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SMM Daily Review – 2012/6/8 Base Metals Market
Jun 11,2012 10:25CST
smm insight
As LME copper fell from initially rising overnight, the most active SHFE copper contract for September delivery started RMB 540/mt lower at RMB 53,430/mt last Friday.

SHANGHAI, Jun. 11 (SMM)--

As LME copper fell from initially rising overnight, the most active SHFE copper contract for September delivery started RMB 540/mt lower at RMB 53,430/mt last Friday. The Shanghai Composite Index lost 2,300 again, failing to be boosted by China's central bank's move in cutting interest rates, while LME copper was pressured down to USD 7,300/mt by an increasing US dollar index. SHFE 1209 copper contract thus slid, but gradually stopped falling at around RMB 53,000/mt, still coming under pressure at the daily moving average. Finally, the most active copper contract on the SHFE settled RMB 940/mt or 1.74% down at RMB 53,030/mt, with trading volumes and positions increasing by 128,000 lots and 6,784 lots, respectively. Trading volumes and positions for all SHFE copper contracts added by 197,000 lots and 28,342 lots, respectively, with growing selling pressures for forward copper contracts. The turnover rate for the most active copper contract reached as high as 185%. Support for SHFE copper at RMB 53,000/mt should be weak over the near term.

The PBOC's move in cutting interest rates failed to boost Chinese stock markets, so SHFE copper prices sank by over 1%. Spot copper premium quotes were between positive RMB 280-360/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 54,300-54,500/mt, and RMB 54,350-54,600/mt for high-quality copper. Cargo-holders held divergent views. Those who did not hedge against copper price volatilities refused to quote low prices, while imported copper cargo-holders sold aggressively for cash. Overall spot copper supply therefore was sufficient and diversified as well. Downstream producers, though, kept on their toes owing to pessimism towards future copper prices, leading to muted market activity in the morning. In the afternoon, although SHFE copper prices continued to come under pressure, spot copper premium offers failed to expand, while traded prices were noticeably lower than the morning business levels, between RMB 54,350 -54,450/mt. SHFE copper stocks were reported to decrease by 14,623 mt to 132,421 mt last Friday, indicating the fact that downstream producers became more willing to buy at the lows during the week. This may support domestic copper prices, which show more resilience than LME copper.

Despite a 0.25% interest rate cut by the Chinese central bank, the most active SHFE aluminum contract for September delivery opened lower at RMB 15,895/mt and settled down RMB 35mt or 0.22% at RMB 15,865/mt on Friday, as losses in LME aluminum proved more destructive. The rate cut failed to boost confidence, with futures still trending lower. Investors were waiting for a direction from May's economic data to be delivered the weekend. The market sentiment is expected to remain slightly bearish, however, and the most active aluminum contract is expected to test support at RMB 15,800/mt.
Spot aluminum was traded at RMB 15,880-15,900/mt in Shanghai, with low-iron aluminum trading at RMB 15,990-16,020/mt. The rate cut failed to help metals prices gain while negative news from Europe and the US led to lower SHFE aluminum prices. Bearishness was strong in the spot market, with traders actively moving goods to avoid further losses if prices continue to dip. Buying was weak in Shanghai. A few liquidity-tight traders even lowered quotations to RMB 15,800/mt. Spot aluminum prices in Wuxi and Hangzhou were little changed as downstream buyers replenished stocks when prices were low, with traded volumes up slightly.

SHFE lead prices opened at RMB 15,055/mt Friday and fluctuated around the opening price. China's interest rate cut failed to boost market confidence, and domestic stocks fell below 2,300 points, dragging SHFE lead prices below the RMB 15,000/mt. In the afternoon, SHFE lead prices remained weak and finally closed at 14,995/mt, down RMB 75/mt. Trading volumes were up 60 lots to 136 lots, and positions were up 26 lots to 2,168 lots.

In China's spot lead market, smelters were not willing to move goods due to the low prices close to cost lines. Nanfang and Shuikoushan were quoted between RMB 15,100-15,120/mt, with spot premiums of RMB 100/mt against SHFE lead prices. Quotation from Mengzi and Shenqian were between RMB 15,050-15,080/mt, with premiums of RMB 50/mt against SHFE lead prices. Enterprises downstream were only willing to purchase at lower prices due to the remaining concerns over the European debt issues, leaving transactions sparse. In the afternoon, the moat active SHFE lead prices fell below RMB 15,000/mt, dragging down spot prices, Nanfang and Shuikoushan were quoted at RMB 15,100/mt, while Tongguan was quoted at RMB 15,050/mt. Offers of Hanjiang and brands from Gejiu region were at RMB 15,000/mt, and Shenqian was quoted at RMB 14,970/mt. Transactions deteriorated further as market confidence was depressed by the falling prices.

Last Friday, SHFE 1209 zinc contract prices opened lower at RMB 14,750/mt and plunged to an intraday low RMB 14,685/mt with plummeting Shanghai Composite Index, despite China's central bank lowered interest rates. With strong support, SHFE 1209 zinc contract prices pared some losses and moved between RMB 14,700-14,750/mt, and finally closed at RMB 14,710/mt, down RMB 85/mt or 0.57%. Trading volumes decreased by 2,632 lots to 82,958 lots, and total position decreased by 3,188 lots to 170,578 lots.

In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were RMB 100/mt, with traded prices between RMB 14,670-14,690/mt. As SHFE zinc prices plunged, discounts of #0 zinc narrowed to RMB 70-90/mt, with traded prices between RMB 14,650-14,660/mt. #1 zinc was quoted between RMB 14,610-14,650/mt, but transactions were muted. Imported zinc prices were RMB 30-50/mt below most domestic #0 zinc prices, but transactions were limited. The market was more cautious despite interest rates decreases, and traders were moving goods actively, while downstream buyers only purchased as needed, leaving transactions modest.

In Shanghai tin market, mainstream traded prices were between RMB 151,500-152,500/mt last Friday, with a few transactions done at RMB 151,000/mt. Tin prices tended to stabilized in general, promoting transactions slightly. Quotations from Yunxi were still firm, deals for Yunxi, Yunheng and Yunxiang were mainly made between RMB 151,500-152,000/mt. In the afternoon, transactions for Kaiyuan were reported with prices at RMB 151,000/mt. Buyers were willing to buy goods as tin prices stabilized. Despite the slight rally, LME tin prices remained weak, combined with oversupply in domestic market, spot tin prices may continue to fall.

Last Friday, LME nickel prices rose significantly, but prices of spot transactions barely improve given weak demand. Traders raised quotes but then lowered prices to previous levels due to unpopularity. Mainstream prices of Jinchuan nickel were between RMB 122,000-122,200/mt, while mainstream Russian nickel prices were between RMB 118,600-118,700/mt. Downstream buying interest remained low despite spot prices were lowered, with transactions still muted.








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