SHANGHAI, May 3 (SMM) --
LME copper failed to increase to USD 8,500/mt and reported falling transaction volumes during the May Day holiday period. However, SHFE 1208 copper contract, the most active one, opened RMB 440/mt higher at RMB 58,910/mt Wednesday, but then suffered selling pressures from short investors before trending down towards as low as RMB 58,520/mt. Near the midday, long investors actively built new positions at the lows and pushed SHFE 1208 copper contract prices above moving averages. SHFE 1208 copper contract prices reached RMB 58,950/mt at the high-end in the afternoon, then hovered narrowly around RMB 58,800/mt, and finally ended RMB 310/mt or 0.53% higher at RMB 58,780/mt. Trading volumes and positions for SHFE 1208 copper contract increased by 39,640 lots and 11,156 lots, respectively, while both long and short investors kept cautious during the day. Despite strong support at the 20-day moving average, SHFE copper prices will face an uneven road to move higher on prevailing resistance.
SHFE copper prices moved lower after a high open, causing the SHFE/LME copper price ratio to slide further. Supply of imported copper continued to decrease as a consequence. Spot copper, especially domestic copper, thus held prices firm, and helped spot copper discounts narrow to negative RMB 80-20/mt in the morning business. Traded prices for standard-quality copper were between RMB 58,420-58,520/mt, and RMB 58,450-58,580/mt for high-quality copper. Copper futures prices lacked upside momentum during the first trading day following the May Day holiday, so markets kept generally cautious. Downstream producers were not seen to make stocks, largely taking a wait-and-see stance. Optimistic speculators were mainly market participants in the morning, keeping overall market transactions muted. In the afternoon session, SHFE copper prices surged, boosting optimistic investors, so market activity for high-quality copper that can be delivered was brisk. This led to a sharp drop in spot copper discounts, which even narrowed to negative RMB 0/mt. Traded prices rose to RMB 58,550-58,680/mt, but cargo-holders showed little interest in selling. Speculators were relatively active in buying in the afternoon, while downstream producers stuck to the sidelines.
With regard to copper price trends this week, SMM conducted a survey.
Based on the survey, 44% of market insiders are optimistic about the outlook, believing LME copper prices can increase to USD 8,300-8,500/mt and SHFE copper prices to hold onto RMB 58,500/mt before breaking through RMB 59,500/mt. The euro zone M3 money supply rose by 3.2% in March, which can help lift asset prices. The US manufacturing activity has expanded for 33 consecutive months, heightening market optimism towards market prospects in 2H 2012. Markets are also positive towards the US nonfarm payrolls for April to be announced this Friday. Three major US stock indexes all climbed this week, with the Dow Jones Industrial Average hitting a fresh high in nearly four years, driving up base metals prices. According to China Federation of Logistics & Purchasing (CFLP), China’s manufacturing PMI was 53.3 in April, a rally for the fifth straight month and also higher than the level in the same period last year. Investors thus believe China’s macroeconomy is heading towards a better direction. Last Friday, China’s four largest futures exchanges said they will cut handling fees for listed species by 12.5%-50% from June 1, which will likely boost market activity at domestic futures markets. China Securities Regulatory Commission (CSRC) has released positive signals to markets several times, so Chinese stock markets are likely to be boosted further and drive up commodity markets. SHFE copper prices will increase from technical indicators. Long investor activity in London is far from over as spot copper premiums there have reached as high as USD 115/mt. According to Reuters reports, large Chinese smelters and trading firms have reached consensus to step up copper shipments to the LME in the next two months, which can help adjust overseas copper supply. In Chinese domestic markets, spot copper prices hold firm, and market activity for high-quality copper is brisk. In this context, these insiders expect copper prices to move higher this week.
34% of the surveyed market insiders see copper prices moving around current values. The US economic data is mixed, and markets hold different views towards QE3 implementations as the US economy grows moderately. April’s unemployment rate is estimated to remain unchanged. The euro zone’s sluggish manufacturing data offsets positive economic figures in China and the US. The SHFE/LME copper price ratio continues to fall, resulting in a drop in imported copper supply. Investors therefore generally take a wait-and-see stance, leaving spot copper market activity muted. As such, these insiders anticipate LME copper prices will move between USD 8,250-8,320/mt this week, and that SHFE copper prices will lurch between RMB 58,000-58,500/mt.
The remaining 22% of contacted insiders are pessimistic about the outlook. The European debt crisis can erupt at any time while the region’s manufacturing data remains weak. The US dollar has rebounded strongly and will cap LME copper prices, which have retreated below the 5- and 60-day moving averages and lost upside impetus. Hence, LME copper prices will likely lower to test USD 8,250/mt this week. SHFE copper prices are facing great upward resistance, and investors keep cautious since there are only three trading days this week. Therefore, these insiders expect SHFE copper prices will drift lower to RMB 57,200-57,600/mt this week.
The most active SHFE aluminum contract for July delivery opened higher at RMB 16,200/mt and closed up RMB 125/mt or 0.77% at RMB 16,295/mt on Wednesday, following LME aluminum’s return above USD 2,100/mt and amid supportive polices that were launched during recent days. Positions of the contract dropped 2,284 lots to 61,710 lots as shorts cleared their positions. Positions of the August contract increased and may realize a shift of the most active contract today. SMM expects the most active SHFE aluminum contract to struggle at RMB 16,300/mt in the near term.
Spot aluminum climbed slightly to RMB 16,080-16,110/mt in Shanghai, but was still traded at discounts of RMB 0-30/mt over the current-month SHFE aluminum contract as demand stayed weak. Deals turned sparse after spot prices hit RMB 16,100/mt.
A 25% cut in stocks and futures trading charges in China announced during the May Day holiday, amid other supportive polices, and a slight and better-than-expected rebound of HSBC China PMI to 49.3 have fostered strong confidence in the market, with 75% of traders surveyed by SMM expecting higher aluminum prices this week while the remaining take a neutral view. However, as this week has only three trading days and in that spot aluminum still trades at discounts, the light metal won’t be able to add much.
SHFE lead prices opened higher at RMB 15,815/mt on Wednesday, the first trading day following the May Day holiday. China’s PMI was reported above expectations according to HSBC, but still below 50, so market players remained cautious. SHFE lead prices moved between RMB 15,900-15,950/mt and finally closed up RMB 135/mt to RMB 15,945/mt. Trading volumes were up 248 lots to 508 lots, and positions were up 12 lots to 1,416 lots.
In China’s domestic markets, quotations for Chihong Zn & Ge were initially at around RMB 15,850/mt, with discounts at RMB 50/mt against the most active SHFE lead prices. Later, the quotations were lowered to around RMB 15,800/mt due to limited transactions, with discounts against the most active SHFE lead prices expanding to RMB 100/mt. Shuangyan was quoted at RMB 15,750/mt. In the afternoon, spot prices still hovered around RMB 15,800/mt. However, trading remained weak, and buyers mainly made inquiries.
There are only three trading days this week due to the May Day holiday. With regard to lead price movements this week, 40% industry insiders are optimistic. US ISM Manufacturing PMI for April was reported above expectations and hit the highest level since June 2011, while China’s April PMI rose for the fifth month according to China Federation of Logistics & Purchasing, indicating that the China’s economy has continued to improve. Besides, LME lead inventories fell by 9,650 mt to 359,500 mt April 23 to May 1, combined with the relatively strong domestic stocks, spot prices are expected to be between RMB 15,700-15,850/mt.
The remaining 60% investors believe the increase in LME lead prices at present was due mainly to the temporary upward momentum from positive news considering the low-demand season, and the rise of SHFE lead prices were limited compared with LME lead prices. In addition, downstream lead-acid battery producers still only purchased on an as-needed basis at lower prices, the demand was not likely improve in short term. Thus, lead prices may not show notable increase this week with traded prices expected between RMB 15,600-15,700/mt.
On Wednesday, SHFE three-month zinc contract prices opened higher at RMB 15,710/mt and fluctuated around the moving average during the day. Despite SHFE three-month zinc contract prices once dipped to RMB 15,630/mt at a time, they rallied and finally closed at RMB 15,680/mt, up RMB 75/mt. Trading volumes increased by over 3,000 lots to 61,990 lots, and total position decreased by 12,812 lots to 147,328 lots. SHFE 1208 zinc contract became more actively traded, with positions increasing by 9,994 lots to 103,070 lots.
In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were between RMB 170-200/mt, with traded prices around RMB 15,500/mt. Traded prices fell to RMB 15,450/mt at noon whilst discounts remained unchanged. #1 zinc was traded around RMB 15,450/mt. Goods supply available in the market was tight as smelters have been holding goods and since imported zinc was consumed. Cargo holders were unwilling to sell goods at lower prices, while downstream buyers were also cautious, keeping transactions quiet.
During the Chinese May Day holiday, macro-economic news was mixed. Manufacturing PMI data in major economies was positive, but the recovery remains slow. The US dollar index slid below 79, helping support LME zinc prices, though.
According to SMM survey of price outlook this week, approximately 50% market players expect zinc prices to maintain its rising pace, and SHFE three-month zinc prices may move between RMB 15,700-15,800/mt. The mildly positive manufacturing PMI data in China and US has eased market worries over economy, helping LME zinc prices rise above all the moving averages, with a solid support at USD 2,000/mt. LME zinc prices may test USD 2,050/mt. In domestic markets, cash tightness at enterprises has eased after the month’s end. So, smelters are not in hurry in sales, and this will support spot prices. Coupled with the arrival of 2Q, downstream demand will improve further, which will also boost consumption. Technically, SHFE zinc prices remain on its upward track, and are expected to test RMB 15,800/mt. Spot discounts will remain RMB 180-220/mt this week, due to smelters’ unwillingness to move goods.
Around 40% market participants expect prices to drop this week after gains during the holiday period. LME zinc market moved higher during the Chinese May Day holiday, with prices climbing above all moving averages, but the resistance at the USD 2,050/mt mark is strong, and declines are technically available. Those market players believe that LME zinc prices will hover in the USD 2,020-2,050/mt range this week. In domestic markets, markets expected a cut in reserve requirement ratio by China’s central bank, but no action has been taken yet. Zinc prices will come under downward pressure, along with the absorption of positive news during the holiday period and the lack of further more favorable ones. In addition, the favorable SHFE/LME zinc price ratio in recent days has promoted zinc imports, and this will drag down spot prices. SMM expects SHFE three-month zinc prices to drop to RMB 15,500-15,600/mt, and with spot discounts between RMB 150-180/mt.
The rest 10% market players believe zinc prices will keep fluctuating this week. During the holiday period, the US dollar index fell back to 79, and may rebound. Meanwhile, market focus may be shifted to the European debt issues again after absorbing market positive news. Besides, LME zinc inventories are as high as 920,000 mt, another negative factor for zinc prices. Hence, LME zinc prices will return to around USD 2,000/mt, with prices hover between USD 2,000-2,020/mt. SHFE three-month zinc prices are expected to between RMB 15,400-15,500/mt, with spot discounts around RMB 120-150/mt.
In Shanghai tin market, low-end tin prices edged up Wednesday, and transactions were restricted by limited goods and strong wait-and-see moods. Mainstream traded prices were in the RMB 164,000-165,500/mt range, with Yunxi, Yunheng, and Yunxiang mainly traded between RMB 164,500-165,500/mt. Several of transactions for Nanshan were concluded at RMB 164,000/mt, while a few deals for Feiyan were made at RMB 163,500/mt. Imported tin from Indonesia was quoted at RMB 163,000/mt. Smelters were unwilling to move goods due to staying high costs, limiting goods circulation and helping support tin prices. Coupled with the rising LME tin prices during the May Day holiday, low-end prices in domestic tin market were driven up. However, high-end tin prices did not change significantly due to the sluggish consumption downstream. The price movements both at home and abroad added to cautious sentiment in the market, both dealers and downstream enterprises were not active in purchasing, leaving trading muted.
With respect to the price trends this week, 60% market players believe tin prices should remain stable. For one, LME tin prices rebounded last week but met resistance to rise further, so LME tin prices are expected to fluctuate this week. For another, domestic smelters, discouraged by current tin prices, limited their sales. Thus, fewer goods supply will give certain support to spot prices, while the weak demand is bound to weigh on tin prices. Therefore, tin prices should remain flat this week.
25% market players hold that tin prices will still likely decline. The reduced orders at SMEs downstream and the dampened demand caused by China’s economic slowdown, combined with the soft consumption in domestic tin prices, may result in decrease of spot tin prices if goods supply grows.
The remaining 15% believe tin prices may continue to rise. The stabilized economic situation and rally of LME tin prices raised market confidence. Meanwhile, the reported export restriction of Indonesia and low selling interest at smelters left sparse low-priced goods in the market. Thus, tin prices may move up slightly this week.
On Wednesday, mainstream traded prices of Jinchuan nickel were between RMB 132,000-132,200/mt in the morning session, while mainstream Russian nickel prices were between RMB 130,000-130,300/mt. Transactions were brisk as the market was building stocks following the May Day holiday, causing traders to raise their quotes. In the afternoon, , mainstream traded prices of Jinchuan nickel were between RMB 132,500-132,700/mt, and mainstream Russian nickel prices were between RMB 130,500-130,700/mt.
According to an SMM survey, 60% market players believe nickel prices should fall further in the short term due mainly to pallid demand. Demand for nickel will not improve in May as trading volumes did not increase, which is also reflected in growing inventories. Besides, eurozone PMI fell whilst employment rate in Italy and Germany rose, and US economic growth is still pessimistic despite positive PMI. In this context, the US dollar index rebounded, and those traders are pessimistic, believing nickel prices should not improve until September.
30% market players believe LME nickel prices should remain fluctuating this week. With other metals prices brisk, LME nickel prices continued to plummet during the May Day holiday, so they believe LME nickel prices should rebound this week.
Only 10% market players are optimistic, believing China’s positive PMI should bring opportunities to stainless steel enterprises. Nickel downstream demand should turn around in May, so prices are expected to rebound.