SHANGHAI, May 14 (SMM) –
The Shanghai Composite Index retreated to near 2,400, causing SHFE copper prices to lose support at all moving averages. Nevertheless, last Friday afternoon, trading volumes and positions for SHFE copper grew by 1.6 million lots and 32,256 lots, respectively, but with increasingly divergent views from long and short investors. Since SHFE near-term copper contract prices were higher than forward contract prices, speculative activity increased. Investors generally chose to sell at the highs, but buying at the lows also increased. SHFE copper prices moved between RMB 57,200-58,000/mt during the week, gaining support at RMB 57,000/mt several times, which helped marginally improve the SHFE/LME copper price ratio.
In spot markets last week, hedged copper came into markets as SHFE copper prices fell, helping increasing spot copper supply. Spot copper premiums were restricted between RMB 20-100/mt, while traded prices stabilized between RMB 57,500-58,000/mt. Traders chose opportunities to enter markets, while downstream producers purchased on an as-needed basis given the lack of clear market trends. Markets were dominated by cautious sentiment.
Since SHFE near-term copper contract prices are higher than forward contract prices, more investors are buying spot copper and selling copper futures contracts, which will restrict any upward movement in SHFE copper prices in the coming week. Mainstream premiums for spot copper should be between RMB 0-100/mt.
Due to weakness in the macro economy, the most active SHFE aluminum contract erased the previous week's gains and fell below RMB 16,100/mt last week. SMM aluminum prices fell from RMB 16,180/mt to RMB 16,060/mt. Current bearish market sentiment was strong, with demand weak and traders unwilling to sell at low-end prices. Supply at low-end prices was still available, however, from traders facing tight cash flows. The trading band held steady at RMB 20/mt, while spot discounts virtually disappeared as the delivery date neared. Premiums were rare since supply was sufficient and trading was light. Even superior quality ingots commanded only RMB 10/mt in premium. The light metal is expected to test support at RMB 16,100/mt as heavy losses is unlikely given operation losses of aluminum smelters.
In China's domestic spot markets, discounts against SHFE three-month zinc contract prices narrowed from RMB 160-170/mt early in the week to RMB 100-120/mt, and with spot prices between RMB 15,200-15,300/mt. Since zinc prices were low, downstream buying interest improved. However since smelters were holding goods, goods supply was insufficient. As discounts narrowed with falling zinc prices, some traders took advantage of arbitrage opportunities.
Last week, spot inventories did not change significantly. Spot inventories in East China grew 3,000 mt to 480,400 mt. Inventories in South China fell 8,200 mt, to 92,300 mt, while inventories in North China remained unchanged at 16,000 mt. As the third Wednesday of the month nears, LME zinc inventories surged to a high 930,000 mt, an indication consumption remains weak.
Last week, SHFE lead prices, influenced by LME lead prices and falling domestic stock markets, fell to between RMB 15,600-15,710/mt. This week, SHFE lead prices are expected to be between RMB 15,600-15,850/mt.
Last week, China's domestic spot markets were quiet, with spot discounts narrowing from RMB 100/mt to RMB 50/mt. Dealers were actively depleting stocks, but transactions were limited due to weak demand. Some lead-acid battery producers even began selling existing lead ingot stocks since these raw materials were not used up fulfilling long-term battery contracts. Large amounts of lead from the Gejiu region also flowed into the Shanghai market, lowering prices for lead from Gejiu to RMB 15,400/mt. This week, soft demand in China's spot markets will not likely improve in the short term since battery manufacturers are now in seasonal low-demand period. Spot prices should be between RMB 15,500-15,700/mt with discounts over SHFE lead price expanding.
Last week, market confidence was severely depressed by the falling LME tin prices, with spot prices in Shanghai tin market falling to RMB 157,500-161,000/mt Friday, down from RMB 162,000-164,500/mt early last week. Trading was even lighter in the market. Some enterprises were reluctant to move goods due to remaining high costs, but others were willing to sell due to cash needs. Dealers were cautiously replenishing stocks, and buying interest at enterprises downstream was low. Since demand remained sluggish, limited goods supply failed to give any support to tin prices. In this context, tin market will not likely improve in the near term.
On Friday, the average spot nickel price was RMB 129,410/mt, down RMB 706.7/mt from a week ago. Jinchuan Group cut nickel prices on Wednesday by RMB 3,000/mt, to RMB 130,000/mt, but this price cut did not significantly affect spot prices. Quotes inched down as LME nickel prices fell, but overall transactions remained quiet.