SHANGHAI, Jun. 11 (SMM) –
Earlier last week, SHFE copper prices experienced heavy selling due to a lack of guidance from LME prices, hitting a fresh low for the year at RMB 52,330/mt. SHFE copper prices then rallied after the LME market resumed trading, rising above the 5-day moving average and touching a high of RMB 54,260/mt, but investors still chose to exit positions as prices surged. The People's Bank of China (PBOC) announced Thursday evening it was cutting interest rates by 0.25%, but Chinese stock and commodity markets continued to fall on Friday, with the Shanghai Composite Index falling below 2,300 and SHFE copper prices to around 53,000/mt, a drop of 5.3% for the week. Total positions for all SHFE copper contracts grew by over 27,000 lots compared to the previous week and trading volumes increased by around 1 million lots.
In spot markets last week, transaction volumes increased significantly early last week. As SHFE copper prices hit a 2012 low, spot copper premiums rose to RMB 350-400/mt, while traded prices stood at nearly RMB 54,000/mt, attracting some traders and downstream producers to buy at the lows and leading to active market activity. But as copper futures prices rebounded, spot copper cargo-holders were more willing to sell, causing spot copper premiums to fall to RMB 250-350/mt. Imported copper supply rose significantly, keeping total spot copper supply sufficient. The price gap between standard and high-quality copper was limited, which restricted market transactions. Market participants turned cautious again on Friday when pessimism towards copper prices grew.
SMM anticipates SHFE copper will fall RMB 53,000/mt in the coming week, possibly hitting a new yearly low of RMB 52,300/mt.
Heavy losses in LME aluminum prices weighed on SHFE aluminum prices, with the most active SHFE aluminum contract gapped lower and hitting a low of RMB 15,800/mt on Monday. It returned near RMB 15,900/mt during following days but also struggled at the 5-day moving average. Support at RMB 15,900/mt was weak and strengthening short selling dragged it below the mark, but the downside space is limited. The contract is expected to fluctuate narrowly near present levels. The SHFE/LME aluminum price ratio has broken through 8, with CIF premiums climbing above USD 200/mt, eroding much profits of aluminum imports and curbing supply of imported ingots.
Sluggishness in the global economy and staying weak demand in June fostered a highly bearish market sentiment. Some large processors chose to use imported aluminum while the SHFE/LME aluminum price ratio was high, eroding demand for domestic ingots. Spot aluminum prices tracked SHFE aluminum in East China, and showed a downside trend as weak demand weighed. Goods holders' selling interest was high even at lower prices as they remained bearish. That had effectively curbed quotations with premiums. Support at RMB 15,900/mt was quite weak.
Since LME markets were closed for two days last week, SHFE three-month zinc contract prices tracked the Shanghai Composite Index instead On Monday, SHFE three-month zinc contract prices opened at RMB 14,665/mt, but then plunged to a record low for the year of RMB 14,470/mt after the Shanghai Composite Index fell sharply. SHFE zinc prices fluctuated in a narrow band on Tuesday, and rose on Wednesday along with higher LME zinc prices, later stabilizing at the 10-day moving average after first struggling at this mark. On Thursday, SHFE three-month zinc contract prices fluctuated at high levels in the morning session, but gave back gains later in the day as the Shanghai Composite Index plunged, with prices finally closing at RMB 14,720/mt.
In domestic spot markets, as SHFE three-month zinc contract prices rose, spot discounts expanded from RMB 30/mt early in the week, to RMB 100/mt, with traded prices between RMB 14,600-14,760/mt. Traders and downstream buyers purchased at lower prices early in the week, and smelters increased goods supply on Wednesday and Thursday due to rising spot zinc prices. Downstream purchasing was limited, keeping overall transactions muted.
Last week, zinc ingot inventories were down from the previous week. Inventories in East China fell by 4,000 mt, to 460,400 mt, and inventories in South and North China fell by 3,800 mt and 3,500 mt, respectively. Inventories in North China reported the greatest change due to its small size. Smelters were less willing to sell goods as domestic zinc prices plummeted early in the week.
SHFE lead prices fell to a low of RMB 14,880/mt early last week due to a lack of clear directions from LME lead prices, but later stabilized between RMB 15,000-15,200/mt with strong support at the 5-day moving average. SHFE lead prices should move between RMB 15,000-15,200/mt this week.
In China's domestic spot markets, lead prices fell to RMB 14,900/mt under the influence of SHFE lead prices. Downstream enterprises actively purchased at lower prices, but smelters were reluctant to move goods. Selling interest improved later as lead prices returned above RMB 15,000/mt, while buyers then purchased only as needed, leaving transactions muted again. As the Lead-Acid Battery Industry Entrance Requirements shall take effect on July 1, markets expect lead-acid battery prices to increase in mid-June as some small producers will likely be forced to close. Some downstream enterprises are reported to be increasing output, so lead demand may increase. In response, spot lead prices are expected to hover between RMB 15,000-15,250/mt in the coming week.
Last week, prices in Shanghai tin market continued falling and moved between RMB 151,500-152,500/mt as of Friday. Selling interest among smelters remained low, leaving limited goods circulating in the market. However, since dealers replenished stocks cautiously on falling prices and since downstream demand remained weak, a few smelters hoping to sell goods reported low sales. The rising LME tin prices failed to boost domestic tin market, leaving the market extremely depressed. Although some smelters cut or halted production, tin prices were not driven up due to the oversupply in the market.
Jinchuan Group cut nickel prices on Monday to RMB 122,000/mt, down RMB 4,000/mt. By Friday, the average spot nickel price was RMB 120,990/mt, also down RMB 3,590/mt. Jinchuan nickel prices hovered around RMB 122,000/mt, with support from ex-work prices, but Russian nickel prices fell sharply from RMB 119,500/mt early in the week, to RMB 118,000/mt, with the price spread between Russian and Jinchuan nickel expanding to RMB 3,500/mt. Many traders reported Russian nickel prices were pushed down due to growing supply.