SMM Weekly Review and Forecast (Apr. 30-May 4)

SHANGHAI, Apr. 28 (SMM) -- Investor focus was put on the Fed interest rate meeting this week. Fed’s decision to keep low interest rates and expectation of faster economic recovery helped US stocks gain and drove down the US dollar, which in turn fostered a rebound in base metals. The SMMI gained 0.98%. Nickel and copper led gains by base metals, with SMMI.Ni jumping 1.84% and SMMI.Cu adding 1.22%.

Copper

The Shanghai Composite Index met resistance at 2,400 and SHFE copper prices had less upward momentum compared with LME copper, despite higher low-end prices and solid support at RMB 57,500/mt. SHFE copper prices rose to a high of RMB 58,650/mt, but still met strong resistance at the 20-day moving average. SHFE 1208 copper contracts became the most actively-traded copper contracts during the week, but since there was virtually no price difference among all SHFE copper contracts, little speculative activity and low trading volumes were reported. 

In spot markets last week, the SHFE/LME copper price ratio continued to fall, increasing losses for imported copper. In response, cargo-holders of imported copper cut sale volumes. Both suppliers and buyers were restricted by month-end cash flow problems. Spot copper discounts expanded as SHFE copper prices rebounded. However, speculative activity was low since there was virtually no price difference among SHFE copper contracts. Downstream producers chose to replenish stocks at price lows early last week, but turned cautious as the week progressed, keeping overall market transactions low.

In the coming week, if LME copper prices continue to move higher, SHFE copper prices will break through the 20-day moving average and test a high-end price of RMB 59,500/mt.

Aluminum

The most active SHFE aluminum contract climbed from RMB 16,050/mt to as high as RMB 16,200/mt and led gains by all base metals early in the week. Resistance turned strong at the RMB 16,200/mt mark as the coming May Day holiday and weak demand weighed. Whether it can break through the mark has yet to be decided by LME aluminum performance following the holiday.

SHFE aluminum futures rose steadily in the last trading week before China’s May Day holiday. Spot aluminum was stable above RMB 16,000/mt on expectations of pre-holiday stock replenishments. Gains in aluminum spot prices lagged gains by SHFE aluminum futures as traders sold stocks at the month’s end and since stock replenishing demand did not materialize as expected. As a result, spot discounts over current-month SHFE aluminum contracts expanded to RMB 40/mt, and trading remained light.

The most active SHFE aluminum contract should continue to test RMB 16,100/mt, while spot aluminum prices will stabilize above RMB 16,000/mt on increased demand for stock replenishing post-holiday. Resistance to higher prices will be strong, limiting any price increases, but trading volumes are expected to climb slightly.

Lead

Last week, Low-end SHFE prices edged up slightly, but lacked strong upward momentum. SHFE 1207 lead contract became the most actively traded contract last week. With only three trading days in coming week due to the May Day holiday, SHFE 1207 lead contract prices should move between RMB 15,650-15,850/mt.

Lead prices in domestic spot markets were weak last week due to soft demand from lead-acid battery producers. Stock replenishment was limited despite the upcoming May Day holiday. Smelters maintained normal sales with traded prices mainly between RMB 15,550-15,700/mt. In the coming week, lead prices may move narrowly since downstream buyers will only purchase on an as-needed basis due to sluggish orders. Post-holiday consumption will not likely improve and major enterprises are expected to purchase directly from smelters. Transactions between dealers should also be limited due to narrowing profits, with traded prices expected between RMB 15,550-15,750/mt.

Zinc

Due to end-of-month cash flow problems, downstream buyers were unable to build stocks. Smelters were holding goods, causing market supply to tighten. Arbitragers also sold out goods, so spot discounts remained between RMB 150-170/mt, and with spot prices struggling between RMB 15,250-15,400/mt.

Last week, spot inventories continued to fall since smelters in Guangxi province did not supply any goods despite restarting production. Inventories in East China fell 5,000 mt, to 476,400 mt, but inventories in South China fell sharply by 7,200 mt, to 100,300 mt. Inventories in North China remained unchanged at 15,000 mt.

Tin

Spot prices in Shanghai tin market kept falling early last week and rallied slightly last Friday with traded prices tending to stabilize. Goods circulating in the market were limited due to low selling interest early in the week, but with imported tin quoted lower last Thursday, smelters were more willing to move goods. Jinlong and Kaiyuan were once quoted as low as RMB 163,000/mt. On Friday, LME tin prices continued the upward trend, easing bearish moods in the market, and mainstream traded prices maintained within the RMB 163,500-165,500/mt. Replenishments downstream were sparse ahead of the May Day holiday, and transactions did not improve.

Nickel

Last Friday, Jinchuan Group raised nickel ex-work prices to RMB 133,000/mt, up RMB 3,000/mt, while the average spot nickel price on Friday was RMB 130,740/mt, also up by RMB 500/mt from a week ago. LME nickel prices fluctuated in a narrow range, but spot nickel prices were virtually unchanged. Mainstream traded prices rose following the price adjustment by Jinchuan, and the Shanghai/LME nickel price ratio increased significantly, allowing profit margins and boosting demand for Russian nickel.