SHANGHAI, Apr. 10 (SMM) --
Copper
The most actively-traded SHFE 1207 copper contract opened RMB 90/mt higher at RMB 60,160/mt Monday. China’s National Bureau of Statistics (NBS) in the morning announced that China’s Consumer Price Index (CPI) for March rose by 3.6% YoY, while Producer Price Index (PPI) fell by 0.3% YoY, compelling SHFE copper prices to slide rapidly. But as some long investors entered the market, SHFE copper prices were pushed up to levels above the daily moving average and basically fluctuated narrowly around RMB 60,200/mt in the afternoon trading. At the tail of trading, Chinese stock markets fell from previous highs, and positions were closed in large quantities, which led SHFE copper prices to lose the RMB 60,000/mt point before sink to an intraday low at RMB 59,810/mt. Finally, SHFE 1207 copper contract prices ended RMB 230/mt or 0.38% lower at RMB 59,840/mt. Positions and trading volumes for 1207 copper contracts increased by 4,250 lots and 38,188 lots, respectively. Long and short investors continued to struggle at the RMB 60,000/mt mark during the day, but SHFE copper prices failed to break resistance at RMB 60,400/mt, the 20-day moving average. Besides, LME copper market would resume trading Tuesday, so short term speculators kept cautious at the tail of trading. Hence, SHFE copper prices were likely to lurch near current levels over the near term.

The NBS announced China’s CPI rose in March from the previous month, leading SHFE copper prices to fall rapidly. Hence, market activity was active at lower copper price levels in spot copper markets. Nevertheless, as copper prices rallied from the lows, copper consumption was restricted again. Due to a lack of guidance from LME copper prices, cargo-holders opted to move goods in limited quantities, helping copper discounts narrow further to between negative RMB 50-0/mt. Traded prices for standard-quality copper were between RMB 59,380-59,550/mt during the day, and RMB 59,420-59,600/mt for high-quality copper. Cargo-holders of high-quality copper insisted on offers around discounts of negative RMB 0/mt, which caused its price gap with standard-quality copper to become relatively small. Most downstream producers generally took a wait-and-see stance during the first trading day of this week, keeping overall market transactions limited. 

Will copper prices keep current trading range this week?

According the latest SMM survey, 20% of market insiders are pessimistic about the outlook, believing LME copper prices will retreat to USD 8,300/mt and SHFE copper prices will fall to between RMB 59,000-59,500/mt. Although the euro zone has announced to raise the maximum loan offered by ESM and EFSF from EUR 500 to EUR 700 billion, Spanish bond yields soared to the highest since November 30th last year, which at the same time drove up the cost of French banks issuing government bonds. This means uncertainties in the European debt crisis are resurfacing, sending the euro on a downward track, which will weigh on commodity markets. The latest US nonfarm payrolls only added 120,000, only half of February level and also well below market expectations of 203,000, and the smallest increase since October 2011. The Dow Jones Industrial Average is likely to fall further after sliding below the 30-day moving average, which will drag the financial market down, while the US dollar is trying to stabilize at 80. China’s CPI for March rebounded from the prior month, and markets are more pessimistic about March trade data and annual rate of 1Q GDP, which will cap commodity demand and negatively affect the global economy. LME copper warrants increased by 9,150 mt during the Qingming Festival holiday period, meaning that the falling trend for cancelled warrants slowed. From CFTC reports, net positions for Comex copper were only 9,529 lots as of April 3rd, and fund managers changed their optimistic sentiment towards future copper prices. Technically, LME copper prices have fallen below all moving averages with technical indicators pointing downside. Hence, these insiders expect copper prices to fall this week.

50% of market insiders contacted by SMM predict copper prices will continue to fluctuate this week, with LME copper prices expected around USD 8,450/mt and SHFE copper prices between RMB 60,000-60,500/mt. The SHFE/LME copper price ratio remains low, which has caused more than RMB 3,000/mt losses for copper importers. Some speculators have begun to conduct the operation of “buying SHFE copper but selling LME copper”, forming a false image that copper supply is tight. Against this backdrop, copper markets are unlikely to adjust significantly over the near term. Crude oil prices have recently lurched at high levels with strong support near USD 100 per barrel. As of April 3rd, more than half of domestic listed companies released their annual reports for 2011, which showed net profits fell by 27% YoY for some companies. Net profits for China’s state-owned companies also slid by 19% YoY for the first two months of 2012, and the drop was higher than market expected. In this context, Chinese stock markets will unlikely to rebound further but continue to struggle around 2,300. In Chinese spot markets, despite sluggish copper consumption during the traditional peak demand period, buying is active below RMB 59,000/mt, injecting confidence into markets. Therefore, these insiders hold the view copper prices will continue to fluctuate this week.  

The remaining 30% of market insiders are optimistic, expecting LME and SHFE copper prices will rebound to USD 8,500/mt and RMB 60,500/mt, respectively. This Friday will be the last trading day for SHFE current-month copper contracts, so cargo-holders will gradually quote prices at premiums. Besides, improvement in downstream consumption will also support premiums. As such, copper prices will hopefully exhibit strong performance this week.

Aluminum
The most active SHFE aluminum contract for June delivery opened higher at RMB 16,200/mt but failed to retain much gains on Monday as CPI of March triggered inflation worries. The contract finally closed up RMB 25/mt or 0.15% at RMB 16,170/mt after only 3,646 lots of contract were transacted. While climbing oil prices and reduced output provide support, weak demand will limit the space for rebound. SMM expects the most active contract to test support at the 5-day moving average in the near term while resistance is strong at the RMB 16,200/mt mark.

Spot aluminum traded between RMB 16,000-16,030/mt in Shanghai, at discounts of RMB 20/mt to premiums of RMB 10/mt over the SHFE current-month aluminum price. Though SHFE aluminum futures have been facing resistance, spot quotations were held above RMB 16,000/mt amid reports of output cuts by some producers. Downstream only bought cheap goods in small volumes but many bullish middlemen replenished stocks at low-end prices. The slight rebound of SHFE aluminum have pushed up mainstream traded prices a little bit, the overall traded volume stayed limited, though.

In a latest SMM survey on aluminum price trends, 10 of the 42 aluminum traders expect gains. Their optimism comes from slower inventory growth as a result of increased demand and producers’ low selling interest, strong bottom support found by the current-month SHFE aluminum contract. These traders expect spot aluminum prices to consolidate support at RMB 16,000/mt and premiums over the current-month SHFE aluminum price to expand.

28 traders covered said aluminum prices will continue to struggle at the RMB 16,000/mt mark as the current-month aluminum contract still has not broken through the present moving band, supply and demand have been relatively balanced and demand has been picking up in a slow pace. Technical factors like capital and total positions also indicate low possibility of wide fluctuation.

Remaining 4 traders have been expecting losses, saying stable SHFE aluminum prices indicate market recognition of stability, weak exports mean downstream demand will stay sluggish and a not optimistic macroeconomic environment signals a possible break through of aluminum inventories to above 900,000 mt when material output cuts are still absent.

Lead
As the US non-farm payrolls released last week turned out mixed, SHFE lead prices, without directions from LME lead prices, opened at RMB 15,645/mt on Monday. Later, China’s CPI growth for March was reported at 3.6%, indicating China would still be under great inflation pressures. As a result, SHFE lead prices hovered around the opening price, but found buying support at RMB 15,650/mt at midday to climbed to a high of RMB 15,720/mt. In the afternoon, prices fell and closed the day down RMB 100/mt to RMB 15,580/mt. Trading volumes decreased by 38 lots to 228 lots and positions remained little changed at 2,558 lots.

In domestic spot markets, quotations for Chihong Zn & Ge and Nanfang were between RMB 15,670-15,700/mt, and Shenqian was quoted at RMB 15,650/mt.With SHFE lead prices moving up, average lead price rose by RMB 30-50/mt. In the afternoon, SHFE lead prices returned to weak trends, and spot prices maintained in the RMB 15,670-15,730/mt range. Downstream buyers still purchased on an as-needed basis and mainly made inquiries, leaving transactions muted.

With respect to lead prices this week, 53% industry insiders are cautious, believing spot lead prices in China’s domestic markets will be between RMB 15,700-15,850/mt. On one hand, most investors hold a wait-and-see attitude towards market outlook with uncertainty in macro economic conditions, so lead prices will not likely rise before release of any directive news. On the other, sluggish consumption downstream in domestic spot markets and the remaining high costs at smelters offer certain support to lead prices. As such, lead prices are expected to maintain stable this week.

The rest 47% are relatively optimistic, holding that domestic spot prices should move up to RMB 15,700-15,850/mt with LME lead prices hitting the USD 2,100/mt mark. The expansion of spot premiums over LME lead prices gave certain support to LME lead prices, and Chinese domestic stock markets also showed notable rebounds to hovered around 2300 points. In addition, smelters were not willing to move goods at lower prices due to high cost, supporting low-end lead prices. However, increases in lead prices will be constrained by weak demand this week.

Zinc
SHFE three-month zinc contract prices opened slightly higher at RMB 15,750/mt on Monday in the absence of direction from LME zinc market, but later fell rapidly to the daily moving average due to higher Chinese CPI growth in March, with prices generally moving between RMB 15,600-15,650/mt. As SHFE copper prices rebounded strongly in the midday, SHFE three-month zinc contract prices climbed to hit RMB 15,780/mt given the entrance of long investors and strong short selling pressures at the 20-day moving average, with prices mostly hovering between RMB 15,700-15,750/mt in the afternoon session. SHFE three-month zinc contract prices gradually lost previous gains at the end of trading, with prices finally closing at RMB 15,635/mt, up RMB 95/mt. Trading volumes increased by nearly 40,000 lots to 211,916 lots, while positions decreased by 6,462 lots to 171,476 lots.  

In the spot market, #0 zinc was traded between RMB 15,250-15,300/mt at discounts between RMB 300-320/mt against SHFE three-month zinc contract prices. As SHFE zinc prices climbed, spot discounts expanded gradually to RMB 320-350/mt, and traded prices even rose to RMB 15,400-15,450/mt, but deals at the high end prices were very limited. #1 zinc was traded between RMB 15,200-15,250/mt, and no deals of #1 zinc were heard after SHFE zinc prices edged higher. 

With regard to zinc price trends this week, 50% market players believe SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt. slower recovery of manufacturing industries caused concerns of investors, and unemployment rate in euro zone rose slightly, while Spanish government bond yields were higher. US non-farm employment rate was disappointing, and China’s CPI rose in March, causing the US dollar index to rebound to 80. LME zinc prices meet resistance at USD 2,030/mt, and will allow domestic smelters to place orders below USD 2,000/mt. LME zinc prices are expected to move between USD 2,000-2,020/mt. domestic cash flow problems eased in March, so smelters are not selling off goods at lower prices, giving support to spot prices, and downstream buying interest is high. As such, SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt, and spot discounts should be between RMB 300-350/mt.

30% believe SHFE three-month zinc contract prices should rally to RMB 15,700-15,900/mt. The US dollar index met resistance at 80, and will fall this week. LME zinc prices will find support at USD 2,000/mt due to strong demand from smelters. LME zinc prices should move between USD 2,020-2,050/mt. As Danxia Smelter is still closed, spot inventories fell, causing domestic supply surplus to ease, combined with smelters holding goods at lower prices, goods supply available in the market is not as sufficient as before. As such, SHFE three-month zinc contract prices should rally to RMB 15,700-15,900/mt, with spot discounts expanding to RMB 350-400/mt.

The remaining 10% believe SHFE three-month zinc contract prices should fall to RMB 15,200-15,500/mt. due to disappointing US non-farm employment data and impossibility of QE3, as well as worse-than-expected result of government bond auction in European countries, LME zinc prices should dip to USD 1,970-2,000/mt. China will not cut deposit reserve ratio in the near term as oil and consumer goods prices rose significantly, while market confidence is depressed due to weak downstream consumption. In this context, SHFE three-month zinc contract prices should fall to RMB 15,200-15,500/mt, with spot discounts narrowing to RMB 250-300/mt.

Tin
China’s domestic spot tin markets remained quiet on Monday, with mainstream traded prices between RMB 168,000-169,500/mt. Nanshan, Kaiyuan and Xiangxi were mainly traded between RMB 168,000-168,500/mt, while most transactions for Yunxi and Yunshan were concluded at RMB 169,000-169,500/mt, with a few goods traded lower at RMB 167,500/mt. Yunxi was also quoted at RMB 170,500/mt by a few sellers, but sparse transactions were made at the price. In general, traded prices varied since some sellers lowered prices to promote sales, which dragged down mainstream prices. Given insufficient goods supply in the market and low buying interest downstream, trading was light on Monday. Smelters were reluctant to sell at low prices due to huge pressure of raw material costs. Meanwhile, most downstream buyers stayed out of market as a result of fewer orders.

With respect to tin market outlook this week, 60% of market players believe spot tin prices should remain stable. LME tin prices gained certain support from the steady economic situation, but met resistance to rise. Besides, spot tin prices in China’s domestic markets were following a downtrend and were hard to rally, though support from high costs at smelters may limit decrease in price. On the other hand, smelters were unwilling to move goods at low prices due to high raw material cost, while demand from downstream enterprises remained soft on account of fewer orders. In this context, these market players expect sable movements of tin prices this week.

The remaining 40% hold that tin prices will fall slightly this week. As previous PMI data indicated slowdown in China’s manufacturing sector, production at end consumers in China’s tin markets is not likely to improve in near term considering the unfavorable economic conditions. As a result, the actual tin demand is bound to be negatively affected, combined with discouraged market sentiments in recent days, some investors consider tin prices will drop this week.

Nickel
The LME market was closed on Monday. In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were in the RMB 132,800-133,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 131,300-131,500/mt range. Market views were mixed. Some downstream consumers and traders replenished stocks in anticipation of higher prices, but some downstream consumers remained cautious toward purchases in the absence of direction from the LME nickel market. In general, transaction volumes grew slightly boosted by restocking activities, but demand remained weak.

According to a recent SMM survey, 40% of market players believe LME nickel prices will continue to rebound this week. Some traders believe transaction volumes of stainless steel will grow in April based on past experiences, and LME nickel prices will rise to USD 17,800/mt in response, with prices expected to test USD 18,500/mt.

30% of market players believe LME nickel prices will fall back after a brief rebound. Last week, the spread between the yields on Spanish 10-year government bonds and comparable German bonds was up 10 basis points, setting a record high since the end of November 2011 and spurring investor concerns that the Spanish government would be unable to reduce its budget deficit and could not consolidate its banking sector as well, which has affected Spanish debt issuance plans and caused markets to be concerned that Spain may seek for the bailout following Greece, Ireland and Portugal. In addition, US nonfarm payrolls were also disappointing. As a result, LME nickel prices lack upward momentum, and some traders even believe LME nickel prices may again test the previous low of USD 17,200/mt this week.

The remaining 30% believe LME nickel prices will continue to fluctuate this week, since the US economy is still recovering despite weaker-than-expected nonfarm payrolls.