SHANGHAI, Mar. 26 (SMM) – Last week, both European and China’s PMI data dipped to a new low, reflecting the weakening manufacturing sector. Combined with the disappointing US home sales, US equities were dragged down, with the euro falling and the US dollar index rising up. In consequence, base metals staged sharp declines generally. SMMI ended the week down 1.37%, led by SMMI.Ni which dropped by 2.4%. SMMI.Zn fell by 1.9%, SMMI.Sn was down 1.87%, and SMMI.Cu decreased by 1.52%. SMMI.Al was relatively resilient with prices remaining stable.
Chinese stock markets fell 2% due to poor investor confidence and SHFE copper prices slid rapidly to RMB 59,560/mt after hitting a high of RMB 60,800/mt, and only finding support at the 60-day moving average. With selling pressure growing, SHFE copper prices fell by 1.8% for the week.
As copper futures prices struggled early last week, market transactions stagnated at the RMB 59,500/mt level in spot markets. Cargo-holders held divergent views, however, with traders holding hedged copper selling aggressively, leading to sufficient market supply, but copper smelters were holding goods at lower prices. Downstream producers increased buying at the lows, helping market transactions rise after initially falling.
SHFE copper prices will probably slide to the 60-day moving average in the coming week, but will hold at RMB 59,500/mt if SHFE 1207 copper becomes the most actively-traded contract. As March ends, cash generation will allow spot copper supply sufficient, and market transactions at lower price levels will increase appropriately.
SHFE three-month aluminum contract prices edged lower following LME aluminum price declines and from a lack of positive news from China, with SHFE prices hitting a 2-month low of RMB 16,100/mt on Thursday. In spot markets, domestic aluminum consumption remained weak, and although aluminum ingot inventories fell, traders say buying by downstream enterprises did not improve, keeping spot aluminum prices below RMB 16,000/mt.
SHFE aluminum prices are more likely to fall below RMB 16,000/mt as prices have been below average cost prices. Balanced spot market supply and demand, as well as falling spot aluminum inventories, may provide some support for spot aluminum prices, but still high inventories will continue to weigh down spot prices. In general, spot aluminum prices will unlikely rebound in the short term, with prices expected to move between RMB 15,900-16,000/mt in the coming week.
SHFE lead prices, influenced by LME lead prices, continued to fall and touched a low of RMB 15,500/mt last week, down 1.98% from RMB 16,000/mt on Monday. SHFE lead prices were relatively resilient, however, compared to the 5.68% drop in LME lead prices. SHFE lead prices are expected to move between RMB 15,550-15,850/mt this week.
In China’s domestic spot markets, spot prices were also resilient, falling only slightly to RMB 15,670-15,750/mt, down from RMB 15,800-15,900/mt early last week. Discounts narrowed from RMB 20-100/mt to RMB 0/mt, and even turned to premiums against the most active SHFE lead contract price. Early last week, smelters were selling goods normally, but downstream buyers were only buying on an as-needed basis. In mid-week, lead-acid battery producers were more willing to buy as lead prices fell, but found little selling interest from smelters. This week, with the month’s end, smelters will be more willing to sell goods to generate cash flows. However, smelters may still limit sales if lead prices are unacceptably low. With the approach of the Qingming Festival holiday in China (2-4 April), downstream enterprises will build raw material stocks for production. Spot prices in the coming week should be between RMB 15,650-15,850/mt, with premiums over SHFE lead prices between RMB 20-100/mt.
Last week, SHFE three-month zinc contract prices were affected by both LME zinc prices and a weak Shanghai Composite Index, fluctuating between RMB 15,800-16,000/mt early in the week. On Thursday, SHFE three-month zinc contract prices fell below the 60-day moving average due to worse-than-expected PMI data from HSBC.
Despite the fact that SHFE zinc prices continued to fall, spot prices were stable between RMB 15,400-15,500/mt, and with discounts narrowing from RMB 300-350/mt early in the week, to RMB 220-230/mt. Arbitragers held goods with unfavorable discounts early in the week, and downstream buyers only purchased on an as-needed basis. Transactions improved due to dip-buying as discounts narrowed after declines in SHFE zinc prices.
Last week, spot inventories in East China grew by 10,000 mt to 486,400 mt, inventories in South China fell 3,100 mt to 128,000 mt, and inventories in North China remained unchanged at 19,000 mt. No zinc smelters in Guangxi have restarted production yet, causing inventories in South China to fall further. Spot discounts on the LME market remained low between USD 7-16/mt, allowing LME inventories to surge to 890,000 mt.
Spot tin prices dropped below RMB 170,000/mt last week in Shanghai as LME tin prices continued to slip. The selling interest was strong but buying interest gradually cooled in the face of continually falling prices, leading to light trading. Deals at high-end prices were thin throughout the week. As the bearish market sentiment spreads, which is fueled by a slowing Chinese economy and weak performance in the euro zone, and as demand stays weak, SMM expects the metal to shed more losses and trade between RMB 167,000-168,000/mt this coming week.
In China’s spot nickel market, Jinchuan Group cut ex-works nickel prices on Monday by RMB 3,000/mt, to RMB 135,000/mt. Last Friday, Jinchuan Group cut ex-works nickel prices again by RMB 3,000/mt, to RMB 132,000/mt, narrowing price spread between Jinchuan and Russian nickel to around RMB 1,000/mt. As of last Thursday, the average weekly nickel price was RMB 134,700/mt, down RMB 2,300/mt from a week earlier. Last week’s transactions for spot nickel were limited given LME nickel price declines and sluggish downstream demand.
Supply of nickel will be tight as producers are unwilling to sell following price cuts last week by Jinchuan Group, and this limited supply will help support spot nickel prices. However, considering weak momentum of LME nickel prices, SMM expects spot nickel prices will track LME nickel prices and move within the RMB 132,000-136,000/mt range in the coming week.