SHANGHAI, Jun. 12 (SMM)--
As LME copper rebounded significantly after news was reported that Spain will get a large sum of loans, the most active SHFE copper contract for September delivery started RMB 730/mt higher at RMB 54,000/mt Monday. The contract rose rapidly to RMB 55,000/mt following the opening, but gradually fell and then hovered narrowly around RMB 54,300/mt as investors closed positions on a large scale. In the afternoon, the Shanghai Composite Index broke resistance at 2,300, helping the contract return and lurch around the daily moving average of RMB 54,500/mt, but with a fluctuating band of around RMB 300/mt during the whole day. Finally, SHFE 1209 copper contract settled RMB 1,080/mt or 2.03% up at RMB 54,350/mt, with trading volumes and positions decreasing by 93,118 lots and 31,030 lots, respectively. Total positions and trading volumes for all SHFE copper contracts fell by 39,218 lots and 85,558 lots, respectively. SHFE copper is facing great risks owing to a lack of substantive buying support and will likely test support at around the 10-day moving average of RMB 54,100/mt repeatedly.
As SHFE copper prices rebounded by more than 2%, spot copper premiums narrowed sharply. The SHFE/LME copper price ratio continued to improve, compelling cargo-holders of imported copper to move goods for cash. Spot copper supply thus was sufficient and diversified, also dragging down spot copper premiums. Spot copper premiums were quoted between positive RMB 140-220/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,220-55,320/mt, and RMB 55,260-55,480/mt for high-quality copper. The price gap between SHFE 1206 and 1207 copper contract widened as the delivery day for SHFE 1206 copper contract draws near. Downstream producers had little interest in buying owing to doubts about copper price rebounds, so spot copper market activity was lackluster during the first trading day of the week. In the afternoon, SHFE copper prices came under pressure and fluctuated in a narrow band, but copper consumption remained slack, causing spot copper premium quotes to slide further, down to positive RMB 120-180/mt. Traded prices edged down to RMB 55,180-55,380/mt in the afternoon, but actual market transactions remained limited.
SMM conducted a survey with regard to copper price trends this week.
Based on the survey, 22% of market insiders expect copper prices can extend rebounds this week, believing LME copper can stand above USD 7,500/mt and SHFE copper above RMB 54,800/mt after breaking resistance at RMB 54,500/mt. Last Friday, the Euro Group announced it would provide the Spanish banking industry no more than EUR 100 billion (USD 125 billion), with the concrete sum of money released in late June. This gave Greece a glimmer of hope that the European Union could relax its strict requirements for the bailout fund, improving market sentiment. Besides, the US President and UK Prime Minister Cameron have asked the European leaders to take emergency measures to tackle their debt problems, injecting confidence into markets. The US this week will release important economic figures for May including the Import Price Index, Producer Price Index, and retail sales, and markets are positive towards these data since the Fed's Beige Book last week showed the US economy is still growing at a slow pace, despite recent poor figures. The US dollar index fell below the 10-day moving average on Monday and is facing greater risk to fall further over the near term. Hence, these insiders see copper prices increasing this week.
33% of market insiders are pessimistic over the outlook, expecting LME copper will slide to USD 7,200-7,300/mt and SHFE copper will test RMB 53,000/mt. Markets are negative about this week's euro zone economic data including industrial production index, trade data for April, and CPI for May. In China's domestic markets, as this Friday is the delivery day for SHFE current-month copper contract, spot copper premiums will gradually fall. Furthermore, the price gap between SHFE 1206 and 1207 copper contract is relatively large. Copper consumption thus is unlikely to improve. Therefore, these insiders anticipate copper prices to sink this week.
The remaining 45% of market insiders hold the view copper prices will continue to fluctuate at current values this week. LME copper will hover between USD 7,350-7,500/mt, while SHFE copper will lurch in the RMB 53,500-54,500/mt band. The European debt crisis is exacerbating as the Spanish government has finally applied for bailout for the European Union. Although euro zone countries have agreed to lend about EUR 100 billion to Spain, markets worries Spain's financial situation is worse than expected. Moreover, the Greek election draws near and will decide whether or not the country can stay in the euro zone, and the French National Assembly election will also begin very soon, which will decide whether or not the new President can have enough room to execute reform. Despite an increasing euro Monday, the euro zone's prospects remain uncertain, compounding turmoil in the financial market. Chinese stock markets ended the five-session down close on Monday and rose above 2,300, but experienced considerable drops in trading volumes. In the face of existing risk aversion and a lack of capital, the Shanghai Composite Index will continue to test 2,300 repeatedly, which will restrict copper prices. In the meanwhile, SHFE copper saw significant rebounds Monday but suffered large-scale position closings, while both shorts and longs opted to stand on the sidelines. As such, these insiders believe copper prices will move at their current levels this week.
The most active SHFE aluminum contract for September delivery started slightly higher at RMB 15,925/mt and settled up RMB 60/mt or 0.38% at RMB 15,925/mt on Monday. Positions added 2,366 lots to 99,414 lots. Sluggish spot aluminum consumption dragged on SHFE aluminum's rebound; short term stagflation pressured all contracts at the RMB 16,000/mt mark. The most active contract should test support at RMB 15,900/mt.
Shanghai mainstream spot prices were RMB 15,900-15,920/mt, with low-iron aluminum trading at RMB 15,990-16,020/mt. China's May economic data were mixed, and weak consumption is weakening aluminum's momentum. The current-month contract struggled at RMB 15,920/mt. Selling interest of domestic market traders was high, but downstream buying was flat. Mainstream deals in Shanghai maintained small discounts. Wuxi, Hangzhou saw limited premiums. Overall trading was light.
An SMM survey shows Shanghai spot aluminum last week was sold at RMB 15,915/mt, down RMB 57/mt than a week earlier. The number of companies surveyed is 28, survey results are as below:
5 enterprises are bullish this week, accounting for 18% of respondents. They said spot aluminum ingot prices are already at the bottom in the short term, and with higher prices of other base metals, a slight rebound should be seen. On one hand, Spain's debt situation improves. LME aluminum and SHFE aluminum prices now face less pressure from Spain, presenting small corrections on Monday. Traders believe the correction will continue this week, as Greece's vote is not to be held until June 17. Euro-zone bond also delivered support earlier, indicating metals prices will reverse to gains. In the past week, the proportion of cancelled LME aluminum warrants stayed above 35%. 3Q spot aluminum premiums over LME, led by Japan, have soared to USD 200-210/mt. These signs indicate LME aluminum inventories will fall further for the short term, support LME aluminum. In the domestic spot market, spot aluminum prices stayed near RMB 15,900/mt for nearly a week and market demand is relatively stable, short-term fluctuation band is narrow. In addition, alumina and other raw materials costs rose, which will also continue to help aluminum prices stabilize and climb, the short-term high is expected at RMB 16,000/mt.
This week 15 enterprises see flatness, accounting for 53% of respondents. There common views are: first, although Spain's debt situation has improved to lead spot and futures aluminum prices rebound, but the rebound momentum was clearly insufficient. The most active SHFE aluminum contract still face strong pressure at the 10-day moving average while support also exists at RMB 15,850/mt for the short-term. Capital flow and positions have not changed much. The most active contract moved stably at RMB 15,850-15,950/mt. Second, SHFE aluminum price trends will certainly affect the spot aluminum prices, whose discounts over the current-month contract held steady between RMB 40/mt. Domestic inventories are still near 720,000 mt and relatively stable. Downstream consumption has not seen any significant improvement, while upstream raw material alumina's prices have shown signs of short-term gains, which is expected to support spot aluminum prices, making it difficult to drop sharply. Spot aluminum prices are expected to hold steady in the vicinity of RMB 15,900/mt in the short term.
This week 8 or 29% traders expect losses, with the proportion falling slightly. Most of these traders think short-term LME aluminum and SHFE aluminum prices still have downside space, meaning the most active SHFE aluminum contract has weak support at RMB 15,900/mt. When significant negative news comes out, LME aluminum price still has downside space. They say Spain accepting debt assistance still has not achieved its internal banking reform. Any market change may worsen its debt conditions. In addition, Greece's vote is near, risk aversion is still strong and the US dollar will stay strong and SHFE aluminum still has downside space. In the spot market, supply is still large and aluminum smelters have not carried out wide output cuts, with their stocks remaining high. Downstream consumption is expected by most respondents to weaken starting from late June and aluminum supply will stay excessive. At this point, spot aluminum prices will drop to last week's low, or below RMB 15,900/mt.
Since Spain was offered EUR 100 billion loan, easing market concerns over the country's crisis, SHFE lead prices opened RMB 120/mt higher at RMB 15,160/mt and touched a high of RMB 15,205/mt but met resistance at the 20-day moving average. Later, prices moved between RMB 15,080-15,120/mt and finally closed at RMB 15,100/mt, down RMB 105/mt. Trading volumes were down 10 lots to 114 lots and positions were up 50 lots to 842 lots.
On Monday, SHFE lead fluctuated down after opening higher. In China's spot lead market, offers for Nanfang were at RMB 15,130/mt, with spot premiums of RMB 50/mt against SHFE lead for August delivery. Quotations from Mengzi and Shenqian were between RMB 15,010/mt and RMB 15,110/mt, respectively. Dealers were moving goods normally, but buying interest downstream was still low with concerns over China's economic slowdown and Greek election, leaving transactions limited.
With regard to lead prices this week, 40% market players believe lead prices tend to stabilize and edge up slightly. China's May CPI was reported up 3%, with the rise falling from the previous data. Besides, the US dollar index fell below the 82 mark as Spain was offered EUR 100 billion aids. As such, LME lead prices may test USD 1,900/mt this coming week. In China's domestic spot markets, smelters maintain normal sales when prices stay above RMB 15,000/mt. With the onset of peak-demand season for lead-acid batteries, lead-acid battery producers may purchase at low prices and lead consumption will likely improve although demand is not as strong as in previous years. Thus, optimistic investors expect lead prices to stabilize and move between RMB 15,150-15,250/mt this coming week.
The remaining 60% market players are relatively conservative, believing lead prices should continue fluctuating narrowly and present little change from the previous week. Market is still focused on European debt issue, especially the upcoming Greek election which will pose great challenge to European countries. As the Fed gives no hints of QE3 measures, riskier currencies were under downward pressure, and markets shall remain cautious before any clear directions. In China, SHFE lead prices continue a weak trend, with positions for the SHFE current-month contract only at 58 lots. Given the serial economic data to be released and the upcoming Greek election, SHFE lead prices are expected fluctuate narrowly in the near term. In domestic spot markets, enterprises downstream may still purchase as needed, while smelters should be reluctant to sell at prices lower than RMB 15,000/mt, helping support prices. As such, these investors expect lead prices to hover between RMB 15,000-15,150/mt this coming week.
On Monday, SHFE 1209 zinc contract prices opened higher at RMB 14,835/mt and touched an intraday high of RMB 14,980/mt, but then dropped to move below the moving average during the morning session. As the Shanghai Composite Index rose, SHFE 1209 zinc contract prices were up slightly, fluctuating between RMB 14,870-14,900/mt, and finally closing at RMB 14,885/mt, up RMB 155 or 1.05%. Trading volumes increased by 11,254 lots to 94,212 lots, and total position decreased by 3,314 lots to 167,264 lots.
In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were RMB 120/mt, with traded prices between RMB 14,810-14,820/mt. As SHFE zinc prices inched down, discounts of #0 zinc narrowed to RMB 70-100/mt, with traded prices between RMB 14,790-14,800/mt. #1 zinc was quoted between RMB 14,750-14,780/mt. Smelters and traders were moving goods actively due to higher prices, while downstream buyers only purchased as needed, leaving transactions modest.
Market concerns eased as Spain's banking sector received EUR 100 billion of bailout funds, combined with China's positive CPI, zinc prices rebounded Monday.
70% investors believe zinc prices should remain fluctuating in a wide band this week, with SHFE three-month zinc contract prices between RMB 14,700-15,000/mt. The result of Greece's general election is expected to decide whether Greece will exit euro zone, with the market cautious. Besides, despite Spain received bailout funds, it is unclear if the crisis of its banking sector will grow. High US unemployment rate and US Federal Reserve Chairman not mentioning any possibility of QE3 implementation will allow the US dollar index to hover around 82, with LME zinc prices fluctuating between USD 1,870-1,900/mt.
China's central bank lowered interest rates, while China's May CPI shows easing inflation. With soft consumption and sliding economy, the market expects China will release stimulus policies. In domestic spot markets, smelters increased goods supply, while rising SHFE/LME zinc price ratio allowed imported zinc to flow to domestic spot markets. On the other hand, downstream consumption weakened apparently in the seasonally low demand period for zinc. In the context, SHFE three-month zinc contract prices should move between RMB 14,700-15,000/mt this week, with spot discounts expanding to RMB 100-120/mt.
Some of the 70% are unclear of price trends this week. More stimulus policies are expected, but with weak fundamentals, zinc prices will likely drop further, so most market players are cautious.
20% of investors see zinc prices rising this week, believing prices should stand at RMB 15,000/mt level. The market will believe all negative news is released if Greece exit euro zone, and US Federal Reserve did not deny QE3 implementation, so LME zinc prices are expected to rebound to USD 1,900-1,920/mt. In domestic spot markets, spot prices will unlikely drop sharply as SHFE zinc contracts are delivered this week. On the other hand, most smelters cut output for maintenance to reduce losses. With decreasing supply, SHFE three-month zinc contract prices should move between RMB 15,000-15,100/mt this week, with spot discounts expanding to RMB 120-150/mt.
The remaining 10% believe SHFE three-month zinc contract prices should fall to RMB 14,400-14,700/mt. investors are expected to rush to the US dollars ahead of Greece's general election, so the US dollar index should rise to 82, pushing down LME zinc prices. With LME zinc inventories a high 950,000 mt, LME zinc prices are expected to move between USD 1,850-1,870/mt this week. Some imported zinc signed to arrive in June and July due to favorable SHFE/LME zinc price ratio has flowed to domestic spot markets, weighing pressure on domestic consumption. In this context, SHFE three-month zinc contract prices should fall to RMB 14,400-14,700/mt, with discounts narrowing to RMB 70-100/mt.
In Shanghai tin market, mainstream traded prices were between RMB 151,500-152,500/mt, with a few goods quoted at RMB 151,000/mt. Trading remained light in general, and branded goods circulating in the market were limited. Some transactions for Kaiyuan, Nanshan and Jinhai were made at RMB 151,000/mt, while traded prices for Yunxiang, Yunheng and Yunxi were between RMB 151,500-152,500/mt. Tin prices tended to stabilize, and several of enterprises downstream started purchasing moderately.
According to SMM survey, 45% market players believe tin prices should stabilize between RMB 151,000-152,500/mt. European debt crisis remains a market focus with no related positive news can actually boost markets. However, China's disappointing economic data caused stronger expectations on looser monetary policy. Besides, President Obama said last weekend US Congress will likely take actions to deal with the influence from European debt crisis, shoring up market confidence and lifting base metals. LME tin prices are fluctuate in an narrow band at present, despite the resistance above, prices gain strong support at USD 19,200/mt. Given the easing market concerns, tin prices will not likely drop sharply this week. In China's domestic market, demand downstream remains weak, dragging tin prices down, but the lower selling interest at smelters leaves fewer goods supply in the market, helping support tin prices. Thus, these investors believe spot tin prices shall stabilize.
The remaining 55% market players note tin prices will continue falling but find support at RMB 150,000/mt. Although economic reports turned out mixed, global economic conditions were still sluggish. Market will be largely influenced by negative news from the euro zone, China and the US. Thus, LME tin prices may still slip this week. In China's domestic market, weak demand downstream should prevent tin prices from increasing despite production cuts at smelters, combined with the downtrend in LME tin prices, it is possible that China's tin prices may fall further. However, if LME tin prices stage no sharp decline, China's tin prices shall find support at RMB 150,000/mt due to limited goods circulating in the market.
On Monday, Jinchuan Group raised nickel prices to RMB 124,000/mt, up RMB 200/mt. Mainstream prices of Jinchuan nickel were between RMB 123,000-123,500/mt, while mainstream Russian nickel prices were between RMB 120,500-121,000/mt. Downstream buying interest remained low despite spot prices were lowered, with transactions still muted. Mainstream prices of Jinchuan nickel rose to RMB 124,000-124,500/mt after Jinchuan Group adjusted prices, while Russian nickel prices also rose to RMB 121,000-121,500/mt, but transactions were quiet.
According to an SMM survey, 40% of market players believe nickel prices should continue to rebound, touching USD 17,000/mt level. As China's May CPI fell to 3%, monetary policies should be loosened, so they believe the industry will improve as downstream consumption turns around.
30% are pessimistic due to the European debt crisis. Italy now has EUR 2 trillion of debt, with the proportion in its gross economy only smaller than Greece and Japan. Its finance ministry issues EUR 35 billion of government bonds every month, which is higher than annual gross economy in Cyprus, Esthonia and Malta. Italian 10-year government bond yields are also pessimistic, turmoil in euro zone will remain if Italy's problem exacerbates.
The remaining 30% believe nickel prices will remain fluctuating prior to Greece's general election, and the result of the general election will affect European problems. The market should remain cautious.