SHANGHAI, Feb. 28 (SMM) --
As LME copper prices closed with gains last Friday, SHFE 1205 copper contract prices, the most active one, opened RMB 250/mt up at RMB 60,300/mt Monday. Tracking LME copper prices, the SHFE copper contract for delivery in May kept fluctuating around the opening price of RMB 60,300/mt during the whole trading day. In the afternoon session, as LME copper prices rose to above USD 8,500/mt rapidly owing to the falling US dollar, and as Chinese stock prices also increased, SHFE copper prices surged to an intraday high of RMB 60,730/mt after breaking out RMB 60,500/mt. However, as long investors made profit-taking at the tail of trading, SHFE 1205 copper contract prices lacked momentum to climb further, and gradually pared some of the daily gains before finally ending at RMB 60,400/mt, still up RMB 350/mt or 0.58%. Positions for SHFE 1205 copper contracts were down 8,712 lots, and trading volumes were down 58,032 lots. SHFE copper prices still faced great resistance at above RMB 60,500/mt, keeping market activity cautious.
Spot copper discounts in Shanghai were quoted between negative RMB 450-350/mt in Monday’s morning business. Traded prices for standard-quality copper were between RMB 59,300-59,400/mt, and RMB 59,350-59,500/mt for high-quality copper. As SHFE copper prices lacked momentum to rebound, spot copper discounts remained around negative RMB 400/mt. The supply of high-quality copper decreased due to increased buying interest from traders. Domestic copper smelters continued to hold back goods, while cash flow pressures at downstream producers became more pronounced as the month ends, leaving market activity lackluster in the morning session. In the afternoon business, SHFE copper prices rose, but spot copper supply continued to decrease, causing spot copper discounts to remain the morning session levels. Nevertheless, traded prices surged to between RMB 59,450-59,600/mt in the afternoon session, but market activity still stagnated since transaction volumes downstream failed to improve.
SMM conducted a survey with regard to this week’s copper price trends.
Based on this survey, 60% of market insiders SMM surveyed are optimistic towards the outlook, believing LME and SHFE copper prices will challenge USD 8,550/mt and RMB 61,000/mt, respectively. The G20 meeting ended Monday and markets are now positive towards the auction of European Central Bank’s (ECB) second round of longer-term refinancing operations (LTRO) to be held February 29. Commodity prices will continue to surge once the euro is boosted, which will help LME copper prices climb to highs. US economic data shows the US economy continues to recover mildly, and markets are optimistic over durable goods orders, the Conference Board Consumer Confidence Index, and the revised annual GDP for 4Q to be released this week, which will likely help US equity markets challenge 13,000. Crude oil and gold prices have been rising, which will continue provide support for LME copper prices. Spot copper offers have turned from discounts into premiums of USD 3/mt versus LME copper contract for delivery in March, and will help drive up copper prices. Chinese stock markets have been posting better performance recently, lifting domestic commodity markets. Therefore, these insiders expect copper prices will increase this week.
The remaining 40% market insiders anticipate copper prices will continue to fluctuate this week, with LME copper prices expected between USD 8,300-8,500/mt, and SHFE copper prices between RMB 59,000-60,800/mt. Although LME copper prices are above recent moving averages, but SHFE copper prices continue to struggle at the 20-day moving average, unfavorable for the SHFE/LME copper price ratio. SHFE copper prices therefore will post fewer gains than LME copper. SHFE copper prices will easily suffer selling pressures at near RMB 61,000/mt and therefore cannot stabilize. On the fundamental side, as orders and operating rates at downstream producers haven’t improved in February, and as cash flow pressures will become more prominent as the month ends, spot copper discounts will probably expand further, dragging down copper prices. As such, these insiders believe copper prices will extend fluctuations this week.
Despite a surge in LME aluminum prices last Friday, the most active SHFE three-month aluminum contract opened only slightly higher at RMB 16,250/mt and closed up RMB 60/mt or 0.37% at RMB 16,255/mt. The highest price hit in the day is RMB 16,280. SMM expects the contract to struggle near RMB 16,250/mt in the near term due to weak demand.
Spot aluminum traded between RMB 15,890-15,920/mt in Shanghai, at discounts of RMB 130-160/mt over the SHFE current-month aluminum price. SHFE aluminum fails to keep up with the pace of LME aluminum, which consequently contributed only slight gains in spot prices. A even weaker demand at month’s end means spot discounts over the SHFE current-month aluminum price may expand further. Spot aluminum ingots previously traded at discounts over Shanghai spot prices in Wuxi were traded almost equally with the latter, though deals were limited.
In an SMM survey on this week’s aluminum prices, 30% market players are optimistic, compared with 5% in the previous week, saying slight gains are achievable despite slow recovery of downstream demand. Their optimism comes from climbing crude and copper prices while expecting also strong resistance at RMB 16,000/mt. 68% respondents said aluminum prices will stay little changed this week as improvement in the macroeconomic side and weak fundamentals will come to a draw. Remaining 2% respondents are pessimistic, expecting downside pressure at RMB 15,900/mt due to tight cash flow at month’s end and staying weak demand.
On Monday, SHFE lead prices opened at RMB 16,150/mt and fell after rising first. In the afternoon, SHFE lead prices moved above the moving averages and touched a high of RMB 16,195/mt due to the rise in both domestic stocks and LME lead prices. However, prices fell later as the US dollar index increased and surrendered earlier gains to finally close at RMB 16,130/mt, up RMB 145/mt. Trading volumes increased by 66 lots to 478 lots and positions were down 108 to 1,916 lots.
In China’s domestic spot markets, quotation for well-known brands such as Chihong Zn & Ge and Nanfang were between RMB 15,960-15,980/mt, with discounts against the most active SHFE lead contract price at RMB 150/mt. Quotations for other brands such as Baiyin and Shenqian lead from Fujian were at RMB 15,880-15,900/mt. In the afternoon, SHFE lead prices rose to move above the moving averages, and quotations for Chihong Zn & Ge were up RMB 20/mt, but traded prices were still at RMB 15,960/mt. Smelters were cautiously moving goods over bullish outlook, while downstream buyers were not willing to buy due to higher prices, leaving transactions muted.
With respect to lead price this week, 67% of market players were optimistic, believing lead prices will continue to rise and move above RMB 16,200/mt this week. Greek cabinet approved the debt restructuring plan earlier, raising market confidence. As a result, euro hit the new high against the US dollar since December 2011 with the US dollar index dipping to 78.22, the lowest point since early December. Besides, both US employment data and February Kansas Fed manufacturing index were reported above expectations, and index of Germany’s business climate released last Thursday climbed to 109.6, the highest level since April 2011. The stable recovery of US economy and promising prospect of German economy boosted market sentiments, and will accordingly push up base metal prices. In addition, the turmoil in Iran drove the gold and oil prices up, which will also help support base metal markets. On the other hand, China’s domestic stocks surged above 2400 points, also shoring up the base metal prices. In addition to these, pollution incidents pertaining to heavy metals were frequently reported from domestic smelters. Although not all smelters were closed, the serial incidents were sending a signal of decreasing lead supply. In addition to these, some smelters in Yunnan cut production significantly will also lead to a fall in lead supply, giving certain support to lead price.
The remaining 33% hold that there’s a possibility for lead prices to fall after the surge. Although lead prices may be driven up in short term due to the rising domestic stocks and the falling US dollar index, unfavorable factors still exist. Base metals rallied generally since the Greek bailout was approved early last week. However, with the influence of this positive news fading away, no further favorable news is expected to promote base metals in the near term. Besides, as Fitch Ratings further downgraded ratings for Greece and the EU cut GDP growth forecast from 0.5% to -0.3%, commodity consumption is not likely to improve given the sluggish global economy. Thus, global economic recovery remains to be a major concern in the market. Despite the persistent recovery of US and German economy, the economic outlook in most countries is still not optimistic, leaving weak purchasing power. On the other hand, downstream consumption in China’s domestic markets is recovering slowly as the peak-demand season for ignition lead-acid batteries comes to an end. Thus, refined lead inventories have kept increasing following the Chinese New Year holiday. Refined lead inventories in Nanchu and Shanghai exceeded 100,000 mt, much higher than the pre-holiday inventories, posing resistance for lead prices to increase. In this context, these market players believe lead prices will not likely increase this week and may fluctuate between RMB 15,500-16,200/mt.
SHFE three-month zinc contract prices opened slightly higher at RMB 15,950/mt on Monday, with prices mainly moving between RMB 15,900-15,950/mt in the morning session. As LME zinc prices advanced in the midday, SHFE three-month zinc contract prices even climbed to RMB 16,000/mt, but later reversed previous gains and fell back to the daily moving average due to the exit of long investors from the market after profit-taking, with prices finally closing at RMB 15,950/mt, up RMB 110/mt.
In the spot market, #0 zinc was traded between RMB 15,550-15,600/mt, with discounts expanding to RMB 350-380/mt, while discounts for warrants were RMB 300/mt against SHFE three-month zinc contract prices. #1 zinc was traded between RMB 15,500-15,550/mt. Downstream buying was cautious, while markets preferred registered brands or warrants, resulting in brisk trading of warrants.
With regard to zinc price trends this week, most investors believe prices should continue to rise.
60% investors believe SHFE three-month zinc contract prices should continue to rise to RMB 16,300/mt this week. The Shanghai Composite Index well supported SHFE three-month zinc contract prices recently, so prices will stand at RMB 16,000/mt level. As downstream consumers returned to the market, SHFE three-month zinc contract prices should move between RMB 15,800-16,300/mt, with spot discounts expanding to RMB 350-500/mt.
The remaining 40% believe SHFE three-month zinc contract prices should fluctuate between RMB 15,500-16,000/mt. Despite market concerns over Greek debt crisis eased, major economies recover slowly. The NPC and CPPCC are going to take place in March, and the market is awaiting possible macroeconomic news, so commodity prices will not rise significantly. Both SHFE and LME inventories are high, while smelters are actively moving goods at RMB 15,600/mt, so spot prices should resist increases. SHFE three-month zinc contract prices should move between RMB 15,500-16,000/mt, with spot discounts between RMB 300-400/mt.
Spot tin traded mainly between RMB 173,000-175,000/mt in Shanghai on Monday. Trading was slightly active at the low end but quiet at the high end. Kaiyuan branded ingots due to arrive today were traded RMB 172,800-173,000/mt. Jinhai, Yunshan and Yunxiang struck deals between RMB 173,000-174,000/mt while Yunxi and Yunheng concluded transactions between RMB 174,000-175,000/mt. While the low end climbed further following previous climbs to RMB 173,000/mt, buying interest downstream was low.
In an SMM survey on this week’s tin prices, 50% market players covered expect stability, citing stability in LME tin prices, low selling interest at low prices and weak downstream demand. 30% respondents said the metal face downside risks due to strong resistance at USD 24,000-24,200/mt for LME tin, weak demand and a possible injection of lower-priced goods by Jiangxi smelters. Remaining 20% respondents expressed optimism which is based on stability in LME tin prices, stock replenishing demand as well as limited supply.
In the Shanghai nickel market, mainstream traded prices of Jinchuan nickel in the morning business were between RMB 139,800-140,000/mt, and RMB 139,000-139,500/mt for Russian nickel. During the afternoon business, spot nickel prices were little changed due to limited changes in the LME nickel market. Last Friday, downstream producers and traders built some stocks, so purchasing demand on Monday was low, resulting in low trading activity.
According to SMM survey, approximately 50% of market players expect prices to rise this week, as any downward room of LME nickel will be limited following the absorption of negative news from the euro zone. European Central Week will begin the second round of long term refinancing operation (LTRO) this week, while the Fed found little backing for a new round of quantitative easing. Hence, the euro against the dollar is expected to remain high. In domestic spot market, nickel prices usually rise during the time of the year in past years. At present, nickel prices are low, leaving possibility to advance. Meanwhile, downstream producers need to replenish goods for production. Demand improvement will drive up nickel prices. In this context, those market players believe that nickel prices will sustain its rising trend for the foreseeable future after regaining its upward momentum.
Around 30% of market players believe, however, nickel prices will drop this week. Nickel price gains last week were due largely to the deal over Greek debt issues and rising stocks market in China. The positive impact on nickel prices from new aid for Greek debt issues will not support nickel price gains this week. Moreover, stocks prices in China will stage profit-taking at around 2,450 points due to overbought, and stocks will lose its further rising momentum in response. In addition, the European debt issues remain unresolved, and the global economic recovery is depressing. Hence, LME nickel prices will retrace its weak momentum.
The rest 20% expects nickel prices to fluctuate, with LME nickel prices around USD 20,000/mt due to the absent of no positive or negative news in the market.