SMM Weekly Review and Forecast (Jun. 11-15)

SMM Insight 03:55:40PM Jun 18, 2012 Source:SMM

SHANGHAI, Jun. 18 (SMM) – As the Greek election neared, the Spanish credit ratings were lowered again while Italian and Spanish government bond yields climbed. The US economic data was also softer than anticipated, pressuring US equity markets down. The US dollar index, though, retreated continuously, down below the 82 mark. In consequence, China's base metals stopped falling and began stabilizing over the past week, with the SMMI increasing slightly by 1.09%. As nickel prices rose significantly, the SMMI.Ni also increased considerably by 2.28%. The SMMI.Cu gained 1.74%. Nevertheless, the SMMI.Sn and SMMI.Al slid by 0.82% and 0.16%, respectively, as tin and aluminum prices extended losses. 
       
Copper
Boosted by the cut by China's central bank's to benchmark interest rates, the Shanghai Composite Index struggled around 2,300, but still rose by more than 1%. As the SHFE/LME copper price ratio continued to rise, SHFE copper fluctuated in the RMB 53,600-54,500/mt range last week, climbing as high as RMB 55,000/mt and posting a 2% gain. SHFE copper also broke through the 5-day moving average and gained solid technical support as the shift of the most active copper contracts began. With both longs and shorts mainly conducting intraday operations, total trading volumes for all SHFE copper contracts fell by nearly 1.5 million lots, while positions fell by almost 20,000 lots. 

In spot markets over the past week, the price gap between SHFE 1206 and 1207 copper contracts remained around RMB 400/mt as the delivery day for SHFE 1206 copper contracts approached. The SHFE/LME copper price ratio rose to around 7.3, propelling cargo-holders in spot markets to move goods for cash.

Spot copper premiums fell all the way and turned into discounts Friday, down from RMB 200/mt, and discounts for standard-quality imported copper hit RMB 120/mt as copper prices rose above RMB 55,000/mt. Downstream producers stood on the sidelines, while some traders purchased copper due to discounts during the last trading day. But overall market transactions remained limited as overall market supply still exceeded demand.

SMM anticipates SHFE copper prices in the coming week will test the 20-day moving average and remain above RMB 54,500/mt before possibly rising to RMB 56,000/mt. SHFE 1210 copper contracts will become the most active copper contract in the coming week.

Aluminum
The rate cuts by China's central bank provided only limited support, with the most actively traded SHFE aluminum contract hovering narrowly between RMB 15,820-15,950/mt and struggling at the 5-day moving average. Capital inflows into the aluminum futures market remained light, with contracts only around 6,000-7,000 lots. In China's domestic market, as liquidity pressure eases, conditions in downstream sectors should also improve, but the most active SHFE aluminum contracts will remain volatile due to LME instability. Support is expected at RMB 15,800/mt, with the upper limit at RMB 16,000/mt. Spot discounts and premiums should be within RMB 30/mt and RMB 20/mt, respectively. There are market rumors that power rates in some regions of China will be cut and that some aluminum producers would then resume production, which may weigh down spot aluminum prices.

In the spot market, the selling interest was high as the delivery date neared, but purchases were still made on an as-needed basis due to weak orders. Spot prices headed near current-month SHFE aluminum, with both premiums and discounts staying within RMB 20/mt. Trading remained light. Spot discounts and premiums should be within RMB 30/mt and RMB 20/mt, respectively. There are market rumors that power rates in some regions of China will be cut and that some aluminum producers would then resume production, which may weigh down spot aluminum prices.

Lead
Last week, SHFE lead prices moved between RMB 15,100-15,200/mt on Monday after news of the Spanish bailout and tested RMB 15,000/mt over the rest of the week. SHFE lead prices, influenced by LME lead prices, will edge up in the coming week to between RMB 15,000-15,250/mt.
 
In China's domestic spot markets, lead prices remained between RMB 14,950-15,130/mt. Most brands, with the exception of Shenqian and brands from the Gejiu region, were quoted above RMB 15,000/mt due to production costs. Supply from Chihong Zn & Ge was tight due to ongoing repairs. Smelters only sold goods moderately at low lead prices, while purchases from downstream buyers did not improve, leaving transactions relatively flat at last week's level. Spot premiums should grow with the delivery of SHFE lead contracts, but lead prices are expected to stabilize in the coming week. Smelter's selling interest should rise slightly, but demand from lead-acid battery producers is not expected to improve. Traded prices in spot lead market should be RMB 15,000-15,200/mt.

Zinc
SHFE three-month zinc contract prices tracked LME zinc prices, opening higher on Monday and moving as high as RMB 14,980/mt, but later fell as shorts sold aggressively. SHFE three-month zinc contract prices fell to moving averages, finding support at RMB 14,750/mt over the next few days as  markets remained cautious. SHFE zinc prices fluctuated narrowly during the week due to market uncertainty, meeting resistance at the 20-day moving average.
 
In domestic spot markets, spot transactions were extremely muted, with traded prices between RMB 14,700-14,800/mt, and spot discounts remaining between RMB 80-120/mt. Spot markets were stable, however, keeping SHFE zinc prices in a narrow band. This left little arbitrage opportunity due to low discounts, and since downstream demand was also sluggish, spot markets were quiet.
 
Last week, spot inventories continued to fall but the decline slowed. Inventories in East China fell by 2,000 mt, to 458,400 mt. Inventories in South China fell by 3,300 mt, to 86,900, while inventories in North China fell by 500 mt, to 6,000 mt. Some imported zinc moved to domestic spot markets, but spot inventories were still down due to limited trading and since smelters had cut output to conduct maintenance.

Tin
Last week, prices in Shanghai tin market continued falling with traded prices down to RMB 150,500-152,000/mt last Friday, and a few transactions were done at RMB 149,500/mt Friday. Transactions in the market did not improve despite lower spot tin prices. Orders at downstream enterprises dropped further with weak demand. Most smelters continued cutting production and were reluctant to move goods, limiting tin supply in the market. The directionless LME tin prices failed to offer any guides to domestic tin prices, and Greek election remained the market focus.

Nickel 
Jinchuan Group raised nickel prices to RMB 124,000/mt, up RMB 2,000/mt, and as of last Friday, the average spot nickel price was RMB 122,240/mt, up RMB 1,250/mt. Jinchuan nickel prices have remained above RMB 124,000/mt, while arbitrage activity has also helped keep spot prices firm. Premiums for Russian nickel and imported nickel supply were both down, causing the price spread between Russian and Jinchuan nickel to narrow from RMB 3,800/mt, to RMB 3,000/mt. Downstream buying interest was still low, however, keeping transactions muted.

 

SMM Weekly Review and Forecast (Jun. 11-15)

SMM Insight 03:55:40PM Jun 18, 2012 Source:SMM

SHANGHAI, Jun. 18 (SMM) – As the Greek election neared, the Spanish credit ratings were lowered again while Italian and Spanish government bond yields climbed. The US economic data was also softer than anticipated, pressuring US equity markets down. The US dollar index, though, retreated continuously, down below the 82 mark. In consequence, China's base metals stopped falling and began stabilizing over the past week, with the SMMI increasing slightly by 1.09%. As nickel prices rose significantly, the SMMI.Ni also increased considerably by 2.28%. The SMMI.Cu gained 1.74%. Nevertheless, the SMMI.Sn and SMMI.Al slid by 0.82% and 0.16%, respectively, as tin and aluminum prices extended losses. 
       
Copper
Boosted by the cut by China's central bank's to benchmark interest rates, the Shanghai Composite Index struggled around 2,300, but still rose by more than 1%. As the SHFE/LME copper price ratio continued to rise, SHFE copper fluctuated in the RMB 53,600-54,500/mt range last week, climbing as high as RMB 55,000/mt and posting a 2% gain. SHFE copper also broke through the 5-day moving average and gained solid technical support as the shift of the most active copper contracts began. With both longs and shorts mainly conducting intraday operations, total trading volumes for all SHFE copper contracts fell by nearly 1.5 million lots, while positions fell by almost 20,000 lots. 

In spot markets over the past week, the price gap between SHFE 1206 and 1207 copper contracts remained around RMB 400/mt as the delivery day for SHFE 1206 copper contracts approached. The SHFE/LME copper price ratio rose to around 7.3, propelling cargo-holders in spot markets to move goods for cash.

Spot copper premiums fell all the way and turned into discounts Friday, down from RMB 200/mt, and discounts for standard-quality imported copper hit RMB 120/mt as copper prices rose above RMB 55,000/mt. Downstream producers stood on the sidelines, while some traders purchased copper due to discounts during the last trading day. But overall market transactions remained limited as overall market supply still exceeded demand.

SMM anticipates SHFE copper prices in the coming week will test the 20-day moving average and remain above RMB 54,500/mt before possibly rising to RMB 56,000/mt. SHFE 1210 copper contracts will become the most active copper contract in the coming week.

Aluminum
The rate cuts by China's central bank provided only limited support, with the most actively traded SHFE aluminum contract hovering narrowly between RMB 15,820-15,950/mt and struggling at the 5-day moving average. Capital inflows into the aluminum futures market remained light, with contracts only around 6,000-7,000 lots. In China's domestic market, as liquidity pressure eases, conditions in downstream sectors should also improve, but the most active SHFE aluminum contracts will remain volatile due to LME instability. Support is expected at RMB 15,800/mt, with the upper limit at RMB 16,000/mt. Spot discounts and premiums should be within RMB 30/mt and RMB 20/mt, respectively. There are market rumors that power rates in some regions of China will be cut and that some aluminum producers would then resume production, which may weigh down spot aluminum prices.

In the spot market, the selling interest was high as the delivery date neared, but purchases were still made on an as-needed basis due to weak orders. Spot prices headed near current-month SHFE aluminum, with both premiums and discounts staying within RMB 20/mt. Trading remained light. Spot discounts and premiums should be within RMB 30/mt and RMB 20/mt, respectively. There are market rumors that power rates in some regions of China will be cut and that some aluminum producers would then resume production, which may weigh down spot aluminum prices.

Lead
Last week, SHFE lead prices moved between RMB 15,100-15,200/mt on Monday after news of the Spanish bailout and tested RMB 15,000/mt over the rest of the week. SHFE lead prices, influenced by LME lead prices, will edge up in the coming week to between RMB 15,000-15,250/mt.
 
In China's domestic spot markets, lead prices remained between RMB 14,950-15,130/mt. Most brands, with the exception of Shenqian and brands from the Gejiu region, were quoted above RMB 15,000/mt due to production costs. Supply from Chihong Zn & Ge was tight due to ongoing repairs. Smelters only sold goods moderately at low lead prices, while purchases from downstream buyers did not improve, leaving transactions relatively flat at last week's level. Spot premiums should grow with the delivery of SHFE lead contracts, but lead prices are expected to stabilize in the coming week. Smelter's selling interest should rise slightly, but demand from lead-acid battery producers is not expected to improve. Traded prices in spot lead market should be RMB 15,000-15,200/mt.

Zinc
SHFE three-month zinc contract prices tracked LME zinc prices, opening higher on Monday and moving as high as RMB 14,980/mt, but later fell as shorts sold aggressively. SHFE three-month zinc contract prices fell to moving averages, finding support at RMB 14,750/mt over the next few days as  markets remained cautious. SHFE zinc prices fluctuated narrowly during the week due to market uncertainty, meeting resistance at the 20-day moving average.
 
In domestic spot markets, spot transactions were extremely muted, with traded prices between RMB 14,700-14,800/mt, and spot discounts remaining between RMB 80-120/mt. Spot markets were stable, however, keeping SHFE zinc prices in a narrow band. This left little arbitrage opportunity due to low discounts, and since downstream demand was also sluggish, spot markets were quiet.
 
Last week, spot inventories continued to fall but the decline slowed. Inventories in East China fell by 2,000 mt, to 458,400 mt. Inventories in South China fell by 3,300 mt, to 86,900, while inventories in North China fell by 500 mt, to 6,000 mt. Some imported zinc moved to domestic spot markets, but spot inventories were still down due to limited trading and since smelters had cut output to conduct maintenance.

Tin
Last week, prices in Shanghai tin market continued falling with traded prices down to RMB 150,500-152,000/mt last Friday, and a few transactions were done at RMB 149,500/mt Friday. Transactions in the market did not improve despite lower spot tin prices. Orders at downstream enterprises dropped further with weak demand. Most smelters continued cutting production and were reluctant to move goods, limiting tin supply in the market. The directionless LME tin prices failed to offer any guides to domestic tin prices, and Greek election remained the market focus.

Nickel 
Jinchuan Group raised nickel prices to RMB 124,000/mt, up RMB 2,000/mt, and as of last Friday, the average spot nickel price was RMB 122,240/mt, up RMB 1,250/mt. Jinchuan nickel prices have remained above RMB 124,000/mt, while arbitrage activity has also helped keep spot prices firm. Premiums for Russian nickel and imported nickel supply were both down, causing the price spread between Russian and Jinchuan nickel to narrow from RMB 3,800/mt, to RMB 3,000/mt. Downstream buying interest was still low, however, keeping transactions muted.