SMM Weekly Review and Forecast (May 21-25)

SHANGHAI, May 28 (SMM) -- The debate on Greece’s exit from the euro zone heated and EU leaders failed to present any progress on the Wednesday summit, leading to more risk aversion to drive the US dollar index above 82, a new high since September 2010. Position openings of gold and crude dropped. Chinese base metals have showed resilience, strong short selling still led to a 0.38% drop in the SMMI. SMMI.Zn dropped the most 1.35% and SMMI.Sn climbed further by a slight 0.16%.

Copper

Chinese Premier Wen Jiabao stressed the priority of the government would be to maintaining growth, helping Chinese stock markets stabilize. SHFE copper showed strong resilience and helped the SHFE/LME copper price ratio rise. However, growing selling pressures later in the week at around RMB 56,000/mt caused SHFE copper prices to fall back to a low of RMB 54,550/mt. Trading volumes for the most active SHFE 1209 copper contract grew by 925,000 lots, while positions increased by around 70,000 lots. The price gap between near-term and forward copper contracts remained above RMB 600/mt as markets generally sold forward copper contracts.   

In spot markets over the past week, price quotes from cargo-holders fell after initially rising. Spot copper premiums were as high as RMB 300-320/mt earlier in the week, with cargo-holders expressing a reluctance to move goods. However, as copper prices retreated further, some traders were more eager to sell to generate cash, causing spot copper premiums to shrink. As the SHFE/LME copper price ratio rose to around 7.25, imported copper volumes also grew into slight market surpluses. Downstream producers stayed out of the market after heavy purchasing at lower prices the previous week.

With weak support at RMB 55,000/mt and growing bearish sentiment, SHFE copper prices will likely fall to RMB 54,000/mt and remain below the 5-day moving average in the coming week.

Aluminum

Due to losses in LME aluminum prices, the most active SHFE aluminum gapped lower for successive trading days and lacked the momentum to rebound. However, short selling weakened after it dipped below RMB 16,000/mt. The contract struggled near RMB 15,950/mt and the contract for September delivery became the most actively traded one. Domestic aluminum consumption was sluggish and price difference between near term contract also narrowed to none. All these contracts were pressured below RMB 16,000/mt. The market sentiment was cautiously bearish. Its resilience helped the SHFE/LME aluminum price ratio breaking through 7.9. Aluminum premiums at port have climbed to RMB 140/mt, limiting import profits for the near term. Domestic supply has not seen any impact from this.

Spot aluminum prices dropped all the way last week in East China to as low as RMB 15,930/mt, due to the prevailing bearishness and liquidating by some goods holders at the month’s end. There were also goods holders cutting supply after prices slipped, though, narrowing discounts and even quoting at slight premiums. Most downstream buyers stood on the sidelines, even after prices dropped. Supply had been sufficient and the traded volume was quite thin.

Lead

Last week, SHFE lead prices, heavily influenced by LME lead prices, moved narrowly between RMB 15,000-15,250/mt, but with strong support at RMB 15,000/mt. SHFE lead prices are expected to be RMB 15,000-15,250/mt.

In China’s domestic spot markets, transactions were limited last week and spot lead prices moved mainly between RMB 15,150-15,300/mt, with premiums over the most active SHFE lead contract price expanding from RMB 50/mt to RMB 150/mt. Some smelters, however, were reluctant to move goods and downstream buyers were unwilling to purchase due to poor downstream orders. China’s domestic spot markets will not likely improve given continuous declines in SHFE lead prices and soft demand. Both smelters and dealers are unwilling to sell goods, so spot prices should move between RMB 15,150-15,300/mt this week.

Zinc

SHFE zinc prices struggled between RMB 14,800-15,000/mt on Monday, but dipped below the 5-day moving average on Wednesday in response to a falling Shanghai Composite Index. On Thursday, SHFE zinc prices opened lower and hit a record low of RMB 14,620/mt, later fluctuating between RMB 14,600-14,650/mt due to the disappointing HSBC PMI report.

In domestic spot markets, spot discounts against SHFE three-month zinc contract prices narrowed to RMB 60-80/mt, but later further contracted to RMB 30-50/mt, with spot prices firm between RMB 14,600-14,800/mt. Smelters were holding goods, keeping market supply tight. Some traders have gone so far as releasing warehouse warrants instead of spot goods, while those cargo holders which bought at lower prices were unwilling to sell, keeping spot supply tight as well. As zinc prices continued to fall, downstream buying interest waned.

Tin

Last week, traded prices in Shanghai tin market stabilized boosted by the rallying LME tin prices, leaving few goods quoted at low prices. Mainstream traded prices in Shanghai tin market were between RMB 154,500-155,500/mt last Friday. Transactions improved early last week since downstream buyers replenished stocks when tin prices tended to stabilize. However, the continuous increase in tin prices resurrected wait-and-see sentiment in the market and left transactions muted. Smelters in Jiangxi province were generally unwilling to move goods, so low price goods were rarely seen in the market. Meanwhile, consumption downstream remained soft, dampening upward movement of tin prices.

Nickel

At last Friday’s closing, the average spot nickel price was RMB 122,950/mt, down RMB 890/mt. Spot prices remained steady, however, allowing downstream buyers to purchase at lower prices. However, since traders were unwilling to sell goods, overall transactions did not improve.