SMM Daily Review - 2012/3/19 Base Metals Market

SHANGHAI, Mar. 20 (SMM) --

Copper

SHFE 1206 copper contract prices, the most active one, opened RMB 230/mt lower at RMB 60,600/mt Monday. After the opening, as LME copper prices came under great pressures, and as market activity for SHFE copper was light, SHFE copper prices did not gain buying support and trended lower after suffering resistance at the 5-day moving average of RMB 60,600/mt, with a high only touching RMB 60,660/mt. In the afternoon session, LME copper prices continued to fall, while the Shanghai Composite Index struggled at 2,400. In this context, short investors chose to enter the market but then left when copper prices were pushed down to RMB 60,120/mt, with prices then fluctuating around RMB 60,250/mt. Finally, SHFE 1206 copper contract prices ended at RMB 60,300/mt, down RMB 530/mt or 0.87%. Positions for SHFE 1206 copper contracts were down 2,000 lots, and trading volumes were down 71,242 lots to only 300,000 lots. Speculative activities decreased sharply, and SHFE copper prices got weak support at the 10-day moving average of RMB 60,400/mt.

In spot markets, some hedged copper came into markets, SHFE copper prices trended lower after a low open, allowing overall copper supply to remain sufficient. Besides, transaction volumes were restricted. Therefore, copper discounts remained between negative RMB 320-220/mt. Traded prices for standard-quality copper were between RMB 59,550-59,650/mt during the whole trading day, and RMB 59,600-59,750/mt for high-quality copper. Traders slowed their pace of purchasing due to cautious sentiment towards future copper prices, while downstream producers stayed on the sidelines, although copper prices slid below RMB 60,000/mt. Market activity was quiet as a consequence.  

SMM conducted a survey with regard to copper price trends this week.

Based on the survey, 28% of market insiders surveyed by SMM are optimistic about the outlook, believing LME copper prices will soar through USD 8,600/mt and SHFE copper prices can break resistance at RMB 61,500/mt. The US employment data remains positive, and markets are positive towards the release of housing starts and existing home sales within the week, which will provide upside momentum for copper prices. Furthermore, the upbeat US economic figures and technical indicators will help US equity markets continue to move at the highs, which will drive up commodity prices including copper. The US dollar is likely to fall due to resistance at 80, which can bolster copper prices somehow. Spot copper premiums in London have risen to positive USD 34/mt as of March 19th, and are expected to remain high before delivery this week. In Chinese markets, some listed companies of copper industry reported excellent performance in their reports, which will boost market confidence over Chinese stock markets. Hence, copper prices will likely rally to high levels this week.

52% of market insiders hold the view copper prices will fluctuate at current values, with LME copper prices expected between USD 8,450-8,600/mt and SHFE between RMB 60,000-61,500/mt. As cash flow problems haven’t improved significantly, the Shanghai Composite Index lacks buying support at or near 2,400, which was the reason why copper prices closed down, although the US dollar fell for two consecutive days. China’s open market will release around RMB 255 billion in March, 20 times of the size of February, but still well below the RMB 687 billion in the same period last year, highlighting the fact the monetary policy hasn’t relaxed significantly. From recent position holdings and trading volumes for SHFE copper, speculative activities are low. Spot copper discounts are around positive RMB 300/mt, and market transactions are mainly made by hedge traders who buy spot copper and sell SHFE copper contracts. Therefore, copper prices will fluctuate at current values this week.  

The remaining 20% of market insiders are pessimistic, believing LME copper prices will retreat to USD 8,300/mt and SHFE copper prices will slide to between RMB 59,000-59,500/mt. The US dollar has fallen from a high of 80.74, but is supported at the 60-day moving average, so any downside room will be limited. In this context, short investors are likely to conduct operations, dampening copper prices. Due to unclear technical indicators, LME copper prices will fall to near the 60-day moving average of USD 8,300/mt once losing USD 8,450/mt. SHFE copper inventories have been increasing continuously, rising by 134,057 to 227,276 as of last Friday, the highest since July 2002, imposing pressures to copper prices. In spot markets, as the end of the month nears, copper smelters will increase sale volumes. As copper prices fall, hedged copper will come into markets. Therefore, spot copper supply should remain sufficient, but copper consumption hasn’t improved considerably. Downstream producers generally stay on the sidelines above RMB 60,000/mt, dampening market transactions, while spot copper discounts remain large, both of which will drag copper prices down. As such, these market insiders expect copper prices to fall this week.

Aluminum

The most active SHFE aluminum contract for May delivery opened at RMB 16,145/mt and closed at RMB 16,165/t on Monday, after moving narrowly between RMB 16,145-16,175/mt. Transactions increased 1,692 lots to 4,394 lots while positions dropped 2,048 lots to 46,722 lots. Aluminum has been showing more stability due to light trading and high production costs.

Spot aluminum traded between RMB 15,960-15,990/mt in Shanghai, at discounts of RMB 40-70/mt over the SHFE current-month aluminum price. While downstream and middlemen continued to purchase as-needed expecting lower aluminum prices, goods holders’ firm quotations narrowed discounts over the dropping current-month aluminum price. Trading was light due to weak demand and as buyers and sellers diverge over price.

In an SMM survey on this week aluminum prices covering 32 aluminum traders, 8 (25%) traders expect gains, citing recovering domestic demand, slower stock expansion and strong support at the bottom. Further more, narrowing spot discounts over the SHFE current-month aluminum price also support their view. The percentage of optimistic traders was 8% last week. 20 (62%) traders expect stability, however, quoting weak demand, which will curb gains, and high production costs plus more financial strength at aluminum producers, which will on the other hand curb selling off. Remaining 4 (13) traders are pessimistic, saying climbing stocks and staying weak demand will induce losses to stagnating prices.

Lead

On Monday, SHFE lead prices opened lower at RMB 15,895/mt and hit a low of RMB 15,835/mt due to falling domestic stock markets. In the afternoon, prices moved between RMB 15,840-15,860/mt with resistance still existing and finally closed at RMB 15,865/mt, down RMB 150/mt. Traded volumes increased by 112 lots to 328 lots and positions were up 54 lots to 1,552 lots.

In domestic spot markets, quotations for brands such as Chihong Zn & Ge were at RMB 15,900/mt. Other brands such as Hanjiang, Dongling and Yubei were quoted between RMB 15,810-15,840/mt. Spot prices were relatively firm, resulting in plenty of arbitrage opportunities. In the afternoon, spot prices in Shanghai remained unchanged and limited transactions were made due to high prices.

With respect to lead price trends this week, 60% industry insiders believe domestic spot prices should remain stable and fluctuate between RMB 15,750-15,900/mt. Although the European debt crisis had eased somewhat, the issue was not solved fundamentally. Meanwhile, the slow recovery of US economy was not able to give strong support to current lead prices, leaving strong wait-and-see sentiment in the market. On the other hand, with traditional peak demand season for lead-acid batteries coming to an end, weak demand and surplus in lead supply will continue, so downstream enterprises are not eager to purchase with a lack of orders. As such, increase in lead prices will be limited.

However, the remaining 40% were pessimistic. Downstream consumption will turn soft in mid-March with the approach of low demand season, combined with environmental protection inspections of lead-acid battery producers initiated in Henan, Shandong, Anhui, Hubei and Jiangsu, lead demand will further decline. Besides, the most active SHFE lead contract prices were under strong resistance. Thus, lead prices are expected to drop slightly to move between RMB 15,550-15,750/mt this week.

Zinc

LME zinc prices dipped to as low as USD 2,058.3/mt during Asian trading hours yesterday. The US National Association of Home Builders said yesterday that its housing market index rose to near 5-year high in March. The US dollar index lost previous gain, helping boost LME zinc prices, with prices gradually returning to near 5-day moving average and finally closing at USD 2,084/mt, up USD 9/mt.

SMM predicts SHFE three-month zinc contract prices will climb slightly to RMB 15,700-15,950/mt today, while spot discounts will hover between RMB 300-400/mt.

Tin

Spot tin prices dropped slightly to RMB 171,500-173,500/mt in Shanghai on Monday as a result of falling LME tin prices and weak demand. Lower offers from some goods holders to promote deals also ended in vain. Nanshan, Feidie, Guangsheng and Yunshan branded ingots contributed deals between RMB 171,500-172,200/mt. Yunxi struck deals mostly at RMB 173,500/mt.

In an SMM survey on this week’s tin prices, 55% market respondents expect stability, citing stability on the macroeconomic side, stagnating LME tin prices, weak demand combined with high production costs. Remaining respondents expect losses, quoting a possible drop in domestic demand given continuous weakness in the property sector and the upward trend of the US dollar.

Nickel

LME nickel prices advanced to hit a high at USD 19,100/mt after opening at USD 19,050/mt during Monday’s Asian trading hours, but later fluctuated narrowly between USD 19,000-19,050/mt. The weak economic data from the US dented investor’s confidence. Coupled with market concern over sluggish demand from stainless steel producers, LME nickel prices hit a low at USD 18,830/mt as of 4:35 pm.

In the Shanghai nickel spot market, Jinchuan Group cut ex-works nickel prices by RMB 3,000/mt to RMB 135,000/mt. During the morning trading hours, mainstream traded prices of nickel from Jinchuan Group were in the RMB 135,500-135,800/mt range, and mainstream traded prices of nickel from Russia were in the RMB 134,700-135,000/mt range. During the afternoon trading hours, traders lowered prices slightly to promote sales, with average traded prices of Jinchuan nickel around RMB 135,500/mt and Russian nickel around RMB 134,500/mt.

Based on result of an SMM survey on market sentiment, 25% market players expect LME nickel prices will be well supported at USD 19,000/mt after a long fluctuation period. The eased European debt crisis has left room for euro to rebound, which will help base metal prices to advance. As LME nickel prices have already experienced correction, it is expected that LME nickel prices are more likely to bottom out in this coming week.

46% market players believe that the widely-accepted global economic slowdown, combined with dashed hope that the US will implement QE3, will make LME nickel prices accelerate declines and test support at USD 18,500/mt in the coming week.

The remaining 29% market players hold that although the temporarily-eased European debt crisis will lend support for base metal prices to certain extent, the sluggish domestic demand and no clear positive signals from China’s NPC and CPPCC will make LME nickel prices continue to fluctuate.