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SMM Weekly Review and Forecast (Mar. 5-9)
Mar 12,2012 14:58CST
smm insight
SHFE copper prices will lurch between RMB 59,000-61,000/mt in the coming week, and SHFE three-month aluminum contract prices are expected to move between RMB 16,100-16,250/mt.

SHANGHAI, Mar. 12 (SMM) –Last week, China cut its 2012 economic growth target to the lowest level since 2004, which spurred market worries that base metals demand from China will slow further. The composite Purchasing Managers' Index (PMI) was weak in Europe and led to market concerns over this region's economic situation. The US dollar thus rebounded, weighing base metals down. SMMI fell by 1.3%, with nickel, tin, and copper posting considerable declines, highlighting strong financial features of these three metals. SMMI.Ni took a lead in the decline, retreating by 2.3%, while SMMI.Sn and SMMI.Cu slid by 1.7% and 1.5%, respectively. Only aluminum showed strong resilience, with prices rallying after paring earlier losses on Friday. SMMI.Al surged by 0.03%

Chinese Premier Wen Jiabao cut China's economic growth target for 2012, causing Chinese stock markets to fall 2.3%. SHFE copper prices also fell from RMB 61,500/mt to RMB 59,000/mt, but aggressive purchasing at lower prices helped prices hold the RMB 59,000/mt mark. SHFE 1206 copper became the most actively-traded copper contract last week.

In spot markets last week, as copper prices fell sharply, hedged copper came into markets while spot copper discounts narrowed considerably, even turning into slight premiums. Traders only expressed buying interest at the lows, but downstream producers only entered markets below RMB 69,000/mt. Market surpluses were still prominent as cargo-holders sold aggressively.

Cargo-holders will quote prices firm, but copper consumption will remain sluggish. In this context, SMM believes that LME copper prices will move between USD 8,300-8,500/mt in the coming week and that SHFE copper prices will be between RMB 59,000-61,000/mt.

SHFE three-month aluminum contract prices moved between the 20-day and 60-day moving averages last week, and daily trading volumes were below 8,000 lots from Monday to Thursday. The lack of market participants kept SHFE aluminum prices between RMB 16,120-16,250/mt, with solid support found at RMB 16,100/mt. Trading activity remained sluggish in spot aluminum markets, with downstream buying increasing slowly. Mainstream traded prices were between RMB 15,870-15,900/mt, while spot aluminum inventories grew slowly, but still reported to be 879,000 mt.

SHFE three-month aluminum contract prices hit a 7-week low of RMB 16,100/mt last week, but a recovery in domestic downstream consumption may temporarily prevent aluminum prices from falling further, with SHFE three-month aluminum contract prices expected to move between RMB 16,100-16,250/mt. Spot discounts will fall below RMB 50/mt as the delivery date nears, but whether or not spot aluminum prices can remain above RMB 15,900/mt will depend on the pace of the recovery in downstream demand.

Last week, SHFE lead prices fell from RMB 16,150/mt to below RMB 16,000/mt, falling as low as RMB 15,620/m before increasing slightly with rising LME lead prices in mid-week trading. Prices still closed the week down below RMB 16,000/mt, however. SHFE lead prices are expected to move between RMB 15,800-16,150/mt in the coming week.

In China's spot lead markets, prices for well-known brands fell on Wednesday to RMB 15,650/mt, down from RMB 15,950/mt earlier in the week. Spot discounts over the most active SHFE lead contract lead price continued to fall from RMB 200-250/mt to RMB 0/mt. Lead smelters were under less financial pressure and as a result, were not willing to move goods, believing instead that lead prices would not decline significantly. Lead-acid battery producers were active buying goods at lower prices, so transactions improved moderately. This coming week, lead supply will gradually fall due to suspended output at smelters near the heavy metal pollution incidents, so spot prices may stabilize. Selling interest among smelters may improve and downstream buyers are expected to purchase on an as-needed basis. Spot prices are expected to be between RMB 15,700-16,000/mt, with discounts over the most active SHFE lead contract price continuing to narrow.

Spot discounts were between RMB 300-330/mt early in the week, but narrowed to RMB 180-220/mt as SHFE zinc prices fell. Transactions were brisk after SHFE zinc prices plummeted, despite smelters holding goods. Traders were actively moving goods, however, helping keep goods available in the market.

Last week, inventories in East China fell as downstream buying interest was strong at lower zinc prices. Inventories in East China fell 6,000 mt to 466,400 mt, inventories in South China grew 1,400 mt to 141,000 mt, and stocks in North China remained unchanged at 18,000 mt.

Spot tin prices dropped continually to RMB 169,000-171,000/mt on Thursday last week in Shanghai as LME tin prices slipped. The metal recovered with mainstream traded prices rebounding to RMB 170,000-172,000/mt on Friday, also influenced by higher LME tin prices. Though supply decreased with falling prices, supply sufficiency was seen in the face of weak demand. In the meanwhile, production orders at downstream businesses failed to recover as expected in March. That combined with falling prices has led to a strong wait-and-see attitude and light trading. Spot tin prices may climb this week as LME tin prices are expected to recover further. The metal can only hit RMB 174,000/mt, however, given the weak demand. If LME tin fails to present strong performance, domestic tin prices are expected to stabilize at present levels as fundamentals are little changed.

As of last Thursday, last week's average nickel price was RMB 135,150/mt, down RMB 3,000/mt from a week ago. Early in the week, Jinchuan Group cut refined nickel ex-works prices by RMB 4,000/mt, helping temporarily stimulate buying, but overall transactions during the week were still considered lackluster. As converted LME nickel prices remained above spot nickel prices, imports of Russian nickel fell, tightening supply of Russian nickel in markets and causing the price spread between Russian nickel and Jinchuan nickel to narrow further to RMB 200-300/mt.

Since LME nickel prices are expected to move narrowly in the short term, SMM expects spot nickel prices will lack momentum and fluctuate in the RMB 135,000-138,000/mt range.  Transactions of refined nickel are expected to remain sluggish, with profits from transactions between traders extremely limited.




base metals; weekly review and forecast

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