SMM Daily Review - 2012/6/29 Base Metals Market

SHANGHAI, Jul. 2 (SMM) –

Copper
As LME copper remained weak overnight, SHFE 1210 copper contract, the most active one, started RMB 130/mt lower at RMB 54,070/mt Friday. After the opening, the contract hovered narrowly around RMB 54,150/mt amid position closings. Near the midday, the euro surged and helped LME copper soar through USD 7,500/mt. The Shanghai Composite Index also climbed by 1.4% and caused the contract to break resistance at RMB 55,000/mt before continuing to climb up, since longs took the opportunity to enter markets. SHFE 1210 copper contract touched a high at RMB 55,410/mt in the afternoon and basically lurched around RMB 55,200/mt before the tail of trading. Finally, SHFE 1210 copper contract closed RMB 1,040/mt or 1.92% higher at RMB 55,240/mt, with trading volumes increasing by 265,000 lots but positions decreasing by 16,868 lots. Total trading volumes for all SHFE copper contracts added by 336,000 lots, while positions fell by 35,614 lots. Both longs and shorts were eager to close positions amid rebounding copper prices, but longs had little interest in keeping up with rising prices at above RMB 55,000/mt. Longs and shorts will continue to struggle around RMB 55,000/mt during July, but the low-end SHFE copper price is likely to rise.

SHFE copper prices opened lower in the morning, but cargo-holders in spot markets were selling aggressively during the last trading day of June, leading spot copper premiums to fall and even turn into discounts. Spot copper offers were between discounts of negative RMB 80/mt and premiums of positive RMB 20/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 54,700-55,100/mt, and RMB 54,750-55,200/mt for high-quality copper. As the euro surged near the midday and helped LME copper soar, SHFE 1207 copper contract also increased by nearly RMB 1,000/mt, depressing cargo-holders of hedged copper in spot markets. In the context, cargo-holders in spot markets quoted mixed prices, and market activity became more lackluster at prices above RMB 55,000/mt owing to cash flow problems. In the afternoon, SHFE copper prices rose further, but spot copper market transactions were limited owing to the same cash flow problems. Some cargo-holders still chose to move goods at discounts, with mainstream copper discounts offered between negative RMB 80-20/mt, while traded prices increased to RMB 55,500-55,680/mt. However, market activity remained muted in the afternoon. SHFE copper stocks added by 2,358 mt to 139,442 mt last Friday, highlighting cash flow problems at the month’s end and sluggish consumption.

Aluminum
The most active SHFE aluminum contract for October delivery started higher at RMB 15,310/mt and settled up RMB 135/mt or 0.88% at RMB 15,390/mt, after finding its high at RMB 15,480/mt. Positions dropped 4,524 lots to 119,324 lots. SMM expects the contract to struggle within RMB 15,000-15,500/mt for the near term as soft fundamentals limit its upside space. Macro economic factors now seem to have gained control of SHFE aluminum price trends. Latest SHFE aluminum stocks added 3,051 mt to 312,477 mt.

Spot aluminum was traded at RMB 15,480-15,500/mt in Shanghai, with low-iron aluminum trading at RMB 15,580-15,600/mt. Spot aluminum failed to gain as much as SHFE aluminum did on the last trading day of June as buying was extremely weak while supply was sufficient, with spot discounts expanding to as much as RMB 100/mt. Spot aluminum prices were stopped at RMB 15,500/mt and deals were limited. Both buyers and sellers moved aside in the afternoon, with only sparse quotations at RMB 15,510-15,520/mt being reported. Deals were hardly concluded as supply below RMB 15,500/mt was rare.

Lead
On Friday morning, it was reported EU leaders agreed that ESM funds could be injected directly into banks, so LME lead prices rallied along with other commodities after opening at RMB 14,515/mt and touched a high of RMB 14,730/mt to finally close at RMB 14,635/mt, up RMB 120/mt. Trading volumes were down 40 lots to 210 lots, while positions were up 32 lots to 1,984 lots.

SHFE lead prices rallied to RMB 14,605/mt after opening on Friday. Quotations in China’s spot lead markets moved up. Well-known brands including Chengyuan were quoted at RMB 14,650/mt. Dongling was quoted RMB 100/mt higher than SHFE 1209 lead contract price. Offers from Shenqian were between RMB 14,590-14,600/mt. Quotations from Nanfang were rarely reported. Smelters remained reluctant to sell goods, but downstream buying interest improved.

Zinc
Last Friday, SHFE 1210 zinc contract prices opened at RMB 14,300/mt, fluctuating between RMB 14,300-14,400/mt in the morning session. As president of the European Council said an agreement on deepening integration in the euro zone has been reached, the euro surged while the US dollar index plummeted, pushing up LME zinc prices. As large numbers of longs entered the market in the afternoon, SHFE 1210 zinc contract prices touched an intraday high at RMB 14,720/mt, and moved between RMB 14,550-14,700/mt, and finally closed at RMB 14,585/mt, up RMB 275/mt or 1.92%. Trading volumes increased by 27,874 lots to 235,074 lots, and total position decreased by 21,976 lots to 191,372 lots.

In domestic spot markets, spot prices were closed to SHFE zinc prices. #0 zinc was traded around RMB 14,350/mt. Downstream buyers purchased as needed previously due to the lack of orders, and did not increase purchases despite lower prices. Discounts of spot goods expanded to RMB 40/mt at noon as SHFE zinc prices surged, with spot prices up to RMB 14,370-14,400/mt. #1 zinc was quoted between RMB 14,310-14,340/mt. As SHFE zinc prices continued to rise, spot discounts further expanded to as high as RMB 100/mt in the afternoon, allowing traders to purchase actively. But downstream buying interest was still low. Some traders won arbitrage opportunity, while some smelters released some spot goods due to pessimism, leading transactions brisk.

Tin
In Shanghai tin market, traded prices for spot tin were mainly between RMB 145,500-148,000/mt on Friday, and transactions did not improve with strong wait-and-see mood in the market. A few transactions for Jinlong were made concluded at RMB 145,000/mt. Deals for Jinhai, Yunheng, Yunxiang, and Yunxi were mainly made between RMB 145,500-146,000/mt. The weak demand continued to weigh on spot tin prices and LME tin prices, although stopped falling, did not offer enough support to spot tin prices. Major tin enterprises lowered quotations, panicking market players and leading many to sell off.

Nickel
Last Friday, mainstream prices of Jinchuan nickel were between RMB 121,500-121,700/mt in the morning session, while mainstream Russian nickel prices were between RMB 118,000-118,300/mt. As LME nickel prices rose in the afternoon, quotes of Jinchuan nickel rose to RMB 121,800/mt, while quotes for Russian nickel surged to RMB 118,800/mt. Although traders raised prices, downstream buyers were cautious, leaving transactions muted.