Shanghai, Jul. 10 (SMM)
As LME copper tumbled last Friday, SHFE 1210 copper contract, the most active one, started RMB 700/mt down at RMB 55,040/mt Monday. The contract hovered between RMB 55,100-55,200/mt before the midday as the Shanghai Composite Index retreated below 2,200 and LME copper lurched stably, winning support at RMB 55,000/mt. In the afternoon, as LME copper broke resistance at USD 7,560/mt, the contract climbed to as high as RMB 55,390/mt along with surging domestic agricultural products. However, at the tail of trading, the Shanghai Composite Index extended weakness and dropped sharply by 2.5%, sending SHFE 1210 copper contract back to the morning’s fluctuating range. Finally, the most active copper contract for October delivery settled RMB 560/mt or 1% lower at RMB 55,180/mt, with trading volumes and positions decreasing by 100,000 lots and 2,708 lots, respectively. Technical indicators had signs of pointing downside, and SHFE copper prices found weak support at the RMB 55,000/mt mark.
As SHFE copper prices dropped considerably, cargo-holders in spot markets became more willing to move goods amid growing pessimism towards future copper price trends, keeping market supply sufficient. In response, spot copper premiums fell all the way to positive RMB 10-80/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,520-55,620/mt, and RMB 55,580-55,680/mt for high-quality copper. A small number of traders with enough cash opted to buy high-quality copper before SHFE 1207 copper contract is delivered. Downstream producers, though, kept on their toes due to a lack of clear copper price trends, leading to limited actual market transactions. In the afternoon, as SHFE copper prices moved higher, there were still some traders entering markets to buy. However, spot copper premiums held between positive RMB 0-70/mt in the afternoon, while traded prices rose to RMB 55,550-55,700/mt, with downstream consumption remaining sluggish.
SMM conducted a survey with regard to copper price trends this week.
Based on the survey, 59% of market insiders hold the view copper prices will continue to fall this week, expecting LME copper will drop to USD 7,400/mt and that SHFE copper will test RMB 54,000/mt. Debt issues in the euro zone resurfaced once in a while, and the region’s economy and the euro can be easily dampened. Greek Prime Minister said recently that Greece may give up the second bailout plan in exchange for extension for bailouts, but other countries in the euro zone have said many times that they will not allow the plan to change. This means that the impact of Greek debt problems brought to the euro zone is far from over. Beside, Spain’s financing costs surged to the highest since the euro was introduced in June, and its 10-year government bond yields soared through 7% again last Friday. If Spain is forced to cancel a government bond auction owing to inadequate demand from large domestic banks, the country will have to continue to search for rescue even if it has won EUR 100 billion bailout funds. Hence, uncertainty in the European debt woes remains a major factor depressing markets. The US dollar remains a safe-have for investors with technical indicators pointing upward, which will continue to impose pressure to copper prices. As the latest US nonfarm payroll report and China’s CPI and PPI figures are weak, markets are pessimistic over China’s GDP data for 2Q to be released this Thursday. Copper cannot gain support from the consumption side either since now is the traditionally low demand period. Technical indicators for both LME and SHFE copper are pointing downside. In China’s domestic markets, Chinese stock markets increased significantly last Friday following the announcement of interest rate cuts, but Premier Wen Jiabao stressed at the weekend that the government should prevent from relaxing house purchase policies in other forms and unswervingly carry out regulation work on the housing sector. In response, Chinese stock markets retreated to a low in the past haft year with Shanghai Composite Index finding weak support at 2,200. As such, these market insiders expect copper prices to fall this week.
The remaining 41% of market insiders see copper prices fluctuating at current levels. LME copper will hover around USD 7,500/mt, while SHFE copper will lurch around RMB 55,000/mt. The SHFE/LME copper price ratio has recently remained around 7.3 as SHFE copper fails to keep up with increases in LME copper. But SHFE copper has shown more resilience, and this will cap copper’s downside room somehow. In addition, as the delivery day for SHFE 1207 copper contract nears, cargo-holders in spot markets insist on premiums, despite sluggish downstream consumption, which should gave a strong support for copper prices. In this context, these market insiders believe that copper prices will lurch around current values this week while awaiting new directions.
The most active SHFE aluminum contract for October delivery started lower at RMB 15,480/mt and rebounded to a high of RMB 15,590/mt before settling down RMB 60/mt or 0.38% at RMB at RMB 15,535/mt. Positions increased a slight 448 lots to 109,320 lots while transacted contracts dropped to as low as 27,000 lots. A further drop in Chinese economic strength indicators weighed on investor confidence, pulling the Shanghai Composite Index near its one-year low. The contract should fluctuate in weakness near RMB 15,500/mt in the near term given soft fundamentals.
Spot aluminum was sold at RMB 15,560-15,590/mt in Shanghai, at discounts of RMB 40-70/mt over current-month SHFE aluminum prices. Low-iron aluminum was traded at RMB 15,660-15,670/mt. The inability of SHFE aluminum to recover from a lower opening led to price cuts by traders while downstream buyers mostly stood on the sidelines only purchasing as-needed when prices were satisfactorily low. Spot discounts expanded above RMB 50/mt and only a few deals were seen in the morning session. The limited recovery of SHFE aluminum in the afternoon failed to boost buying or selling, with only sparse quotations at RMB 15,560-15,580/mt being heard. No deal was done in the afternoon session.
A recent SMM survey on 38 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,658/mt last week. 3 of the 38 traders expressed optimism towards this week’s aluminum prices, 10 are neutral while 25 hold bearish views. The proportion of bearish respondents increased in the survey as weakening demand and rising inventories have led to weak sales.
The 25 (66%) bearish traders said the macroeconomic side remains slightly negative. The Chinese economy is already on the downward track, proven by losses even after a surprise interest rate cut by the People’s Bank of China. Interest rate cuts in Europe on the other hand weakened recovery of the euro. Support from European leaders’ determination to solve the region’s debt crisis is being gradually consumed while a series of pessimistic remarks on the euro helped the US dollar index reach a new high above 83. Losses were induced for all base metals on the London Metals Exchange, with LME aluminum slipping for four successive trading days and finding only weak support at USD 1,900/mt.
The most active SHFE October aluminum contract retreated last week as LME aluminum dropped back. Liquidity injection through interest rate cut by central banks in China and Europe has highlighted weakness in real economies, which have led to even more fragile confidence among investors. Another SMM survey has revealed a second successive weekly, though slight, rebound in aluminum stocks and signs of even more gains. Demand, however, has been disappointingly weakening in the low-demand summer. Early power rate cuts for aluminum smelters have also weakened support from the cost side. These traders expect a trading band of RMB 15,450-15,550/mt for this week.
The 10 (26%) traders holding neutral views expect aluminum prices to held stable at RMB 15,550-15,650/mt this week, quoting a balance of buying support from large producers and pressure from weakening demand home and abroad. Remaining 3 (8%) bullish traders said aluminum prices will climb slightly to RMB 15,650-15,700/mt this week with support from producers, warming home sales and recent policies to boost economic growth.
On Monday, SHFE lead prices opened slightly lower at RMB 14,855/mt influenced by the lower-than-expected US non-farm payroll data released last Friday. In the morning, China’s June CPI was reported up 2.2% and PPI down 2.1%, within market expectations. In response, SHFE lead prices fluctuated narrowly between RMB 14,820-14,880/mt to finally close at RMB 14,840/mt with pressure at the 20-day moving average, down RMB 90/mt. Trading volumes were up 24 lots to 222 lots, and positions were up 92 lots to 2,136 lots.
Spot lead prices in China’s domestic markets remained firm. Shuikoushan was mainly quoted at RMB 14,970/mt, with spot premiums of RMB 120/mt over the most active SHFE lead price. Hanjiang and brands from Gejiu region in Yunnan province were quoted between RMB 14,900-14,920/mt. Quotations for Shenqian were around RMB 14,860/mt. In the afternoon, spot lead prices changed little. Smelters were still reluctant to move goods at low prices and traders held prices sticky. Downstream buyers were not willing to buy, saying lead prices were relatively high, leaving transactions quiet.
According to SMM’s survey, most industry insiders were pessimistic to lead price movements this week, believing it is nearly impossible for lead prices to rise above RMB 15,000/mt. About 87% market players note lead prices should hover within the RMB 14,800-14,950/mt range. With the influence from the deal reached at EU summit digested by the market, the US dollar index stood above a high of 83 driven by the worse-than-expected non-farm payroll data for June released last weekend. The European debt issues remained unresolved, placing downward pressures on LME lead prices and posing strong resistance at USD 1,900/mt. SHFE lead prices, influenced by LME lead prices, may gain certain support at RMB 14,850/mt but will be under resistance at RMB 15,100/mt. In China’s domestic spot market, the average operating rate at domestic primary lead smelters was only 56.65% in June due mainly to remaining low lead prices and mid-year maintenances, down over 7 percentage points from a month ago. Most smelters were adjusting production via production cuts and maintenances, and many reflected little intention to sell goods when prices were below RMB 15,000/mt. The lower selling interest and production cuts may offer some support for low-end lead prices.
The remaining 13% market players believe spot lead prices should edge down and probably fall below RMB 14,600/mt this week. The moves to loosen monetary policies by central banks last week, especially the unexpected interest rate cuts by China’s central bank, intensified market concerns over China’s slowdown, and base metals showed no strong response to the action. With regard to demand, electric vehicles should have step in their conventional peak demand season, but demand is still weak at present. With the demand from end users remaining unimproved, lead prices are more sensitive to economic news. Investors were relatively cautious given the negative economic situations. In this context, LME lead prices may fell below the moving averages and SHFE lead prices are expected to surrender last week’s gains and move around RMB 14,650/mt.
SHFE 1210 zinc prices, the most actively-traded zinc contract, opened lower at RMB 14,645/mt on Monday due to the disappointing US non-farm payrolls data. After opening, SHFE three-month zinc prices crept up, with prices moving between RMB 14,640-14,690/mt. In the afternoon session, the contract prices soared along with the entry of long positions, hitting a session high of RMB 14,785/mt. Later, profit-takings and sell-offs at highs caused the contract prices to erase early gains, with prices finally ending at RMB 14,695/mt, down RMB 20/mt or 0.14%. Trading volumes were down 55,024 lots to 107,420 lots, and positions were down 8,744 lots to 168,944 lots.
In the spot market, spot discounts of #0 zinc over SHFE three-month zinc prices were between RMB 80-90/mt, with deals in the RMB 14,580-14,590/mt range. As zinc prices in the futures market rose, spot discounts expanded to RMB 100/mt. Spot zinc prices were slower to advance, and limited deals were made at RMB 14,600/mt. Recently, traded prices of imported zinc were generally flat with those of #1 zinc, depressing sales of domestic zinc. #1 zinc was traded between RMB 14,520-14,550/mt. Despite price losses, buying interest was low due to the pessimism. Meanwhile, limited changes in spot discounts also dented traders’ enthusiasm in purchases, leaving overall trading thin. As SHFE zinc prices rose rapidly in the afternoon session, spot discounts expanded to RMB 120-130/mt. Higher prices kept downstream producers away from the market, but increased spot discounts generated buying interest from traders.
The positive news reported from the EU summit last Friday has been absorbed. Long-awaited US non-farm employment data was worse than expected. But US did not push QE3, depressing the market.
Most market players are pessimistic towards zinc prices trends, believing zinc prices will not rebound. About 60% investors believe zinc prices should remain fluctuating this week, with SHFE three-month zinc contract prices moving between RMB 14,500-14,800/mt. expectations of QE3 implementation are positive, as PMI was sluggish across the world, the market hopes governments will take action. On the other hand, LME zinc canceled warrants surged further, and accounting for nearly 21% of inventories, which will support LME zinc prices. LME zinc prices should move between USD 1,840-1,880/mt.
Premier Wen Jiabao said China will take further actions to cope with recession. China’s CPI released Monday showed inflation eased, so the market is expecting more stimulus policies released by China’s central bank. SHFE three-month zinc contract prices should fluctuate between RMB 14,650-14,850/mt this week, with support at the 10-day moving average.
In domestic spot markets, many smelters cut output or suspended production this year, causing output to fall recently. Domestic inventories also decreased, allowing supply surplus to ease. On the other hand, cash flow problems at smelters eased this week, and they began to hold goods, giving support to spot prices. Besides, recent narrow discounts decreased arbitrage opportunities. As such, spot discounts should remain between RMB 90-120/mt this week.
The remaining 40% believe zinc prices should fall. As positive news was absorbed, and due to disappointing PMI, and since the US dollar index continued to rise, LME zinc prices should fall to move between USD 1,810-1,840/mt this week.
Despite domestic loans were loosened, downstream enterprises reported low orders and profit margins in the seasonal low demand period for zinc. With the lack of consumption, SHFE three-month zinc contract prices should lose support, moving between RMB 14,400-14,600/mt, with spot discounts narrowing to RMB 60-90/mt.
In Shanghai tin market, spot tin prices were stable on Monday, but trading remained light. Mainstream traded prices were between RMB 148,000-149,000/mt, and insufficient supply offered certain support to tin prices. The sharp decline in LME tin prices last Friday depressed market confidence. Transactions were mainly made for resources from Yunnan province, such as Yunxi. In the afternoon, brands from Nancang were also traded in the market, with prices between RMB 147,300-147,500/mt. Some traders lowered prices in the afternoon but transactions remained limited.
With respect to market outlook, 60% market players were bearish on spot tin prices this week. Last week, tin prices rallied slightly but market sentiment was dented by the falling LME tin prices at weekend, leaving spot tin prices little up momentum to rise this week. In domestic market, downstream demand remains unimproved, while orders at downstream enterprises show a tendency of further declines. Given the sluggish demand, tin prices are not likely to rally without buying support. Besides, technical indicators also display resistance for tin prices to increases. On the other hand, the economic data released recently remained negative, the European debt crisis, continuing slowdown of US and China’s economy will pose great pressures on base metals. The worse-than-expected non-farm payroll data lowered the possibility of Fed’s QE3 measures, benefiting the US dollar index. Thus, base metals may fall further. In China, economic data was also disappointing, adding to expectations on additional easing policies and indicating the plight confronting the country. As such, a majority of investors believe spot tin prices should fall.
40% market players say tin prices will maintain in a narrow band this week. Domestic smelters still limited sales due to low prices with selling interest at most smelters in Jiangxi province staying low, curtailing tin supply in the market. This may help support tin prices. However, the weak demand should prevent prices from rising. Thus, these investors expect spot tin prices to hold stable at the current level this week.
On Monday, Jinchuan Group cut ex-works prices for refined nickel to RMB 121,000/mt (large panel), and RMB 122,200/mt (small in barrel), down RMB 3,000/mt. In the Shanghai spot nickel market, mainstream traded prices for Jinchuan nickel were RMB 121,300-121,500/mt, and RMB 119,000-119,200/mt for Russian nickel. Price cuts by Jinchuan Group generated little market response, with no significant changes in mainstream traded prices. Only a limited number of Russian nickel was at RMB 118,900/mt, leaving no impact on the market. Downstream producers took a strong wait-and-see stance on Monday, with quiet trading. Some traders increased sales when prices were high, and so inventories were down, resulting in stocks replenishment. Market transactions were mainly done by those traders.
According to a recent SMM survey of price movements this week, 60% market players expect nickel prices to drop, and may slid below USD 15,980/mt. First, positive news from the EU summit last Friday has been absorbed. Last Friday, the yield of Spanish 10-year bonds rose to 7%. Second, the US economy is on the way of mild recovery, and the US Federal Reserve is not expected to introduce the QE3 in the short run. Third, international crude oil and commodity prices tumbled, but inflation pressures remained unrelieved, further reducing the possibility of the QE3.
The remaining 40%, however, believe nickel prices will fluctuate this week. The euro/dollar fell below 1.2285 last Friday, a fresh low in two years. The gloomy economy triggered a strong risk aversion sentiment. The GDP and other economic data in China and the results of US Federal Reserve meeting will be released in late this week. Hence, market worries over the economic growth will not help market turn around before the release of any position news. In addition, LME nickel prices have slid to the lowest level since June 2009, and costs and profit-taking by shorts may support nickel prices. Hence, these market players believe that nickel prices will remain weak, but any falling room will be limited.