SHANGHAI, Jul. 3 (SMM) –
As LME copper surged wildly last Friday, SHFE 1210 copper contract, the most active one, started RMB 960/mt up at RMB 55,750/mt Monday. After the opening, a great number of overnight longs took profit-taking. Besides, the HSBC later announced its final HSBC China manufacturing PMI continued to slip, prompting new shorts to enter markets at the highs. In this context, SHFE 1210 copper contract only touched a high at RMB 55,950/mt and then began trending down, completely coming under pressure at the daily moving average and gradually surrendering daily gains. SHFE 1210 copper contract tested an intraday low of RMB 55,260/mt in the afternoon and finally settled at RMB 55,370/mt, still up RMB 580/mt or 1.06%. Trading volumes and positions for the most active SHFE copper contract decreased by 213,000 lots and 9,440 lots, respectively. Trading volumes and positions for all SHFE copper contracts fell by 240,000 lots and 14,876 lots respectively. Market participants were skeptical over rebounds in SHFE copper prices which faced great pressure at 56,000/mt. SMM thus believes that SHFE copper will fluctuate at relatively high levels for the near future and test effectiveness of recent price rebounds.
As SHFE copper prices moved lower after a high open, the SHFE/LME copper price ratio fell. Cargo-holders in spot markets failed to always maintain premiums during the first trading day of July. Spot copper offers were between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,750-55,820/mt, and RMB 55,800-55,900/mt for high-quality copper. Consumers resisted relatively high copper prices, since downstream producers kept on the sidelines, leading spot copper premiums to fall and even turn into discounts. Traders who hedged against copper price volatility made purchases, but overall market transactions were limited during the day. In the afternoon, SHFE copper prices lurched weakly, so spot copper offers and traded prices were little changed from the morning levels.
SMM conducted a survey with regard to this week's copper price movements.
Based on the survey, 32% of market insiders are optimistic over the outlook, believing LME copper can surge to USD 7,700-7,800/mt and SHFE copper to RMB 56,000-56,800/mt. The two-day EU summit finally yielded three unexpected results: the ESM can directly inject liquidity to banks, the ESM can push down the financing costs through buying government bonds of the heavily debt-stricken countries, and the summit will use EUR 120 billion (around USD 151.9 billion) to boost the economy. Although markets doubted about the implementation of these measures, the summit still boosted global financial markets somehow. Positive attitudes of European leaders should continue to lift markets over the near term and will keep the euro fluctuating at the highs. Besides, owing to the falling risk aversion and technical indicators, the US dollar index still has downside space and will likely remain weak during this week, which will support base metal prices. Technical indicators for copper prices are also pointing upward. In China's domestic markets, cash flows are expected to improve during July, a positive factor for both domestic stock and commodity markets. Therefore, these optimists anticipate copper prices will extend gains this week.
32% of market insiders hold the view LME copper will retreat to last week's trading range, with LME copper expected to fall to USD 7,500/mt and SHFE copper to around RMB 54,500/mt. Although markets cheered European leaders reached consensus at last week's summit, the agreed measures cannot solve the region's debt crisis fundamentally. Hence, surges in a set of risky assets brought by optimism over the summit's positive results are unlikely to sustain for a long time. The euro zone leaders have agreed to establish a united supervisory institution, which is considered as an important step towards building a banking union, but the summit left discussion over the implementation of a banking union till October's and December's summit. Furthermore, Germany's finance minister Wolfgang Schaeuble reiterated Chancellor Angela Merkel's stance that the country is apposed to issue a so-called euro bond, which will prompt new shorts to impose selling pressures. Turning to China's domestic markets, domestic copper markets will gradually enter a traditionally low demand period during July, and pallid consumption will drag down spot copper premiums and thus pressure copper futures prices down. As such, these insiders expect that copper prices may fall to previous fluctuating range this week.
The remaining 36% of insiders see copper prices fluctuating at the highs. They believe that LME copper will hover between USD 7,600-7,700/mt, and SHFE copper will lurch between RMB 55,000-56,000/mt. The US will release May's factory orders index this week, June's ADP employment data and unemployment rate, as well as changes in June's nonfarm payrolls, and markets are unsure about these figures. US equity markets have soared through the 10 and 60-day moving averages after standing above the 5-day moving average last Friday, and are likely to stand at another high this week. Crude oil and gold prices are struggling at recent moving averages and will remain so over the near term, which will restrict both downside and upside room of commodity markets. The SHFE/LME copper price ratio has fallen slightly after copper prices rose appreciably, which means that the supply of imported copper will likely decrease for the near future. Nevertheless, sluggish copper consumption will cap spot copper quotations. As such, these market insiders believe copper prices will continue to fluctuate at relatively high levels this week.
Investor optimism from the late EU Summit deal quickly faded as manufacturing data contracted in both China and Europe due to the European debt crisis. The market focus has now shifted to Friday’s US non-farm payroll data for June. The weakening euro had helped the US dollar strengthening. LME aluminum slipped below and returned above the USD 1,900/mt mark, albeit support at the level has been weak and resistance at the 20-day moving average has been strong. It should stay within a narrow band for the near term and is not likely to break through USD 1,920/mt. Latest LME aluminum stocks were down 11,275 mt at 4,822,650 mt.
The most active SHFE aluminum contract for October delivery started higher at RMB 15,550/mt on Monday boosted by LME aluminum’s the strong performance Friday. Profit-taking by longs, however, dragged it to close lower at RMB 15,440/mt, up RMB 110/mt or 0.72%. Positions dropped 3,004 lots to 116,322 lots. SMM expects the contract to struggle near RMB 15,500/mt for the near term amid contracting Chinese manufacturing data, weak fundamentals and a lack of concrete measures for the EU Summit deal to help contain the region’s debt crisis.
Spot aluminum traded at RMB 15,540-15,570/mt in Shanghai, with low-iron aluminum trading at RMB 15,650-15,660/mt. SHFE aluminum’s fall following a higher opening price did little to boost confidence in spot aluminum. Mainstream traded prices dropped rapidly as buying remained weak in early July while supply has been ample. Quotations were sparse and at RMB 15,520-15,530/mt in the afternoon as the current-month SHFE aluminum contract continued to trim gains. Deals were hardly concluded in the afternoon as buying almost froze among both downstream and middlemen.
A recent SMM survey on 35 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,480/mt last week. 6 of the 35 traders expressed optimism towards this week’s aluminum prices, 16 are neutral while 13 hold bearish views. The proportions of both bullish and bearish respondents increased in the survey.
The 16 traders expecting stable aluminum prices for this week have forecast a trading band of RMB 15,550-15,650/mt, which is based on an assumed balance between support from the late EU Summit deal, which pushed LME aluminum to as high as USD 1,920/mt on Friday, and pressure from disappointing June PMI data from China and Spain stirring worries that a sluggish real economy will continue to drag down metals prices.
SHFE aluminum dipped below RMB 15,000/mt last week, but also recovered fully as Chalco and Chin Power Investment bought to stabilize prices. A higher opening was also seen on Monday, but gains were trimmed due to weak market confidence, with the mainstream traded prices falling below the 10-day moving average.
Lower production costs after introduction of lower power rates for aluminum smelters in Henan, Guangxi, Guizhou, and other regions, are the major cause of the sharp drop in spot aluminum prices, while increasing supply from resuming idled capacity also weighs in a period of sluggish demand. Higher SHFE aluminum prices boosted performance of spot aluminum, but not much, as downstream continues to purchase on an as-needed basis, with spot discounts expanding to RMB 50/mt. Above said, aluminum prices are subject to limited capital input due to uncertainty from macroeconomic news, but will also be supported by large smelters’ efforts to stabilize prices.
The 6 bullish traders sees more support from the late EU Summit deal, adding that SHFE aluminum had been oversold recently amid introduction of lower power rates for aluminum smelters, and that stable consumer goods prices and gradually easing credit supply will help contribute a narrow rebound. Large traders’ low selling interest at low prices will also provide support. While downstream demand is gradually cooling, rigid demand exists, so aluminum prices are expected climb slightly to RMB 15,650-15,700/mt for the near term, according to these traders.
The 13 bearish traders said slightly negative macro economic news remain the dominant factor, as the late EU Summit won’t be able to solve the region’s debt crisis all at once and due to weak performance of euro zone economies. Spain already reported a contracting manufacturing industry and pessimism for other euro zone economic data has become mainstream. In addition, debt woes in Italy, Spain, Greece and Cyprus will continue to drive risk aversion to help the US dollar index stay above 81, thereby weighing on metals prices. Those traders also believe that the introduction of lower power rates for aluminum smelters, together with falling alumina prices, have greatly weakened support from production costs, and will at least prevent any output cut at smelters though the low-demand season has begun. The supply glut consequently will drag aluminum prices below RMB 15,500/mt.
On Monday, SHFE lead prices opened over RMB 100/mt higher at RMB 14,750/mt as market was boosted by the positive result of EU summit last Friday. SHFE lead prices later moved between RMB 14,725-14,785/mt with resistance at the 20-day moving average and support at the 10-day moving average, and finally closed at RMB 14,765/mt, up RMB 130/mt. Trading volumes were up 98 lots to 308 lots, while positions were down 86 lots to 1,899 lots.
SHFE lead prices started RMB 115/mt higher and fell after rising to RMB 14,890/mt on Monday. Quotations in China’s spot lead markets moved up. Well-known brands including Wanyang and Nanfang were quoted between RMB 14,780-14,800/mt, with spot premiums over the most active SHFE lead price narrowing from RMB 120/mt recorded last week to RMB 0/mt. Hanjiang was quoted at RMB 14,720/mt and Mengzi was quoted at RMB 14,750/mt. Smelters remained unwilling to move goods, and traders were willing to purchase due to a lack of supply, but buyers only purchased cautiously.
Market sentiment improved after last weekend’s EU summit. According to SMM’s survey, 53% industry insiders remain conservative and believe the positive influence from the EU summit will be limited. The Bank of England and the European Central Bank will issue interest-rate decision on Thursday, and the US is due to release its report on non-farm payrolls. Besides, opinions on whether the Federal Reserve may introduce QE3 measures remained divided. Given these certain factors, LME lead price movements should be cautious and test USD 1,800/mt and SHFE lead prices are expected to move between RMB 14,600-14,800/mt. In domestic spot markets, downstream enterprises were not actively buying goods due to remaining poor orders despite the arrival of traditional high-demand season, posing resistance for lead prices to rise. Although quotations were held firmly, the actual traded prices will remain low with spot prices expected between RMB 14,700-14,850/mt this week.
27% industry insiders were optimistic. EU leaders agreed to provide EUR 120-130 billion for economic growth and to directly inject capital to Spanish banking system, and decided to take measures to cut down bond yields in Spain and Italy. These all can be regarded as a breakthrough in resolving the European debt issues. The US dollar index consequently slumped to 81.5, and LME lead prices may hit USD 1,900/mt. In China, spot lead prices were still lower than bottom lines of smelters, leaving unwillingness to sell goods remained, which may help support lead prices to certain degree. Thus, optimistic investors expect lead prices will likely hit RMB 15,000/mt this week.
The remaining 20% investors were pessimistic, saying although the outcome of the EU summit was beyond expectations and new measures were put forward on the summit, details on how these measures will be implemented remain unclear. The conflict among some European countries may not be fundamentally resolved in short term. The boost from the EU summit will only be a drop in the sea. In addition, the HSBC China PMI tumbled to 48.2 after seasonal adjustments, the lowest point since March 2009. LME lead prices fell again below USD 1,800/mt as a result. In domestic spot market, buying interest among lead-acid battery producers remains low due to weak demand, so pessimists expect lead prices should move between RMB 14,500-14,700/mt this coming week, giving back the gains at the beginning of the week.
SHFE 1210 zinc prices, the most actively-traded contract opened high at RMB 14,850/mt on Monday following positive news from the EU summit. Later, SHFE three-month zinc prices fell back as the shorts entered the market, and the longs exited the market after booking profits, leaving prices between RMB 14,610-14,680/mt. At the midday, SHFE zinc prices tried to make breakthrough, but failed to do so. In the afternoon session, SHFE three-month zinc prices moved between RMB 14,660-14,690/mt following the struggles between shorts and longs. Finally, SHFE three-month zinc prices finished at RMB 14,680/mt, up RMB 205/mt, or a gain of 1.42%. Trading volumes were down 90,968 lots to 144,106 lots, and positions were down 6,720 lots to 184,652 lots, with an upward momentum still available technically.
In the spot market, spot discounts of #0 zinc over SHFE 1210 zinc prices were between RMB 90-100/mt, with deals in the RMB 14,590-14,600/mt range. As SHFE zinc prices fell, spot discounts narrowed to RMB 80/mt, and transactions were concluded between RMB 14,560-14,580/mt. Quotations for #1 zinc were RMB 14,520-14,540/mt. With pessimistic outlook, some smelters moved to cash in at highs on Monday, and meanwhile traders were also active in sales. Downstream producers, however, were reluctant in purchases. As spot discounts did not expand significantly, traders also showed low buying interest. As a result, overall trading was light.
With regard to zinc price trends this week, 50% of market players believe prices will rise limitedly. Prices rebounded due to the agreement reached at the EU summit, which caused longs to enter the market, with an increase of LME zinc prices nearly 6% on Friday. But as European debt crisis will continue to plague the market, prices should struggle once positive news is absorbed. The US dollar index should rise to 82, and LME zinc prices should move between USD 1,850-1,880/mt. As the SHFE/LME zinc price ratio continued to rise due to slumping LME zinc prices, imported zinc flows to the market, weigh down domestic zinc prices. In the meantime, spot discounts expanded, allowing traders to buy spot goods and sell SHFE zinc contracts, also weighing on SHFE zinc prices. SHFE three-month zinc contract prices should move between RMB 14,600-14,900/mt, with spot discounts between RMB 60-80/mt.
30% investors believe zinc prices will fall this week. Despite positive news released from the EU summit, sluggish manufacturing sector in the euro zone will not improve in the short term. High unemployment rate in the US overshadows the market all the time. In this context, LME zinc prices should move between USD 1,810-1,850/mt. HSBC’s PMI for China in June was 48.2, and new order index hit a new low since March 2009. July and August are the seasonal low demand period for zinc. As such, zinc prices should fall. Some traders bought spot goods previously with low discounts, and released the goods into the market as zinc prices rebounded, weighing on spot prices. As such, SHFE three-month zinc contract prices should move between RMB 14,300-14,600/mt, with discounts between RMB 20-60/mt.
The remaining 20% believe zinc prices should continue to rebound. They base their opinion on expectations that more stimulus plans will be released in July. The EU summit resulted in positive measures to bailout eurozone economy. Especially since Spanish and Italian government bond yields continue to rise, more stimulus policies are expected to be released. On the other hand, canceled warrants of LME zinc inventories began to surge last week, so LME zinc prices will likely rise to USD 1,880-1,900/mt. The market is expecting China will release stimulus policies. SHFE three-month zinc contract prices should move between RMB 14,900-15,100/mt. As smelters will widely conduct maintenance, goods supply will decrease. As such spot discounts will be RMB 80-100/mt.
On Monday, spot tin prices are mainly between RMB 145,500-148,000/mt in Shanghai tin market. The rally of LME tin prices lifted spot market. Supply in the market was limited and most goods were quoted above RMB 145,500/mt. Jinhai and Yunheng were mainly traded between RMB 145,500-146,000/mt, while most deals for Yunxi were made between RMB 146,000-146,500/mt. Smelters still held offers firm. Although spot tin prices stopped declining, trading sentiment was not boosted, coupled with the remaining weak demand, transactions were modest.
With regard to tin prices this week, 60% market players believe spot tin prices will extend their declines. Last week, the unexpected positive progress made at the EU summit boosted market, driving LME tin prices to rise along with other financial markets, but the increases were limited. Although new plans were proposed during the summit, details for implementing these plans are still unclear, and the European debt issues may not be resolved by the pursuit of economic growth alone. Thus, market aversion may rise again after the influence from the EU summit fades. Coupled with the disappointing manufacturing data for China released at weekend, negative news remained in markets. Since LME tin prices will likely fall again following the brief uptick and since downstream demand in domestic spot market remained weak during the offseason, many consumers were bearish on market outlook, so most investors believe spot tin prices will continue falling this week.
30% market players note spot tin prices should be stable. Although the economic conditions showed no virtual improvement, market concerns were moderated somewhat, so LME tin prices will not fall significantly this week. In China’s domestic spot market, market fundamentals remained relatively stable despite low trading sentiment, and limited supply will give certain support to spot prices. As such, spot prices tend to stabilize this week.
The remaining 10% investors expect tin prices to rise this week, saying LME tin prices will likely increase in the short term due to the rally of LME tin prices at weekend and the better economic situations. In China, although transactions remained weak, spot prices may gain some support from fewer goods supply. These factors will promote spot tin prices.
On Monday, mainstream traded prices for Jinchuan nickel were RMB 122,300-122,500/mt in the Shanghai nickel market, and RMB 122,300-122,500/mt for Russian nickel. Spot nickel prices followed suit after LME nickel prices advanced by nearly USD 600/mt last Friday. Trading, however, was thin, as downstream producers showed no buying interest after price increased. As a result, traders lowered prices in the afternoon business. Mainstream traded prices for Jinchuan nickel were RMB 122,300/mt, and RMB 120,000/mt for Russian nickel.
According to a recent SMM survey of price movements this week, 50% market players expect nickel prices to rally, and price gains may be significant. The two-day EU summit concluded with an agreement on a joint bank supervisor for the euro zone, and allowing the European Stability Mechanism (ESM) to aid euro-zone banks. The agreement provided relief to besieged Spanish and Italian banks. As a result, the yielding of Spanish and Italian bonds dropped significantly. The easing of market concerns allowed LME nickel prices to rebound strongly. Market attention is now shifted to the European Central Bank’s interest rate meeting on Thursday, and the US non-farm job data due on Friday. Markets expect the ECB may cut the interest rate from 1.0% to 0.75%, and so the euro will be supported, and this will favor LME nickel prices. In the US, markets view that the US may loosen the monetary policy following the release of non-farm job data, and this will further support metals prices.
Approximately 30% believe nickel prices will fluctuate this week. These market players take a cautious stance, as they understand that the European debt issues have not made significant improvement, despite positive news from the EU summit.
The rest 20% market players expect nickel prices to drop due to weak demand. No large-scale production cuts or suspension have been heard at stainless steel mills, but a large number of mills have shifted to produce from # 300 stainless steel to #200 and #400 stainless steel, and this will reduce demand for nickel. Weak demand will not support higher nickel prices, and instead will drag down prices.