tin prices dropped further to near RMB 171,000/mt last Monday, with a lowest traded price of RMB 170,500/mt for Jiangxi ingots being seen on Tuesday. LME tin's return to above USD 24,000/mt and the second Greek bailout deal reached helped Shanghai spot tin prices rebound a little bit and stabilize between RMB 172,000-175,000/mt by Thursday. The trading range narrowed further, with the low end climbing to RMB 172,500/mt, on Friday. After spot tin prices returned above RMB 172,000/mt, bargain hunters moved to the sidelines, leading again to light trading. Spot tin demand stayed depressed as a result of low operating rates downstream in the face of weak terminal demand. Mainstream tin brands during the week were Yunxi, Yunheng, Yunshan, Yunxiang, Nanshan, Jinlong and Kaiyuan. While overall demand has been weak, stock replenishing demand and smelters' stronger confidence for the metal after LME tin price stabilized may help the low end price climb further. SMM therefore expects the metal to trade between RMB 173,000-175,000/mt this coming week in Shanghai.
Technically speaking, the current RSI suggests LME nickel prices are in a selling zone, with LME nickel prices between the 5-day and 10-day moving averages, with close attention needing paid to movements of 5-day and 10-day moving averages. If the 10-day moving average is significantly higher than 5-day moving average, LME nickel prices should rise in the short term. Otherwise, LME nickel prices will meet resistance in advancing further. The weekly chart indicates fierce competition between longs and shorts, but also indicates a reverse signal, with LME nickel prices expected to rebound on positive news.
In general, LME nickel prices continue to will fluctuate since the euro zone economy will remain weak for the foreseeable future and as no significant negative news is expected to release from the euro zone in the short term. LME nickel prices only react to technical indicators, or any improvements in demand and transactions.
At present, the spread between domestic nickel prices and converted LME nickel prices is expanding, but if LME nickel prices increase in the coming week, demand for domestic nickel will increase and spot nickel prices will grow faster than LME nickel prices. If LME prices do not rise, however, Jinchuan Group will cut ex-works nickel prices, driving down spot nickel prices down, but slower than LME nickel price declines.