SMM Daily Review - 2012/6/5 Base Metals Market

SHANGHAI, Jun. 6 (SMM) –

Copper
As the US dollar index lost the 10-day moving average overnight, the most active SHFE copper contract for September delivery started RMB 540/mt up at RMB 53,470/mt Tuesday. After the opening, as shorts closed positions, the contract stabilized gradually and touched a high at RMB 53,680/mt, with a fluctuating band of RMB 200/mt. Chinese stock markets stopped falling during the day, also providing support for SHFE copper prices. At the tail of trading, the contract slid below the daily moving average and narrowed daily gains. Finally, the most active copper contract settled RMB 560/mt or 1.06% higher at RMB 53,490/mt, with trading volumes and positions decreasing by 349,000 lots and 25,234 lots, respectively. Without guidance from the LME, both longs and shorts kept wary of operations, leading to a considerable drop in trading volumes. SHFE copper will continue to fall for the near term. 
 
SHFE copper prices rebounded by over 1%, but cargo-holders in spot markets were still negative about future prices and thus stepped up sale volumes, leading to an increase in market supply. In consequence, spot copper premiums slid all the way. Spot copper premiums were quoted between positive RMB 260-330/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 54,550-54,670/mt, and RMB 54,580-54,700/mt for high-quality copper. Downstream producers were skeptical about copper price rebounds and mostly chose to stand on the sidelines following some purchases at the lows the previous day. Hence, market transactions remained limited. In the afternoon session, SHFE copper prices stabilized at relatively highs, but spot copper supply remained sufficient, causing spot copper premium quotes to fall to positive RMB 230-320/mt. The price gap between standard and high-quality copper widened noticeably in the afternoon business, and traded prices were little changed from the morning business levels.  
 
Aluminum
The most active SHFE September aluminum contract gapped higher at RMB 15,910/mt and ended up RMB 90/mt or 0.57% at RMB 15,945/mt on Tuesday, after struggling at the 5-day moving average. Strong resistance has kept the contract below the 10-day moving average. Positions dropped 2,074 lots to 100,248 lots as short positions were closed with weakening bearishness. It did fix the gap on Monday, though, and is expected to narrowly fluctuate above the RMB 15,900/mt mark.

Spot aluminum was traded at RMB 15,930-15,950/mt in Shanghai, with low-iron aluminum trading at RMB 16,000-16,040/mt. The current-month SHFE aluminum contract started a little bit higher and struggled at RMB 15,950/mt. The rebound in the futures market failed to boost buying in the spot market, however, though goods holders were quite open to discussions. Excessive supply has eroded the space for spot to gain. Trading was light.

Lead
On Tuesday, LME was closed, and SHFE lead prices opened higher at RMB 15,040/mt. Prices moved around RMB 15,000/mt and rose to RMB 15,040/mt in the afternoon to finally close at RMB 15,050/mt, up RMB 155/mt, with growth exceeding 1%. Trading volumes fell by 14 lots to 182 lots, while positions were down 38 lots to 2,092 lots.

Well-known brands in domestic spot market, including Nanfang and Chihong Zn & Ge, were quoted between RMB 15,100-15,120/mt, with premiums of RMB 100/mt over the most active SHFE lead price. Brands from Gejiu region were quoted around RMB 15,000/mt. Some enterprises downstream made purchases, and dealers and smelters moved goods moderately, leaving transactions improved from last week.

Zinc
Lacking directions from LME market, SHFE base metal prices plunged on Tuesday. But as expectations Europe will take measures to cope with the crisis grew, concerns eased, pushing down the US dollar index. In this context, SHFE 1209 zinc contract prices opened higher at RMB 14,655/mt and fluctuated between RMB 14,630-14,710/mt in the morning session. As the Shanghai Composite Index rose in the afternoon, SHFE 1209 zinc contract prices touched an intraday high at RMB 14,740/mt, but inched down as investors closed positions, with prices finally closing at RMB 14,685/mt, up RMB 100/mt. Trading volumes decreased by 86,950 lots to 101,394 lots, and total position decreased by 6,828 lots to 175,358 lots.

In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were between RMB 30-50/mt, with traded prices between RMB 14,610-14,620/mt, but transactions were limited. #1 zinc was quoted between RMB 14,570-14,590/mt. As SHFE zinc prices rose at noon, discounts of #0 zinc expanded to RMB 50-80/mt, with traded prices between RMB 14,620-14,640/mt and transactions improved. #1 zinc prices remained unchanged. Smelters were still unwilling to sell goods, with goods mainly available from traders generating cash. Downstream buyers only purchased as needed, and transactions were mainly made by traders.

Tin
In Shanghai tin market, mainstream traded prices were between RMB 152,000-154,000/mt Tuesday. Quotations from Yunxi and Yunheng were firm at RMB 154,000/mt. Transactions for Yunxi, Jinhai, Yunheng, Yunshan and Nanshan were mainly made between RMB 152,000-152,500/mt. Buying interest downstream was low, combined with a lack of directions from LME tin prices, market remained quiet.

Nickel
On Tuesday, mainstream prices of Jinchuan nickel were between RMB 122,000-122,300/mt, while mainstream Russian nickel prices were between RMB 119,300-119,500/mt. In the afternoon, Jinchuan nickel rose slightly, but mainstream prices remained between RMB 122,000-122,300/mt. Russian nickel prices fell to RMB 119,000-119,300/mt. Russian nickel prices were low recently, with price spread between Russian nickel and Jinchuan nickel expanding to RMB 3,000/mt. Insiders reported the reason causing goods supply to increase is investors entering Russian nickel market in April when import profit margins were high, so as to ease cash flow problems. Those goods flew to the market recently, resulting in weak Russian nickel prices with supply surplus.