SHANGHAI, Jul. 2 (SMM) – The EU leaders approved a EUR 120 billion plan including injecting funds to European investment banks on the EU summit last week to stimulate economy, but the proposal was doubted by several Euro zone countries. As bond yields in Spain and Italy kept climbing, the US dollar index, as a safety haven, was driven to stabilize at above 82.5, limiting the rally of commodities. As a result, SMMI dropped 0.91% last week with lead, zinc, tin and nickel prices all falling over 1%. Of these, SMMI.Sn slumped as much as 1.9%, followed by SMMI.Pb which was down 1.84%. SMMI.Cu, being the most resilient one, fell only 0.54%.
HSBC announced a preliminary China manufacturing PMI for June of 48.1, down from May’s final reading of 48.4 and a new seven-month low, while the new export order sub-index registered its largest drop since March 2009. In response, the Shanghai Composite Index fell by 2%, to below 2,200/mt, and further weighed down SHFE copper prices to around RMB 54,000/mt. Despite demand support at the lows, sales at the highs dominated markets.
In spot markets last week, the rising SHFE/LME copper price ratio prompted cargo-holders to move goods in order to generate cash at the month’s end, increasing market supply. Cash flow problems and the lack of clear copper price trends greatly depressed purchases from both traders and downstream producers. This resulted in market surpluses.
SMM believes SHFE copper may break through the resistance level of RMB 55,500/mt in the coming week.
Early pessimism in the recent EU Summit caused the US dollar index to consolidate at 82.5, dampening any possibility of a rebound in commodity prices. The most active SHFE aluminum contract price fell below RMB 15,000/mt and triggered intensive short selling on Tuesday after energy subsidies were announced in Henan and Guizhou provinces. Prices rebounded, but met strong resistance at RMB 15,400/mt. LME aluminum hit a new two-year low of USD 1,832.5/mt as SHFE aluminum prices plunged, but returned above the 5-day moving average as shorts took profits. Spot aluminum prices fell as much as RMB 450/mt over the three days of trading following the Chinese Dragon Boat Festival holiday, hitting RMB 15,210/mt amid panic selling. Deals were limited, however, due to tight cash flows at the end of the first half of the year and from sluggish demand.
Spot aluminum prices dropped from a high of RMB 15,660/mt to as low as RMB 15,210/mt following the Chinese Dragon Boat Festival holiday, leading to anxious selling from traders. Buying weakened further on tight cash flows at the end of the quarter and weak orders, reining in premiums. Though aluminum prices rebounded slightly later in the week, market sentiment remains bearish. Buyers have become rare despite the best efforts of traders to boost sales. This is now reflected in higher discounts.
SHFE lead prices fell 3% to a low of RMB 14,405/mt last week, down from RMB 14,780/mt. SHFE 1209 lead contract became the most actively traded contract last Thursday. SHFE lead prices are expected to stabilize between RMB 14,500-14,850/mt this week.
Spot lead prices in China’s domestic markets fell from RMB 14,900/mt to RMB 14,600/mt, a drop of RMB 300/mt, with spot premiums over the most active SHFE lead price expanding to RMB 150/mt, up from RMB 100/mt a week ago. Although spot lead prices showed some resilience, weak demand gave no support to lead prices. Buying interest improved slightly due to lower prices, but smelters still held offers firm despite financial pressure, leaving transactions modest. Spot lead prices in domestic markets will resist declines this week, but will met resistance to rise above RMB 15,000/mt. If lead prices remain below RMB 15,000/mt, smelters will be more reluctant to move goods as financial pressures ease in early July. Buying interest from downstream enterprises may also remain depressed by poor orders.
Last week, the European Central Bank announced it would lower requirements for mortgages and supply additional liquidity to financial institutions. Leaders from European nations, including Germany, agreed to push the latest stimulus plan of EUR 130 billion, which allowed LME nickel prices to open high on Friday and move higher during the day. However, market confidence was soon depressed and LME prices closed the day down due to the mixed attitudes from euro zone leaders toward a joint euro zone government bond issue. Later in the week, Spanish 6-month government bond yields climbed from 1.793%, to 3.369%, and 3-month government bond yields also rose from 0.879%, to 2.500%. Yields for 10-year government bonds rose by 7%. Optimistic expectations for the EU summit were dampened as a result, causing LME nickel prices to fall further and close Thursday at USD 16,220/mt, down USD 500/mt compared to Monday’s opening price.
By Thursday, the average price for spot nickel was RMB 119,950/mt, down RMB 3,120/mt from a week ago. Jinchuan Group lowered nickel prices on Monday to RMB 121,000/mt, a cut of RMB 3,000/mt. Due to the unfavorable Shanghai/LME nickel price ratio, Russian nickel imports were still limited. Profit margins for Jinchuan nickel narrowed and traders were unwilling to sell goods, and as a result, transactions for Russian nickel were more active than those for Jinchuan nickel
Last week, Shanghai tin market remained sluggish with spot tin prices keeping falling. Mainstream traded prices in spot market fell to RMB 146,000-148,000/mt as of last Friday from RMB 149200-150500/mt early last week. Some transactions were made at RMB 145,500/mt. The weak demand and light trading were the major factors behind the falling prices. Besides, since LME tin prices remained weak and since some major tin producers lowered quotations, market players in a panic also sold goods at lower prices. However, transactions were still not turning better. Some dealers became unwilling to sell goods due to the plunging prices.
SHFE zinc prices tracked LME zinc prices, with SHFE zinc prices opening lower after the holiday, and falling below all moving averages and drifting lower toward RMB 14,500/mt. SHFE zinc prices were down 1.72% on Tuesday and as large numbers of short sellers entered the market, SHFE zinc prices fell to a record low for the year at RMB 14,145/mt. On Thursday, prices were more stable, fluctuating between RMB 14,250-14,400/mt.
Spot discounts for SHFE three-month zinc contract prices fell sharply from the pre-holiday range of RMB 60-80/mt. Spot prices were close or higher than SHFE zinc prices, but since spot discounts were not favorable for arbitrage trading, goods were available from only a few arbitragers. Due to cash flow problems, downstream buyers did not increase purchases, and the market turned pessimistic towards zinc prices. Spot zinc prices fell from RMB 14,700/mt, to RMB 14,200/mt, moving as low as RMB 14,170-14,180/mt.