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SMM Daily Review – 2012/7/6 Base Metals Market
Jul 9,2012 10:51CST
price review forecast
SHFE 1210 copper contract, the most active one, started slightly down by RMB 30/mt at RMB 55,940/mt last Friday.

SHANGHAI, Jul. 9 (SMM)--

SHFE 1210 copper contract, the most active one, started slightly down by RMB 30/mt at RMB 55,940/mt last Friday. China's central bank's move in cutting interest rates merely lifted copper markets marginally since investors considered this as a further slow in the Chinese economy. In this context, the Shanghai Composite Index slid to a recent low again, while LME copper prices began slipping owing to a rebounding US dollar index. Shorts increased positions and exerted selling immediately after the opening since they believed economic figures to be released July 9 would remain weak. As a result, SHFE copper prices retreated all the way and only touched a high at RMB 56,08o/mt but with a low at RMB 55,500/mt. Nevertheless, both LME and the Shanghai Composite Index rallied in the afternoon and helped SHFE copper prices return to around the daily moving average and narrow daily losses. Finally, SHFE 1210 copper contract ended RMB 190/mt or 0.34% lower at RMB 55,720/mt, with trading volumes adding by 29,338 lots but positions decreasing by 4,728 lots. Trading volumes and positions for SHFE 1211 copper contract increased by 19,242 lots and 10,584 lots, respectively. As selling pressures for forward SHFE copper contracts were high, and coupled with overlapping at the 5 and 60-day moving averages, SHFE copper prices are unlikely to maintain current highs for the near future.

SHFE copper prices came under pressure and dipped, compelling cargo-holders in spot markets to step up sales volumes. They offered large discounts for low-quality copper but insisted on firm prices for high-quality copper owing to limited supply. In this context, the price spread between standard and high-quality copper widened. Spot copper offers were between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,900-56,120/mt, and RMB 55,950-56,200/mt for high-quality copper. Downstream producers continued to buy on an as-needed basis as caution grew again in the face of uncertainty over copper price trends in the coming week. Market transactions were restricted as a result. In the afternoon, SHFE copper prices stopped falling, and some downstream producers in spot markets chose to buy as needed when copper prices dropped below RMB 56,000/mt Hence, spot copper premiums rose some in the afternoon, with mainstream offers between discounts of negative RMB 20/mt and premiums of positive RMB 60/mt, while traded prices stayed flat with the morning levels. SHFE copper stocks were reported to add by 15,795 mt to 155,237 mt last Friday, which was due partly to the fact cargo-holders of imported copper met difficult in moving goods on account of a sliding SHFE/LME copper price ratio. Besides, despite speculative activities, downstream producers were not seen to make substantive purchases.

The most active SHFE aluminum contract for October delivery started at RMB 15,640/mt and settled down RMB 80/mt or 0.51% at RMB 15,605/mt on Friday, rebounding from the intraday low of RMB 15,540/mt as recovery of the Shanghai Composite Index induced profit-taking by shorts. The Chinese central bank's interest rate cuts seem to provide little help, with the contract struggling near the 20-day moving average. Transacted contracts dropped 10086 lots while total positions added 914 lots to 108,872 lots.

Mainstream traded prices of spot aluminum were RMB 15,620-15,670/mt in Shanghai, with discounts of RMB 0-50/mt over current-month SHFE aluminum prices. The light metal was traded near RMB 15,650/mt during early trading. Traded prices dropped to RMB 15,620/mt in the afternoon as SHFE aluminum prices slipped. Supply remained ample while buying weak, with trading turning lighter day by day.

As the interest rate cuts announced Thursday night failed to boost the market, SHFE lead prices opened lower at RMB 14,950/mt Friday and fell to a low of RMB 14,850/mt. Prices moved narrowly within RMB 100/mt band and stopped falling at the tail of trading influenced by Chinese domestic stocks to finally close at RMB 14,930/mt, down RMB 65/mt from the previous trading day. Trading volumes were up 10 lots to 198 lots, and positions were up 64 lots to 2,044 lots.

On Friday, spot prices in China's domestic markets were relatively firm. Nanfang was mainly quoted at RMB 14,970/mt, with spot premiums of RMB 110/mt over the most active SHFE lead price. Mengzi and Hanjiang were quoted at RMB 14,920/mt. Quotations for brands from Gejiu region were around RMB 14,900/mt. Smelters were reluctant to move goods, traders held prices firm due to limited supply and bullish mood. Downstream buying interest was low, leaving trading muted.

European central bank lowered interest rates as expected, and China's central bank lowered deposit and loan interest rates unexpectedly, a reading that central banks' concerns over economy improve. Last Friday, SHFE 1210 zinc contract prices opened lower at RMB 14,790/mt, and inched down as large numbers of shorts sold off, and fluctuated between RMB 14,650-14,700/mt during the day. As the Shanghai Composite Index rose near the end of trading, SHFE 1210 zinc contract prices rallied and finally closed at RMB 14,740/mt, down RMB 85/mt.

In domestic spot markets, spot prices fell along with SHFE zinc prices, but spot discounts did not narrow. Discounts of #0 zinc were between RMB 90-100/mt, with traded prices between RMB 14,580-14,630/mt. #1 zinc was quoted between RMB 14,530-14,550/mt. Purchases and inquiries from downstream buyers increased as zinc prices fell and due to the need to produce, and some smelters kept moving goods, allowing transactions to improve.

In Shanghai tin market, mainstream traded prices were between RMB 148,000-149,000/mt, with transactions quiet and inquiries rare. Supply in the market was insufficient since smelters limited sales on account of poor demand. Nanshan and Yunxi were major brands traded in market. With LME tin prices and domestic spot tin prices remaining weak, market confidence was depressed. Spot tin prices are expected to remain sluggish this week.

Last Friday, mainstream prices of Jinchuan nickel were between RMB 122,300-122,500/mt in the morning session, while mainstream Russian nickel prices were between RMB 120,000-120,200/mt. A wait-and-see sentiment improved as prices were volatile, and downstream inquires decreased. But arbitrage opportunities allowed traders to be active, causing transactions to improve.


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