SHANGHAI, Jun. 19 (SMM) –
LME copper rallied to USD 7,600/mt as the crisis of Greece withdrawing from the Euro zone eased temporarily, helping SHFE 1209 copper contract, the most active one, started significantly up by RMB 680/mt at RMB 55,440/mt Monday. After the opening, an increasing US dollar caused LME copper to come under pressure at USD 7,600/mt. With growing selling pressures for SHFE forward copper contracts, the most active copper contract fell gradually and narrowed gains amid position closings, down to a low at RMB 54,980/mt. In the afternoon, as LME copper stopped sliding, SHFE 1209 copper contract rallied and hovered weakly around the daily moving average before finally ending at RMB 55,210/mt, up RMB 450/mt or 0.82%. Trading volumes and positions for SHFE 1209 copper contracts fell by 89,072 lots and 17,654/mt, while trading volume and positions for SHFE 1210 copper contract increased by 54,558 lots and 19,838 lots, highlighting the continuous shift of the most active copper contract, which should be completed Tuesday. Longs became more willing to keep up with the rising prices during the day, and the support at the 30-day moving average for SHFE copper will be tested repeatedly for the near future.
SHFE copper prices rebounded, but spot copper offers turned into premiums after SHFE 1206 copper contract was delivered. Spot copper premiums were quoted between positive RMB 150-250/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,650-55,750/mt, and RMB 55,680-55,850/mt for high-quality copper. Cargo-holders in spot markets quoted prices a little late and held prices firm at the lows. They especially offered high premiums to move goods near the midday. However, some traders increased purchase volumes voluntarily owing to optimism towards future copper prices, contributing the most to market transactions. Downstream producers, though, kept on the sidelines since they were skeptical over continuous copper price rebounds.
SMM conducted a survey with regard to copper price trends this week.
Based on the survey, 57% of market insiders are optimistic about the outlook, believing LME copper will likely hold to the 20-day moving average of USD 7,530/mt before increasing to the 30-day moving average of USD 7,675/mt and that SHFE copper will rally to RMB 56,000/mt. The pro-bailout New Democracy Party in Greece has won the vote, so Greece will not exit the Euro zone over the near term, helping improve market sentiment and boosting copper prices. The US dollar index closed down for five consecutive days and has retreated below the 30-day moving average, with only support at the 60-day moving average while its technical indicators continue to point downside, another positive factor for this week's copper prices. Gold and crude oil prices have successfully consolidated in the near term based on technical indicators and are likely to extend gains during the week. In China's domestic markets, the social insurance funds were again allowed to enter markets again in May following the same move seen seven months ago, so Chinese stock markets are likely to stop falling and begin stabilizing, which will provide support for domestic copper prices. Spot copper offers have turned into premiums again after SHFE 1206 copper contracts were delivered and are favorable for copper prices. Hence, these insiders expect copper prices to reach highs this week.
33% of market insiders anticipate copper prices to fluctuate at current values this week, LME copper around USD 7,500/mt and testing between the 5 and 20-day moving averages, and SHFE copper between RMB 54,500-55,500/mt. The recent US economic figures are sluggish and markets are negative about this week's housing starts and existing home sales. However, market speculation the Federal Reserve (Fed) will introduce loose monetary measures is heightening. Hence, copper faces difficulties to either move higher or trend lower. US equity markets will likely fall from initially surging, which will restrict copper prices to rebound. Besides, both selling pressures and buying support were limited after LME copper rebounded Monday, and longs and shorts competed severely at RMB 55,000/mt on the SHFE market, and they will shun risks ahead of the Dragon Boat Festival Friday. As such, these insiders hold the view copper prices will lurch this week.
The remaining 10% of insiders are pessimistic, expecting LME copper will sink to around USD 7,400/mt and that SHFE copper will test support at RMB 54,000/mt. Although the possibility of Greece quitting the Euro zone falls, uncertainty prevails, while government bond yields in Spain and Italy remain high. This means European countries still face an uneven road to tackle their debt problems in the future. The Euro zone will announce the PMI data for June, which is expected by markets to remain weak, dampening the euro's movements this week. According to the latest CFTC reports, net short positions have reached as high as 14,952 lots. On the copper fundamentals side, LME copper stocks rose by 19,775 mt last week and will depress copper prices. As the SHFE/LME copper price ratio improves, more imported copper will flow into domestic markets. SHFE copper rebounded but suffered selling at the highs. Copper demand remained slack even during the seasonal peak demand period and will remain so during July and August. Therefore, these insiders see copper prices falling this week.
The most active SHFE aluminum contract for September delivery opened slightly higher at RMB 15,885/mt, shortly hit RMB 15,900/mt and trended downward. Its losses accelerated in the afternoon to finally settle at its low of RMB 15,800/mt, down RMB 65/mt or 0.41%. Positions dropped 244 lots to 100,346 lots. Rumors about preferential power rates ignited bearishness in the aluminum market, pressuring on aluminum prices. The most active contract is expected to see even weaker support at RMB 15,800/mt.
Spot aluminum was traded at RMB 15,870-15,890/mt in Shanghai, with low-iron aluminum trading at RMB 15,950-15,970/mt. Greece's euro exit risks have dropped considerably but debt worries stay. Metals prices started higher and narrowed gains. SHFE aluminum's rebound was restrained by LME aluminum performance. The current-month contract was still pressured at the RMB 15,900/mt mark. Spot aluminum consumption was sluggish, with downstream continuing to purchase as-needed. The selling interest was high, helping mainstream traded prices stabilize. Prices in Wuxi and Hangzhou had hit RMB 15,900/mt but traded volumes were flat. Purchases in the afternoon were hardly seen while goods were easy to find. Only a few deals were done at RMB 15,870/mt. The overall market sentiment was bearish.
SMM statistics show the average traded price of spot aluminum in Shanghai was RMB 15,887/mt last week, down RMB 28/mt from a week earlier. SMM contacted 29 traders on this week's aluminum prices, with 2 bullish, 18 neutral and 9 bearish.
The 2 bullish traders said Greece now is able to take measures to contain its debt woes, which will boost the euro and create space for LME aluminum to rebound. LME aluminum prices already slipped to USD 1,926/mt, a 2012 low, which should be followed by a correction. In China, supportive policies have already been responded with improving property sales. SHFE aluminum is likely to rebound supported by LME aluminum performance. After a shift in the current-month contract, spot aluminum prices may climb to a possible high of RMB 15,950/mt. Spot prices will only see discounts within RMB 10/mt.
The 18 traders with neutral views said Greece is but one source of worry in the euro zone, and Spain and Italy will continue to unnerve investors. That is also the reason why the euro only saw a slight rebound against the US dollar after the Greek election ended with positive results. The US dollar index has stayed at high levels. Though investors again and again expected QE3, the US has delivered somewhat stable measures to help the US dollar index stay near 82 and pressure LME aluminum prices to new lows of the year. SHFE aluminum prices, though showed resistance to losses, were still soft. However, production losses and traders as well as producers will also help prices stabilize. These traders expect aluminum prices of RMB 15,850-15,900/mt for this week.
The 9 bearish traders said before the European debt crisis has a clear aid plan, any rebound space will be limited. In addition, the US has been continually pressing down QE3, with the US dollar index climbing nonstop and commodities prices being pressured. LME aluminum prices already hit last week USD 1,926/mt, a new low of the year, and may shed further losses as support has been fragile. SHFE aluminum prices plunged at the tail of trading last Monday, with all moving averages trending downward and the bottom is still hard to spot. Power rate cuts in Henan and Guangxi, as well as other regions, if are finally realized, will add pressure on supply, while lower power rates, which means lower production costs, will also weigh on prices. These traders expect aluminum prices to dip to RMB 15,800-15,850/mt this week.
On Monday, SHFE lead prices gapped RMB 180/mt higher at RMB 15,280/mt boosted by the result of the Greek election. Later, SHFE lead prices fluctuated down due to a lack of buying activities and gained support at RMB 15,160/mt to stabilize between RMB 15,160-15,175/mt, with prices finally closing at RMB 15,150/mt, up RMB 45/mt. Trading volumes were down 64 lots to 78 lots, while positions remained unchanged at 2,180 lots.
Branded lead in China's spot lead market, including Nanfang, were quoted at RMB 15,190/mt, with spot premiums of RMB 50/mt against the most active SHFE lead contract price. Mengzi and Hanjiang were quoted between RMB 15,120-15,140/mt. Offers of Shenqian was at RMB 15,080/mt. The actual traded prices were RMB 20-30/mt lower than quotations due to weak consumption downstream. Smelters were reluctant to sell goods with bullish outlook but dealers were moving goods actively. Downstream buyers purchased as needed, leaving transactions quiet.
An SMM survey shows that opinions on lead prices were divided despite the end of Greek election. 47% market players were optimistic, believing lead prices will edge up to touch RMB 15,300/mt this coming week. The crisis in Greece was temporarily eased as the pro-bailout New Democracy party won the election on Sunday. Meanwhile, the lower-than-expected manufacturing and industrial production data in the US added to market expectations on QE3 measures, improving market sentiment briefly. Moreover, technical indicators presented an upward trend, and lead prices in China's domestic spot markets tended to stabilize, probably driving up the lead consumption downstream. Thus, optimistic investors expect lead prices may be RMB 15,100-15,250/mt this coming week.
40% market players note lead prices will not likely improve. The result of the Greek election is in line with market expectations and will not exert significant influence on market. Furthermore, whether the elected party is able to form a coalition government still remains uncertain, meaning the possibility for the third general election still exists. Besides, there is strong disagreement on the implementation of QE3 which is expected to be discussed on the upcoming meeting of the Fed. Market focus will return to the US economy after the Greek election. Investors remain cautious fearing remaining market risks. In China's domestic spot markets, demand remains sluggish. As such, these investors believe lead prices should hover around RMB 15,000/mt with traded prices expected between RMB 15,000-15,100/mt.
13% market players were pessimistic. Although Greece's New Democracy party won the election, easing concerns over a Greek exit, it will be tougher for Europe to resolve its debt issue if Greece stays in the Euro zone. In addition, there's little chance for US to adopt QE3 measures in the short term despite the slowing US economy. With respect to market fundamentals, demand for lead-acid batteries may not improve until July when the traditional peak demand season arrives. Smelters are expected to be more willing to sell goods under financial pressures, but consumption downstream will remain soft due to poor orders. Thus, some market players believe it is possible for lead prices to fall further.
SHFE three-month zinc prices on Monday climbed above the previous price band, as the result of second round of election in Greece eased investors' concerns. SHFE 1209 zinc contract prices opened high at RMB 14,980/mt, and rose all the way to hit a recent high of RMB 15,130/mt. Depressed by sell-offs at highs, the zinc contract prices fell back to the RMB 14,910-15,000/mt range. In the afternoon session, SHFE zinc market followed domestic stocks markets, with weak movements reported. Finally, SHFE three-month zinc contract prices closed at RMB 14,980/mt, up 110/mt or a gain of 0.74%. Trading volumes were up 5,380 lots to 67,080 lots, and positions were down 5,374 lots to 152,618 lots.
In the spot market, spot discounts of 0# zinc over SHFE 1209 zinc prices, the most actively-traded contract were between RMB 110-120/mt, and deals were mainly done at RMB 14,890/mt. With falling prices in the SHFE zinc market, spot discounts of #0 zinc over SHFE three-month zinc prices narrowed to RMB 100/mt, with transactions mainly between RMB 14,840-14,860/mt. Quotations for #1 zinc ranged from RMB 14,810/mt to RMB 14,840/mt. Spot zinc prices followed rising SHFE zinc prices on Monday, with small gains reported, helping improve smelters' interest in sales, and traders remained active in moving goods. Downstream producers, however, stayed away from the market after price rose, leading to limited deals. Transactions were mainly made among traders. A strong wait-and-see attitude dominated the market, and overall trading was quiet.
The Democratic Party supporting credit tightening policies won the second round of election in Greece, easing market concerns. As a result, SHFE three-month zinc contract prices opened higher but moved lower.
With regard to zinc price trends this week, 67% of market players believe that zinc prices should continue to rebound and stand at RMB 15,000/mt level. Easing Greek problems boosted market confidence, and large numbers of buyers also pushed up zinc prices. On the other hand, the G20 summit and EU summit will take place. Given negative US CCI and manufacturing data, speculations that the US Federal Reserve will implement QE3 grow, and Goldman Sachs predicts the Fed will release QE3 this week. In this context, LME zinc prices should move between USD 1,910-1,930/mt. China's central bank lowered deposit reserve ratio and interest rates previously, so loosening liquidity will give support to production. Besides, some property markets were loosened, with discounts of 85% for purchasing loans of the first home. As such, SHFE three-month zinc contract prices should be pushed up to RMB 15,100-15,300/mt, with discounts expanding to RMB 120-140/mt.
The remaining 33% believe zinc prices will rebound limitedly, and SHFE three-month zinc contract prices will meet resistance at the RMB 15,000/mt level. Despite Greece's general election result turned out positive, European debt crisis has spread to Spain and Italy. Especially Spanish government bond yields continued to surge since last week, causing concerns to shift to Spain. On the other hand, although Greece will remain in the euro zone, it has to cut financial spending to gain further bailout funds. In this scenario, LME zinc prices should move between USD 1,880-1,910/mt. In domestic spot markets, some smelters could not wait to sell inventories once spot zinc prices rose to RMB 14,800/mt, limiting zinc price rebounds. Zinc prices will meet resistance as end users cut output as the summer sets in, while resistance of spot price increases will cause discounts to expand and arbitrage opportunity, allowing investors to purchase spot goods and sell futures contracts. As a result, SHFE three-month zinc contract prices should move between RMB 14,900-15,100/mt, with spot discounts between RMB 90-120/mt.
In Shanghai tin market, mainstream traded prices were between RMB 150,000-151,500/mt on Monday. The result of Greek election eased market concerns, driving LME tin prices to open higher, so spot tin prices were relatively stable and transactions for low-price goods improved. Nanshan, Jinlong and Jinhai were traded between RMB 150,000-150,500/mt, while Yunxi and Yunheng were traded between RMB 150,800-151,000/mt. Smelters still limited sales, insufficient supply helped support tin prices, but transactions remained weak on the whole due to poor demand.
Regarding to the tin market outlook this week, 45% market players believe tin prices should be between RMB 150,000-151,500/mt. The victory of Greece's New Democracy party during the Greek general election moderated market concerns over a Greek exit and drove up global equity and commodity market as well as euro, buoying base metals in short term. LME tin prices opened higher on the first trading of the week but fluctuated down due to technical indicators. Market expects LME tin prices should improve. Besides, some domestic smelters have not resumed normal production, which will also give support to tin prices.
55% market players believe tin prices will fall further below the RMB 150,000/mt mark. Although the pro-bailout party won the general election, the risk for Greece to leave the Euro zone still exists. Besides, the pullback of European equities and non-US currencies on Monday and surging Spanish government bond yields as well as the rally of US dollar index all indicated market fears. In China, demand for tin ingot remained unimproved, and transactions were mainly done at lower prices. Most investors were cautious. According to SMM survey, operating rates and orders at tin solder producers both slipped in May, coupled with the onset of the traditional slack season, tin demand should remain sluggish, leaving tin prices low.
On Monday, mainstream traded prices for Jinchuan nickel were RMB 124,800-125,000/mt in the Shanghai nickel market, and RMB 122,000-122,300/mt for Russian nickel. In the afternoon business, traded prices fell back, but mainstream traded prices remained unchanged. Supply of Russian nickel tends to drop this week due to the unfavorable Shanghai/LME nickel price ratio, narrowing the price gap between Russian and Jinchuan nickel.
With regard to zinc price trends this week, an SMM survey shows that 50% market players expect nickel prices to rebound strongly in the short term. The result of second round of election in Greece shows that the Democratic Party supporting credit tightening policies won the election, and will likely form a collation government with Pasok. Supported by the election result, the euro against the dollar climbed to the highest level since May 22. A weak dollar helped LME nickel prices advance above USD 17,000/mt.
Approximately 30% of market players, however, understand that nickel prices will drop, as the European debt issues remain unresolved. Those market players believe that debt issues in Spain and Italy are new concerns, despite the easing of problems in Greece. The yield of Spanish 10-year government bonds rose to 7%, and meanwhile that of Italian government bonds also surged. In addition, the pessimists note that any downward room for the dollar will be limited, and may rebound this week, and this will weigh down nickel prices.
The remaining 20% views that nickel prices will continue to fluctuate this week. The result of second round of election in Greece will favor markets in the short term, but market attention is now shifted to the upcoming US Federal Reserve interest rate meeting to be held late this week. LME nickel prices gained after the election result in Greece, but with the lack of further uprising momentum. Hence, they expect LME nickel prices to move between USD 16,700-17,000/mt this week.