SHANGHAI, Jun. 26 (SMM) -- Greek election results have temporarily pushed back euro exit worries, but surging Spanish debt yields will continue to draw most investor attention. Several emerging economies promised an over USD 900 billion capital injection for IMF, with USD 43 billion coming from China, which is expected to help ease the European debt crisis and investor worries. The US dollar rebounded after Fed disappointed QE3 forecasters with a extended “Operation Twist”, dragging metals to losses. The SMMI lost 0.26%, with SMMI.Al losing the most 1.04% and copper retaining a slight 0.04% gain. Slight losses were seen in other base metals indexes.
LME copper was unable to gain upward momentum last week. Greece’s conservative party won the recent election, and the latest G20 announced that it would create a banking union, helping push down borrowing costs in the euro zone and lift the euro higher to 1.27. LME copper also rose to USD 7,620/mt amid improved market sentiment. However, Spanish government bond yields rose above 7% to their highest level since 1997. The US economic growth rate was adjusted downward following recent disappointing US economic news, including a relatively high unemployment rate. The Federal Reserve (Fed) announced last Wednesday that it would extend its “Operation Twist” program through the end of 2012, but failed to introduce the third round of quantitative easing. In response, market risk aversion grew and helped the US dollar index level out near 81.4. US crude oil prices, however, moved lower and were expected to fall below USD 80/bbl. LME copper fell after initially rising, falling to USD 7,420/mt, a drop of more than 1% and erasing all weekly gains. Investors were wary of operations during the week while awaiting the result of the European Union (EU) meeting on June 22nd. Trading volumes on the LME fell by nearly 30,000 lots, with positions also down sharply. LME copper faced upside resistance, but gained support from technical indicators.
SHFE copper prices fell last week after initially rising. SHFE copper prices tracked rebounding LME copper prices earlier last week, but then fluctuated narrowly around RMB 54,800/mt, with resistance at RMB 55,500/mt. However, as the Shanghai Composite Index closed lower by over 1.4%, SHFE copper prices gave up previous gains and fell back down to RMB 54,300/mt on Thursday. Mixed macroeconomic data, as well as the approach of the Dragon Boat Festival in China, kept both longs and shorts cautious toward operations. SHFE 1210 copper contracts became the most active copper contract on June 19th. Trading volumes for all SHFE copper contracts fell by over 350,000 lots during the week, and SHFE copper prices searched for support at the 5-day moving average after losing support at the 30-day moving average.
A sluggish global economy and reports of power subsidies in China led to strong short-selling in aluminum markets. LME aluminum extended its losing streak to a ninth trading day, with pressure at the 5-day moving average increasing and prices falling to a two-year low of USD 1,900/mt. SHFE aluminum also hit a new low for the year at RMB 15,615/mt, and failed to rebound due to strong resistance at RMB 15,800/mt. SMM aluminum prices fell along with SHFE aluminum prices, to hit a new low for the year near RMB 15,700/mt. Heavy losses in aluminum prices caused large traders to hold goods, but SME traders were still willing to sell, keeping spot premiums near RMB 50/mt. Stock replenishment demand was weak before the upcoming holiday, keeping trading light.
SHFE lead prices touched RMB 15,280/mt early last week, but later fell and moved narrowly around RMB 15,000/mt. SHFE lead prices are expected to move between RMB 14,900-15,150/mt this week.
A wait-and-see mood prevailed in China’s domestic spot markets, leaving transactions quiet. Dealers were eager to sell goods ahead of the Chinese Dragon Boat Festival holiday, but downstream buyers were not inclined to replenish stocks in large amounts. Traded prices were between RMB 15,040-15,130/mt. Smelters may be more willing to move goods in order to improve interim financial statements this week, but downstream buyers are expected to only buy goods on an as-needed basis, with spot prices expected between RMB 14,950-15,150/mt this week.
LME zinc prices rose to a high of USD 1,924.8/mt on Monday following the win by Greece’s pro-austerity party, but short-selling at high prices dragged prices down to USD 1,900/mt in morning trading. Surging Spanish government bond yields later rekindled investor worries, pulling LME zinc prices down further to USD 1,880/mt. Prices remained between USD 1,880 and 1,900/mt over the next two days as investors awaited news from the US Federal Reserve interest rate meeting.
SHFE zinc tracked LME price trends and moved higher to RMB 15,130/mt, but fell back to hover within the RMB 14,850-14,950/mt price ban, finding strong support at the 5-day moving average.
Inquiries in spot markets increased following quiet trading activity the previous week, but overall traded volumes remained low due to weak production orders. Spot zinc prices climbed near RMB 14,850/mt on Monday, attracting some smelters to sell goods and ease tight market supply. Arbitrage opportunities appeared during the day as SHFE zinc prices rose faster than zinc spot, temporarily increasing spot trading activity. Stock replenishments did not materialize before the upcoming holiday in China due to bearish downstream orders.
Last week, China’s domestic tin market remained quiet with traded prices mainly between RMB 150,000-150,500/mt. Since LME tin prices slumped last Wednesday, depressing market sentiment, quotations below RMB 150,000/mt were more frequently reported with the lowest prices at RMB 149,500/mt. Spot tin prices were relatively resistant due to fewer goods supply. Smelters were still unwilling to move goods. According to SMM’s survey, orders at downstream enterprises were still declining, leaving actual demand rather weak. Buyers downstream were reluctant to buy goods and dealers replenished stocks cautiously.
Market worries over a possible Greek exit from the euro zone eased after results from last week’s election in Greece. As a result, LME nickel prices opened high during Asian trading hours, rising briefly to USD 17,040/mt. Later, yield for Spanish 10-year government bonds rose above 7%, rekindling market fears over an expansion of the European debt crisis. During European and US trading hours, LME nickel prices retreated to USD 16,900/mt. As the week proceeded, market attention was shifted to the US Federal Reserve interest rate meeting, and market expectations over the introduction of new stimulus measures grew since current measures will expire at the end of June. These expectations drove up US stock markets, as well as LME nickel, which hit USD 17,000/mt. On Wednesday evening, the Fed announced it would extend the current “Operation Twist” program through the end of the year, but would add USD 267 billion more to the program in which the Fed sells medium-term bonds in order to buy longer-term ones. The decision generated mixed response in the market since there was no mention of QE3 measures. In this context, LME nickel prices fluctuated narrowly and closed at USD 17,097/mt on Wednesday, unchanged from the early week opening price.
As of last Thursday, the average price in domestic spot nickel market was RMB 123,070/mt, up RMB 830/mt on a weekly basis. Last week, imports of Russian nickel to China were down significantly due to the unfavorable Shanghai/LME nickel price ratio, but markets did not experience any supply shortages since demand was weak. Many private stainless steel mills have cut output or shut down production for unit maintenance as the peak power consumption and low demand period begins. As a result, demand for refined nickel was down and trading was light, with no significant stock replenishments reported ahead of the Chinese Dragon Boat Festival.