SMM Weekly Review and Forecast (Apr. 9-13)

SHANGHAI, Apr. 16 (SMM) – the US non-farm employment for March was far below market expectations, depressing market confidence over the US economic recovery. On the other hand, the lingering European debt issues, and the rising yields for Spain and Italy’s bonds auctions added to debt pressures. In addition, China’s CPI for March rose higher than market expected, dashing market expectations over the introduction of a monetary easing in the short term. Meanwhile, China’s 1Q trade growth was disappointing. Declines in both domestic demand and exports triggered market worries over demand outlook. Dented by these concerns, metal prices dropped below the prior price range over this past week. Within the week, SMMI was down by 1.18%, with SMMI.Cu leading the declines, down as much as 2.22%. Tin price losses were only second to copper, down 1.03%. Lead and zinc prices, however, were slow to drop, and rebounded in late week, up by 0.32% and 0.66%, respectively.

Copper
SHFE copper prices tracked losses in LME copper prices, and broke out of the price band in place since mid-February, moving away from all moving averages. However, a rally of nearly 2% in the Shanghai Composite Index helped SHFE copper prices hold steady at RMB 58,000/mt and show more resilience than LME copper, with a drop of 3.6% for the week. As a result, the SHFE/LME copper price ratio improved slightly. The struggle between long and short investors became severe at RMB 58,000/mt, causing total trading volumes for SHFE copper contracts to increase by nearly 1.4 million lots and positions to increase by over 50,000 lots.

In spot markets last week, copper traded at premiums as SHFE copper prices fell sharply and as the delivery day for SHFE current-month copper contracts neared. However, hedged copper entered markets as copper prices fell, limiting the size of copper premiums. Downstream producers bought aggressively at prices below RMB 58,000/mt, but speculative interest weakened as premiums firmed, causing market surpluses.

In the coming week, SHFE copper prices will try to hold at RMB 58,000/mt and advance to the 10-day moving average of RMB 59,400/mt. In spot markets, copper premiums will turn to discounts after the delivery day for SHFE current-month copper contracts on April 16th. However, overall supply will still exceed demand. 
 
Aluminum
SHFE three-month aluminum contract prices fell continuously early last week, with prices falling to  RMB 16,100/mt on Wednesday. The entrance of long investors helped SHFE three-month aluminum contract prices reverse previous losses later in the week, but prices still lacked momentum to break through RMB 16,200/mt. Spot discounts narrowed and even changed to slight premiums in East China as the delivery date neared. Downstream consumers still purchased on an as-needed basis, dragging down spot aluminum prices below RMB 16,000/mt. Spot aluminum prices lacked upward momentum to return above RMB 16,000/mt in the face of aggressive selling by cargo-holders, as well as from soft downstream buying interest.

SMM expects SHFE three-month aluminum contract prices will move narrowly around RMB 16,200/mt in the coming week. Tuesday will be the delivery date of SHFE current-month aluminum contracts. Spot discounts should be near RMB 50/mt despite weak consumption, as spot aluminum prices move around RMB 16,000/mt.

Lead
Last week, SHFE lead prices, influenced by falling LME copper prices, fell to a low of RMB 15,420/mt in mid-week, but showed resilience to declines and mainly moved between RMB 15,500-15,650/mt during the remainder of the week. This week, SHFE lead prices are expected to move between RMB 15,500-15,800/mt.

Spot lead prices in China’s domestic markets fell below RMB 15,600/mt last Wednesday, depressing smelter selling interest, while downstream buyers purchased only moderately at lower prices. During the remainder of the week, spot prices remained between RMB 15,600-15,730/mt, with most downstream buyers only purchasing based on production, leaving transactions muted. This week, spot lead prices should remain between RMB 15,550-15,750/mt with relatively strong resilience, but with light trading due to limited orders at downstream enterprises in the low-demand season.

Zinc
With the LME market closed, SHFE zinc prices gained momentum and opened at the 10-day moving average on Monday, even briefly touching RMB 15,780/mt. However, as shorts sold off goods, SHFE zinc prices gave back intraday gains. Dragged down by lower overnight LME zinc prices, SHFE zinc prices opened lower on Wednesday, but resisted further declines as buyers entered the market. Boosted by a rising Shanghai Composite Index, SHFE three-month zinc contract prices rallied to RMB 15,500/mt last Thursday.

In domestic spot markets, discounts against SHFE three-month zinc contract prices were above RMB 300/mt early in the week, but fell to as low as RMB 180/mt as SHFE zinc prices fell near RMB 15,200/mt. Goods available in the market were modest ahead of the delivery date, so some traders purchased at lower prices.
 
In this coming week, SHFE zinc prices should also move between RMB 15,200-15,800/mt, with spot discounts of RMB 200-400/mt against SHFE three-month zinc contract prices. 
 
Tin
Spot tin prices dropped to RMB 166,500-169,000/mt last Friday in Shanghai, compared with RMB 168,500-170,000/mt a week earlier, as traders lowered quotations to lure buying. Smelters reduced supply with high production costs caused by staying high tin ore prices. Though spot tin prices dropped continually, buying stayed weak in the face of weak demand, except a slight pick up on Thursday at low-end prices. Both buying and selling are depressed at the moment, waiting for a direction from the news side.

Nickel
Jinchuan Group raised ex-works nickel prices on Friday by RMB 2,000/mt, to RMB 134,000/mt. As of last Friday, the average weekly nickel price in Shanghai’s nickel spot market was RMB 131,442.9/mt, up RMB 6.9/mt from a week earlier. LME nickel prices moved higher following the Qingming Festival, helping drive up domestic spot prices, but higher spot prices still failed to boost trading volumes. Although downstream consumers showed strong buying interest as prices rose, traders were more optimistic toward future nickel prices and held back goods, keeping trading activity quiet.

Firm domestic nickel ore prices and steady declines in stainless steel prices are exacerbating the already poor profitability at stainless steel mills, while a weak property sector in China is also dampening demand for stainless steel. Both factors may erode demand for refined nickel, thus weighing down domestic nickel prices. SMM predicts spot nickel prices will continue to move around RMB 134,000/mt in the coming week.