SHANGHAI, Jul. 17 (SMM) –
As LME copper surged considerably overnight, SHFE 1210 copper contract, the most active one, started RMB 410/mt higher at RMB 55,880/mt Monday. After the opening, the contract drifted higher to RMB 56,000/mt amid position closings by shorts, with a low at merely RMB 55,820/mt, but was pressured at levels above RMB 56,000/mt as longs were wary of entering markets, and since the Shanghai Composite Index gave up the previous three days' gains and touched a recent low. SHFE copper prices touched an intraday high at RMB 56,260/mt in the afternoon. Finally, SHFE 1210 copper contract ended RMB 700/mt or 1.26% higher at RMB 56,170/mt, with trading volumes and positions decreasing by 61,066 lots and 17,020 lots, respectively. Total trading volumes and positions for all SHFE copper contracts fell by 3,894 lots and 23,858 lots, respectively, while the turnover rate exceeded 100% for the most active copper contract. Buying increased for forward SHFE copper contracts, so SHFE copper prices stood above their 60-day moving average, posting better performance than LME copper.
As SHFE copper prices started higher, spot copper premium quotes slipped to discounts of negative RMB 50/mt and premiums of positive RMB 30/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 56,000-56,090/mt, and RMB 56,050-56,150/mt for high-quality copper. There was nearly no price gap among SHFE copper contracts and allowed little speculative room, restricting both spot copper premiums and discounts. Most downstream producers thus stuck to the sidelines, awaiting clear copper price trends. As copper prices retreated to levels near RMB 56,000/mt near the midday, cargo-holders of high-quality copper reduced sale volumes. Monday was the last trading day for SHFE 1207 copper contract, and downstream producers were cautious at prices above RMB 56,000/mt, leading to modest market transactions in the morning. In the afternoon, as SHFE 1207 copper contract fell slightly, cargo-holders raised spot copper premium quotes, near those for SHFE 1208 copper contract, while mainstream spot copper offers were between discounts of negative RMB 30/mt and premiums of positive RMB 60/mt. Traded prices in the afternoon were little changed from the morning levels, but actual market transactions were limited.
With regard to copper price trend this week, SMM conducted a survey.
Based on the survey, 32% of market insiders are positive toward the outlook, believing LME copper will rise to USD 7,800/mt and that SHFE copper may test RMB 57,000/mt. The US this week will release the latest housing starts and existing home sales, which are expected by markets to improve further and therefore alleviate market risk aversion. In this context, US equity markets will also extend rebounds after breaking resistance at all moving averages. Crude oil prices are still holding above all moving averages following declines several times, which spells commodity markets will show more resilience. From the copper fundamentals side, the proportion of cancelled warrants to total LME copper stocks rose to 20.98% as of last Friday, as spot copper premium quotes in London widened to USD 10/mt from USD 1-2/mt. LME copper stocks have also decreased recently, which will help prop up copper prices. Hence, these optimists expect copper prices to move higher this week.
52% of market insiders hold the view that copper prices will continue to fluctuate this week, with LME copper expected between USD 7,600-7,700/mt and SHFE copper around RMB 56,000/mt. Although Italy's recent government bond auction was successful, the country's bond yields remain high, propelling Moody's to slash its credit rating, while uncertainty in Greek and Spanish debt woes prevails. In this context, the European debt crisis will continue to dampen the financial market. The Fed will announce meeting minutes this Wednesday, but as the US latest nonfarm payroll data was soft, the Fed is unlikely to introduce QE3 measures over the near term. The US dollar will probably increase again after touching its 10-day moving average, which will exert pressures to copper prices. Technical indicators for both LME and SHFE copper are pointing upside but, LME copper is still pressured down below the 60-day moving average. Once LME copper fails to challenge its 60-day moving average, SHFE copper prices will be dragged down. In China, the latest economic data also slipped marginally, an indication of poor economic situation at present, which, however, has also heightened market anticipation over the government's further relaxation in monetary measures. As there is nearly no price gap among SHFE copper contracts, traders mostly choose to buy more spot copper and sell SHFE copper contracts, which will depress SHFE copper prices. As such, these market insiders see copper prices hovering near current values this week.
The remaining 16% of market insiders anticipate LME copper will retreat to around USD 7,500/mt and that SHFE copper will fall below RMB 55,500/mt this week. The Shanghai Composite Index already gave up all earlier gains Monday and hit another recent low. According to the latest statistics, the amount of positions on Shanghai stock markets has gained the falling momentum, with the position ratio slipping to 34.06%, the lowest since earlier 2008, a clear reflection of muted market transactions. The Shanghai Composite Index will thus remain weak and negatively affect domestic copper prices. From copper's fundamentals side, some domestic copper smelters conducted unit maintenance during July and will unlikely to depress market supply since June's maintenance did not affect market supply significantly. As these smelters will step up production in 2H in order to meet yearly target, SMM believes spot copper supply will increase, and the stabilizing SHFE/LME copper price ratio will also help imported copper flow into domestic markets, adding to market supply. However, operating rates at downstream enterprises fail to increase, and actual consumption is not seen to improve. Against this backdrop, spot copper premiums are unlikely to increase and will probably turn into discounts, which will send domestic copper prices down. As such, these market insiders expect copper prices to slip this week.
SHFE aluminum for three month delivery started slightly higher at RMB 15,570/mt and closed up RMB 120/mt or 0.77% at RMB 15,605/mt on Monday, after finding its high at RMB 15,630/mt and low at RMB 15,555/mt. Strong resistance was met at the 30-day moving average. Positions dropped 1,326 lots to 108,278 lots as both longs and shorts chose to close their positions, which kept aluminum gains behind those of other base metals and led to relatively fragile support at the RMB 15,600/mt mark.
Spot aluminum traded at RMB 15,580-15,620/mt in Shanghai, with discounts of RMB 50-80/mt over current-month SHFE aluminum prices. Low-iron aluminum was sold at RMB 15,680-15,700/mt. SHFE aluminum prices climbed with other base metals prices but trimmed gains due to limited space above. Spot aluminum consumption was extremely weak. Spot discounts did not narrow even on the last trading day of the current-month contract. Middlemen were seeking deliverable goods to tap discounts but suppliers had kept prices firm, causing light trading to continue. Spot aluminum trading was extremely light in the afternoon as both sellers and buyers refrained from trading. Sparse quotations at RMB 15,580-15,600/mt were heard but deals were rarely concluded.
A recent SMM survey on 33 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,572/mt last week, up RMB 92/mt from the previous week. 8 of the 33 traders expressed optimism towards this week's aluminum prices, 12 are neutral while 13 hold bearish views. The proportions of bullish respondents increased to 24%, but bearish traders have a larger 39% share.
This week a total of 8 traders are bullish, accounting for 24% of total survey samples. According to these traders, although domestic aluminum consumption entered the soft season, but the recent two weeks' performance indicates stability. Overall turnover fell noticeably from last year but aluminum prices were relative stable, only with short fluctuations after power rate cuts. Aluminum prices later rebounded to RMB 15,500/mt and smelters still face heavy losses. Stabilizing supply and demand will prevent aluminum prices from a sharp fall. On the macroeconomic side, real estate market sales recently warmed in some regions and confidence for a recovery in downstream has rebounded. China's second-quarter GDP growth fell to 7.6%, in line with market expectations and demonstrating the real economy is clearly decelerating. China's June CPI decreased to 2.2%, a 29-month low, which also creates conditions for easing of liquidity during later time. Domestic aluminum prices therefore are more likely to climb. Overseas, the European debt crisis still faces short-term uncertainty, Fed insists on “operation twist” rather than QE3, pushing the dollar above 83. LME aluminum prices have been relatively stable, holding near USD 1,900/mt. SHFE aluminum contracts for August delivery have now become current-month contracts and also have relatively strong support at RMB 15,600/mt. To sum up, these traders tend to bet on support from future monetary easing. They expect aluminum prices to climb further to RMB 15,600-15,700/mt.
12 traders accounting for 37% of total survey samples hold neutral views. These traders said aluminum prices have limited space to go down in the short term. They generally believe large aluminum producers such as Chalco and China Power Investment will become reluctant to sell at low prices to support existing aluminum prices. More aluminum plants running at loss will provide fundamental support. At this low demand season, they say aluminum prices now run at the bottom and further weakening needs to overcome stronger resistance. On the other hand, they are relatively cautious toward the current rise in aluminum prices, mainly due to staying weak consumption and inventory increases. In addition, European debt problems, the strengthen US dollar and low possibility for QE3, coupled with an evident domestic economic slowdown, will weigh on rebounded of aluminum prices. Above said, aluminum prices will continue to maintain a narrow range of RMB 15,500-15,600/mt in the short term.
The 13 (39%) bearish traders said that spot aluminum prices are still on the downward track. Firstly China's economic slowdown is already shown in 2Q GDP data. The real economy will be not controlled by liquidity regulation at the moment. For overseas economies, demand from Europe is weakening, severely eroding production orders in China. The evident drop in operating rates in East China and South China businesses is hard evidence that the real economy is slowing. Facing sluggish demand, aluminum smelters have not cut output but restarted idled capacity instead, weighing on aluminum prices as supply increases while stocks stay high. Spot discounts even expanded to as much as RMB 90/mt. Technically, the SHFE medium-to-long moving averages are still heading lower, indicating aluminum prices are still pressured. The Bollinger Band shows the upward band is relatively stable while the average is still heading down. SHFE aluminum prices are still in the downward band, with low possibility for a rebound.
SHFE lead prices rallied soon after opening lower at RMB 14,915/mt Monday, but lacked upward momentum due to declines in LME lead prices and Chinese stock market to fluctuate down to RMB 14,930-14,980/mt. SHFE lead prices regained the losses at the tail of trading to finally close at RMB 14,995/mt, up RMB 35/mt. Trading volumes were up 160 lots to 356 lots and positions were up 110 lots to 2,422 lots.
SHFE lead prices extended increase on Monday. Quotations for Nanfang and Shuikoushan were mainly between RMB 15,080-15,090/mt, with spot premiums over the most active SHFE lead price at RMB 130-140/mt. Mengzi was quoted at RMB 15,030/mt and Shenqian was quoted at RMB 15,010/mt. With lead prices rising further, smelters were more willing to move goods but traders and downstream buyers only waited on the sidelines due to the higher prices, leaving trading thin.
According to SMM's survey, 33% of industry insiders are optimistic to lead price movements this week, noting spot lead prices tend to stabilize and do not rule out the possibility of rising to a high of RMB 15,300/mt. Given the unexpected rise in the US PPI and China's 2Q GDP in line with forecasts, many investors believe no more negative reports are expected in the near term. Market predicts China will implement more easing policies, which may give a boost to LME lead prices. Meanwhile, LME lead inventories kept falling by 3,900 mt last week. Therefore, LME lead prices are expected to return to USD 1,900/mt this coming week, and SHFE lead prices may break through the 60-day moving average. In China's domestic spot market, with the onset of the high-demand season for electric vehicle batteries in July, orders at electric vehicle battery producers are expected to improve, helping improve lead demand and bolster lead prices.
The remaining 67% industry insiders are relatively conservative, believing spot lead prices may not fluctuate widely and should stay around RMB 15,000/mt. In Europe, the progress in resolving the European debt issues has been slow, and in China, the PBOC has lowered interest rates twice against the weakening economic data, but market did not show strong response. Under these situations, many investors still hold bearish mood to the market, expecting LME lead prices to move between USD 1,850-1,880/mt while SHFE lead price to gain support at the 20-day moving average but under resistance at the RMB 14,950/mt line. In China's spot lead market, the peak-demand period for electric vehicle batteries may primarily fall in August, so orders at battery producers should only improve marginally, which will not be sufficient to boost lead prices. If lead prices still hover around RMB 15,000/mt, smelters should remain uninterested in selling goods, thus resulting in weak market fundamentals.
SHFE 1210 zinc prices, the most actively traded contract, opened slightly higher on Monday, and then hovered at highs after reaching a recent high of RMB 14,860/mt. Later, SHFE three-month zinc prices dropped along with falling LME zinc prices, and slid below the daily moving averages, with prices between RMB 14,750-14,800/mt. In the afternoon session, falling stocks prices deprived of any rising momentum in the SHFE zinc market, leaving prices between RMB 14,800-14,820/mt. Finally, SHFE three-month zinc prices closed at RMB 14,800/mt, up RMB 80/mt or a gain of 0.54%. Trading volumes were down 21,628 lots to 69,238 lots, and positions were down 4,994 lots to 160,588 lots. Positions for SHFE 1211 zinc contract were up 11,922 lots, a sign of the shift of the most actively traded contract.
In the spot market, discounts of #0 zinc over SHFE three-month zinc prices were between RMB 110-130/mt, with deals between RMB 14,700-14,730/mt. As SHFE zinc prices drifted lower, spot discounts expanded to RMB 100/mt, and transactions were made in the RMB 14,680-14,690/mt range. Deals for #1 were concluded at RMB 14,640-14,680/mt. As discounts expanded in the morning business, some traders went arbitrage trading, and turned active in sales as spot discounts narrowed after SHFE zinc prices dropped. Downstream producers, however, took a strong wait-and-see posture in response to price rallies in early week, resulting in quiet trading.
China's GDP during 2Q was up 7.6% according to the data released last Friday, the lowest in three years, but still in line with expectations. With speculations that China will take additional stimulus policies, LME zinc prices continued to rise.
With regard to zinc price trends this week, 66% market players believe zinc prices will lack momentum to rise but find strong support. Concerns remain despite easing euro zone problems. According to the minute announced by the US Federal Reserve for June, most officials believe to prolong twist operation is favorable, and the likelihood of QE3 implementation is low unless economic downturn risk improves and inflation continues to drop sharply, curbing risk appetite of investors. As a result, LME zinc prices should rolled back gains and fluctuate between USD 1,840-1,880/mt. Premier Wen Jiabao pointed out recently domestic economy should weather difficulties in the near term. Besides, domestic economy is facing downturn pressure, with the lack of market confidence. As such, SHFE three-month zinc contract prices should move between RMB 14,600-14,800/mt. In domestic spot markets, downstream industries are in the seasonal low demand period, while many smelters cut output recently, keeping transactions muted. Traders also trade modestly due to the lack of arbitrage opportunity. Spot discounts should remain between RMB 80-100/mt.
17% see zinc prices falling. Affected by Spain and Greece trapped in difficulties, Moody's downgraded Italy's rating from A3, to Baa2. With the cut of credit ratings of euro zone countries and sluggish economic data, the market lacks confidence towards euro zone, and shorts will sell off goods once negative news is reported. As such, LME zinc prices should fall to test USD 1,850/mt. Both China's PPI for June and GDP for 2Q slid, signaling domestic economy is in the face of downturn risk. The sluggish economy will not turn around in the short term, keeping domestic downstream consumption weak. As such, SHFE three-month zinc contract prices should test RMB 14,600/mt, with spot discounts narrowing to RMB 60-90/mt.
17% believe SHFE three-month zinc contract prices should break through RMB 14,900/mt. Spain released tightening policies recently, and will receive EUR 30 billion of bailout funds by the end of the month, helping ease problems at its banking sector. Besides, JP Morgan's financial report showed profit margins of USD 5 billion in the quarter, indicating better-than-expected situation in the financial sector. Investors were encouraged. As such, LME zinc prices should surge and move between USD 1,860-1,900/mt. Falling economic growth and inflation index open a window for additional stimulus policies. With expectations of new policies, SHFE three-month zinc contract prices should break through RMB 14,900/mt level. Spot goods will rise limitedly, and spot discounts should expand to RMB 100-120/mt.
In Shanghai tin market, mainstream traded prices for spot tin were between RMB 147,000-148,500/mt, and trading remained quiet. Smelters were not actively moving goods with strong wait-and-see sentiment in the market, and inquiries were rarely seen in the afternoon. Yunxi and Yunheng remained the major brands traded in the market, brands from Jiangxi were also heard. Most deals for Yunxi were made at RMB 148,000/mt, and Yunheng was quoted between RMB 147,000-147,500/mt. Nanshan, Jinlong and Nancang were traded between RMB 146,300-146,500/mt, and smelters held quotations relatively firm.
According to SMM's survey, 60% market players believe tin prices should stop falling and move around the current level this week. Transactions were still quiet at present with most deals done for brands from Yunnan province, suggesting that smelters are still reluctant to sell, which will give certain support to tin prices. A survey showed that output and orders at downstream enterprises remained unimproved, so purchases for tin ingots were limited. Besides, LME tin prices hovered around the 5-day moving average with strong resistance above, and recent release of economic data may not offer great support to LME tin prices. Thus, tin prices will likely fluctuate in a narrow band.
40% market players note tin prices will fall further this week due mainly to the weak domestic demand. Downstream buyers are not willing to purchase even if smelters limited supply, market may not see improvements, with oversupply still existing. Hence, tin prices will continue to inch down.
On Monday, mainstream traded prices for Jinchuan nickel were RMB 119,500-119,700/mt in the Shanghai nickel market, and RMB 117,500-117,700/mt for Russian nickel. Quotations in the spot market were firm, along with price gains in the LME nickel market last Friday, and traders' expectations over stocks replenishment, especially for Russian nickel. Trading, however, was thin, as both downstream producers and traders showed no interest in building stocks.
According to a recent SMM survey of price movements this week, 50% market players expect nickel prices to remain weak, and will retreat after a brief rally. Price cuts by Jinchuan Group last week when LME nickel market staged mild declines reflected that pessimism dominated the market, especially after LME nickel hit a new low since July 2009. Meanwhile, a lower possibility of the QE3 after the latest US Federal Reserve interest rate meeting weighed down the non-US currency metals markets. LME nickel prices will hardly rebound following a stronger dollar. More importantly, weak downstream consumption depressed market outlook, and this can be reflected by high-grade NPI output. According to an SMM survey, high-grade NPI now is down by more than 16% from May, and significant declines in NPI output suggests sluggish performance in the stainless steel industry. Besides, imports of Russian nickel have been falling recently, sending premiums down to USD 130/mt, a sign of market caution towards the outlook.
Approximately 30% believe nickel prices will fluctuate this week, and wait for a clear direction after the release of major news. This Tuesday, the US Federal Reserve Chairman will begin Semiannual Monetary Policy Report to the Congress. Whether the introduction of QE3 or not will exert a great impact on nickel prices. Although markets expect it is a minimal possibility of the QE3 for immediate future, the US Federal Reserve may introduce other stimulus measures. Hence, these market players believe LME nickel prices will keep fluctuating this week.
The 20% believe nickel prices will advance this week. Although LME nickel market moved lower, LME nickel prices stayed above USD 16,000/mt. In addition, the LME option trading data shows markets are optimistic over the long-term prices.