SMM Daily Review - 2012/5/28 Base Metals Market

SHANGHAI, May 29 (SMM) --

Copper

The most active SHFE copper contract for September delivery started RMB 430/mt higher at RMB 55,550/mt Monday. After the opening, as LME copper rallied above USD 7,700/mt after the US dollar fell below 82, the contract moved higher amid position closings. In the afternoon session, Chinese stock markets increased from the lows, which helped the contract break the resistance of RMB 56,000/mt before climbing to a high at RMB 56,260/mt. Finally, SHFE 1209 copper contract ended RMB 1,090/mt or 1.98% higher at RMB 56,210/mt, with trading volumes and positions decreasing by 16,698 lots and 18,898 lots, respectively. Positions for all SHFE copper contracts fell by around 30,000 lots. Both longs and shorts mainly conducted intraday operations as risks increased at the month-end.

SHFE copper prices trended higher after a high open, with a gain of over 1.5%, so cargo-holders in spot markets became more willing to move goods as March ends. As a consequence, spot copper premium quotes slid all the way to positive RMB 120-200/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 56,520-56,700/mt, and RMB 56,550-56,750/mt for high-quality copper. Downstream producers chose a wait-and-see stance during the first trading day of the week, still skeptical about a continuous copper price rebound, and also restricted by cash flow problems. Market activity was thus lackluster in the morning session. In the afternoon business, as SHFE copper continued to climb, offers for spot copper premiums narrowed further to positive RMB 120-180/mt. Traded prices marched slightly higher to RMB 56,650-56,800/mt in the afternoon, with cargo-holders increasing their sale volumes. Spot copper supply was therefore both sufficient and diversified, but both traders and downstream producers stuck to the sidelines at the month-end. 

SMM conducted a survey with regard to copper price trends this week.

Based on the survey, 43% of market insiders expect copper prices to extend strong gains. They believe LME copper will rally above USD 7,800/mt and that SHFE copper will soar to around RMB 56,500/mt as the SHFE/LME copper price ratio improves continuously. Recent US economic figures were strong, so markets are optimistic about this week’s important data including ADP employment data for May, GDP for 1Q, unemployment rate for May, and the non-farm payroll report for May. In this context, US equity markets tend to rebound and push copper prices up. In China, China’s central bank has recently adopted a set of positive and stimulative measures, saving Chinese stock markets again. Premier Wen Jiabao stressed to give more priority to maintaining growth, causing the Shanghai Composite Index to rebound. Besides, the NDRC has accelerated the pace of approving new projects since early May and boosted low market sentiment, which can somehow support Chinese stock markets over the near term. Both LME and SHFE copper have stood above their 5 and 10-day moving averages, with technical indicators pointing upward. Therefore, these insiders anticipate copper prices will continue the winning streak this week.  

14% of market insiders are pessimistic about the outlook, believing LME copper will slide below USD 7,000/mt and that SHFE copper will lower to test support at RMB 55,000/mt. The European debt crisis still dampens markets, although an opinion poll recently suggested that the Conservative Party in Greece took a leading position. Nevertheless, the Standard & Poor’s lowered the credit ratings for 5 Spanish banks again last Friday, triggering market worries over more downgrades for other European countries. In China, the China Federation of Logistics & Purchasing will announce the manufacturing PMI for May, which is expected by markets to fall further. Furthermore, as copper prices rebounded, positions were closed on a large-scale, an indication longs had little interest in keeping up with the rising prices. In Chinese spot markets, cash flow problems will become pronounced as May ends, which will propel cargo-holders to move goods for cash. Spot copper supply will increase while consumption remains weak. This will cause spot copper premiums to retreat further. As such, these insiders hold the view copper prices will sink this week. 

The remaining 43% of market insiders predict LME copper will keep fluctuating between USD 7,600-7,750/mt this week and that SHFE copper will hover between RMB 55,500-56,500/mt. The US dollar was down below 82 Monday and is likely to fall further from technical indicators. However, many investors seek the US dollar for a safe-haven given Europe’s debt woes, which will help copper prices fluctuate. Shorts want to impose selling pressures at USD 7,800/mt, but cash flow problems at the month-end will restrict market activity in futures and spot markets. In this context, copper prices are estimated to lurch around their current values this week.

Aluminum

Supported by slight gains in LME aluminum prices overnight, the most active SHFE aluminum contract for September delivery opened higher at RMB 16,030/mt, and settled up RMB 50/mt or 0.31% at RMB 16,045/mt on Monday, after a narrow struggle in RMB 16,020-16,040/mt. Positions added 4,158 lots to 91,720 lots. The bearish market sentiment eased, helping SHFE aluminum prices rise steadily and the most active SHFE aluminum contract consolidate at RMB 16,000/mt. The contract broke resistance at the 10-day moving average, but is expected to continue struggling near RMB 16,000/mt in the near term as longs lack confidence.

Spot aluminum traded at RMB 15,970-16,010/mt in Shanghai, at discounts of RMB 0-40/mt over the current-month SHFE aluminum contract. The light metal was sold at RMB 15,990-16,010/mt in Wuxi and Hangzhou. SHFE aluminum climbed above the RMB 16,000/mt mark but weak demand at month’s end has limited gains in aluminum spot. Some goods holders liquidated for cash at lower prices, expanding spot discounts to RMB 40/mt. Deals were limited while supply was sufficient.

SMM surveyed 24 aluminum traders this week, revealing an average aluminum price of RMB 16,006/mt in Shanghai. 8 of those traders expect higher aluminum prices, 15 are neutral while 1 expect losses.

The 8 optimistic traders say gains will be supported by a Greek poll revealing support for the nation to stay in the euro zone, loosening monetary polices in China and the approval of a batch of large industrial projects. The 15 neutral traders say Greece remains the source of uncertainty and Spain has emerged as a new contributor, which will weigh on aluminum prices, while balanced supply and demand will help the light metal stay at present levels. Their judgment is also supported by the movement of recent aluminum prices. The only one pessimistic trader quoted staying sluggish demand, the coming low-demand season and uncertainty in Europe. They also say support from policies need time to show.

Lead

On Monday, SHFE lead prices opened RMB 50/mt higher at RMB 15,200/mt and stabilized. SHFE lead prices rose above the 10-day moving average influenced by increase in domestic stock markets to finally close at RMB 15,300/mt, up RMB 145/mt. Trading volumes were up 72 lots to 174 lots, while positions increased to 1,806 lots, up 20 lots.

In China’s domestic spot market, offers were fewer with most market players expecting prices to increase. Quotations for Chihong Zn & Ge were initially at RMB 15,260/mt, with premiums of RMB 50/mt over the most active SHFE lead contract price, but rose to RMB 15,290/mt along with SHFE lead prices. Prices for brands from Gejiu region were at RMB 15,160/mt. Trading remained light on the whole.

According to SMM survey to 30 enterprises, opinions were divided on lead prices this week. 13% industrial insiders were pessimistic, noting that the market was still largely influenced by the worsening Greek debt issue, fresh concerns over Spanish debt financing, and the lower-than-expected economic data in China and the euro zone. Market was dominated by bearish moods at present. In China’s domestic markets, some smelters will be more willing to move goods due to financial pressures at month’s end, causing supply to increase in the market, which will be unfavorable for lead prices to move up. Thus, it is believed spot lead prices should hover around RMB 15,000/mt this coming week.

27% market players were optimistic, holding a view that lead prices will likely rise to RMB 15,300/mt. The May Michigan Consumer Confidence Index was reported above expectations, somewhat easing market worries on the European debt crisis, and no more negative news are expected with macro economy tending to stabilize. Besides, LME lead inventories are still in declines. In China, output at Chihong Zn & Ge, one of the major brands traded in Shanghai lead market, will reduce on account of maintenance. The decreased supply in Shanghai market should help support spot lead prices.

The remaining 60% market players believe lead prices will not show significant change this week and just move between RMB 15,100-15,250/mt. The pending Greek issue may result in uncertainties in the market and directionless SHFE lead prices. Meanwhile, consumption in China’s domestic market is hard to improve as poor orders frustrate lead-acid battery producers. In these circumstances, there’s little chance lead prices will rebound in short term.

Zinc

SHFE 1209 zinc prices, the most actively-traded contract opened higher at RMB 14,950/mt on Monday. The falling dollar helped boost SHFE zinc prices in the morning session. Supported by rising Chinese stocks, SHFE three-month zinc contract prices moved between RMB 14,955-15,000/mt in the afternoon session, feeling strong resistance to climb above the RMB 15,000/mt mark. Finally, SHFE 1209 zinc contract prices closed a t RMB 15,000/mt, up RMB 250/mt or 1.69%. Trading volumes were up 39,962 lots to 103,570 lots, and positions were up 6,764 lots to 153,190 lots. 

In the spot market, spot discounts of 0# zinc were between RMB 120-130/mt over SHFE 1209 zinc contract prices, and deals were concluded in the RMB 14,770-14,810/mt range. Quotations for 1# zinc were RMB 14,750-14,770/mt. With SHFE zinc prices rising at the midday, 0# zinc was traded between RMB 14,800-14,830/mt, while traded prices for #1 zinc were unchanged. On Monday, zinc smelters remained unwilling to move goods, and trading goods in the market were mainly supplied by traders. Rising zinc prices caused spot discounts to increase, opening no room for hedged goods to flow into market. Downstream producers remained wary of purchases, leaving overall trading quiet. 

Both LME and SHFE zinc prices hit new lows and rebounded last week. The followings are the SMM survey results of price movements this week.

33% of market players believe SHFE 1209 zinc contract prices should rise to RMB 15,000-15,200/mt. Whether Greece will remain part of the euro zone is still dominating the market. Non-official support for conservation parties is higher than the left wing alliance, easing market concerns. Besides, CCI in Germany and France improved, allowing the US dollar index to fall after hitting a record high for the year. In this context, LME zinc prices should move between USD 1,920-1,930/mt. The State Council will start a batch of significant projects, and were examined and approved more rapidly than last year. The market is expecting the commencement of a new RMB 4 trillion of stimulus plan, boosting market confidence. In this context, SHFE 1209 zinc contract prices should rise to RMB 15,000-15,200/mt, with spot discounts between RMB 100-150/mt.

50% market players believe SHFE zinc prices should resist both increases and declines. The market will remain cautious ahead of the result of Greece’s general election. Spain’s richest municipality asked for financing support from the government, pushing down the euro. Investors should buy risk adverse assets. In this scenario, LME zinc prices should move between USD 1,900-1,920/mt. domestic zinc prices have been falling since early May, while smelters were holding goods, keeping inventories high. Besides, smelters will likely sell off goods to generate cash at the end of the month. In this context, SHFE 1209 zinc contract prices should move between RMB 14,800-15,000/mt, with spot discounts narrowing to RMB 80-100/mt.

The remaining 17% believe zinc prices should fall further. As Greece’s general election is going to take place, while Spain’s and Italy’s government bond yields are high, market concerns are expected to grow, pushing up the US dollar index. LME zinc prices should dip to USD 1,860-1,900/mt. As domestic downstream consumption weakened, and due to power restrictions implemented in the coastal regions, downstream consumption will further contract. On the other hand, the SHFE/LME zinc price ratio was favorable in April, causing large numbers of inquiries and purchases, which will be delivered in June and July. Domestic spot markets should further pushed down in response. As a result, SHFE 1209 zinc contract prices should fall to RMB 14,600-14,800/mt, with spot discounts between RMB 50-80/mt.

Tin

In Shanghai tin market, transactions remained modest Monday as LME tin prices failed to rally and market players held a wait-and-see attitude. Goods circulating in the market were limited. Mainstream traded prices for Nanshan, Kaiyuan, Jinlong, and Yunxiang were at around RMB 154,500/mt, while most transactions for Yunxi and Yunheng were made between RMB 155,000-155,500/mt. Buying interest downstream was still low. In the afternoon, transactions were quiet, but some seller reflected LME tin prices improved and goods at prices below RMB 154,500/mt were rare.

Regarding to tin price movements this week, 60% of market players believe tin prices will follow a stable trend this week, since the slight rebound in LME tin prices and fewer goods circulating in the market will help support domestic tin prices, but the sluggish demand downstream will limit the increase in tin prices.

30% of market players hold that tin prices are likely to fall this week. LME tin prices, although rallied marginally, still move weakly with resistance at USD 20,000/mt, so risk still exists for LME tin prices to fall. Coupled with the remaining depressed demand downstream, decline in spot tin prices is possible.

The remaining 10% expects tin prices to move up this week on account of the probable further increase of LME tin prices and limited supply in spot market.

Nickel

On Monday, mainstream traded prices for Jinchuan nickel were RMB 126,800-127,000/mt in the Shanghai nickel market, and RMB 124,700-124,900/mt for Russian nickel. Due to the lack of a clear market trend, downstream producers were wary of purchases, leading to moderate transactions.

According to the latest SMM survey, approximately 40% market players expect nickel prices to rebound this week. The Greek opinion polls show that pro-bailout New Democracy party claimed a slight lead over anti-bailout Syriza party. In addition, the US dollar index fell back, reducing downward pressures on nickel prices. 

About 40% market players believe nickel prices to drop this week, since no improvement in domestic demand will not support demand for refined nickel. Besides, the yield on Spain and Italy’s 10-year bonds remain high, and concerns over the European debt issues remain.  Moreover, LME nickel inventories continue to grow, a sign of weak consumption.

The remaining 20% market players expect nickel prices to keep fluctuating and wait for further news.