SMM Weekly Review and Forecast (Jul. 16-20)

SHANGHAI, Jul. 23 (SMM) -- The Euro Zone was relatively quiet last week, with the Euro consolidating near present levels. Fed reports reveal that the US economic growth is transiting from “moderate to stable”. The US Department of Commerce released a large new home starts growth for June, pushing US stocks over 1% higher. As QE3 expectations cooled, the US dollar index dropped for successive days below 83. US crude surged over 6% in the week, returning above USD 90/bbl, boosting in turn base metals prices. The SMMI climbed 0.82% in the week, with SMMI.Cu recording the most 1.09%, followed by 0.83% of SMMI.Pb.

Copper

Investors’ hope that China’s government would introduce additional loose monetary measures helped Chinese stock markets rally last week. SHFE copper prices moved within a RMB 1,000/mt band around the RMB 56,000/mt mark. Earlier last week, SHFE copper prices broke resistance at all moving averages, and rose to as high as RMB 56,500/mt, but different views held by longs and shorts only grew at this price mark. Speculators generally conducted intraday operations since there was virtually no price gap among SHFE copper contracts. The SHFE 1211 copper contract became the most active copper contract last Thursday and SHFE copper prices were showing signs of a rebound based on technical indicators.   

In spot markets last week, as SHFE copper prices moved slowly higher, some hedged copper was kept unavailable for trading. The unfavorable SHFE/LME copper price ratio compelled cargo-holders in spot markets to hold high-quality copper premiums at around RMB 100/mt, while cargo-holders of standard-quality imported copper were also able to demand slight premiums despite steady market supply. The lack of any price difference among SHFE copper contracts restricted speculative activity, so trades were merely made to replenish stocks while copper premiums were low. Downstream producers still rejected copper prices above RMB 56,000/mt, only entering markets to purchase at the lows last Friday in anticipation that copper prices would rise in the coming week. Despite replenishment of stocks, overall market supply still exceeded demand.

SMM believes that SHFE copper prices will continue to rise in the coming week and challenge resistance at RMB 56,500/mt, but SHFE gains will lag LME copper gains.

Aluminum

After fluctuating narrowly within a USD 1,888-1,925/mt range early last week, LME aluminum broke through the 30-day moving average to test USD 1,950/mt as expectations of looser monetary policies grew following the releases of disappointing US economic data. The most active SHFE aluminum contract followed the same pattern, except giving back some gains after rising above its 30-day moving average.

Spot aluminum prices continued to post slight losses since demand was weak even as selling interest remained high, with discounts expanding to nearly RMB 80/mt after the shift in the current-month contract. The SMM Aluminum Price fell to as low as RMB 15,510/mt after meeting resistance at RMB 15,600/mt.

Lead

Last week, SHFE lead prices, under the influence of LME lead prices and the Shanghai Stock Exchange Composite Index, broke through the 60-day moving average and moved between RMB 14,900-15,050/mt.  SHFE lead prices are expected to rally and move higher to between RMB 15,000-15,300/mt this week.

In China’s domestic spot markets, spot lead prices last week were between RMB 15,000-15,120/mt  with premiums of RMB 100/mt over the most active SHFE lead contract price. Smelters were more willing to move goods, but supply shortages were still reported, leaving spot lead prices relatively resilient. Early last week, downstream purchasing increased with the onset of peak demand season for electric vehicle batteries, but buyers only waited on the sidelines as lead prices rose at mid-week. Supply from smelters should increase with the approach of the month’s end when lead prices tend to stabilize. Since supply shortages are easing and buying interest from downstream enterprises is up from increasing orders for electric vehicle batteries, traders and downstream buyers will likely purchase moderately with traded prices expected to be between RMB 15,050-15,250/mt this week.

Zinc

SHFE three-month zinc contract prices moved in a narrow band, and briefly touched USD 14,945/mt on Tuesday boosted by LME zinc prices, but then fell back to the moving averages. SHFE three-month zinc contract prices generally fluctuated during the week between RMB 14,750-14,850/mt, finding strong support from moving averages.

In domestic spot markets, zinc prices inched up, but with downstream buying interest weakening. Spot prices struggled around RMB 14,700/mt and fluctuated within a narrow RMB 20/mt band. Imported zinc held advantages over domestic zinc in both quantity and prices. Known brands, including SMC and AZ, were RMB 50-70/mt lower than domestic #0 zinc and popular with downstream buyers.

Tin

Last week, spot tin prices in Shanghai tin market continued falling while remaining relatively stable. SMMI.Sn was the only metal reported losses last week by falling 0.34%. Tin spot prices were not boosted by LME tin prices, and were dragged to RMB 146,500-148,000/mt from RMB 147,000-148,500/mt due mainly to the weak demand. Trading kept quiet with strong wait-and-see sentiment in the market. Smelters still limited supply, leaving fewer goods circulating in the market and trading volumes. Transactions were mainly made for brands from Yunnan and Jiangxi. Demand from downstream enterprises was still unimproved with orders and output remained limited.

Nickel

By last Thursday, spot nickel prices averaged RMB 117,710/mt, down RMB 2,090/mt from a week ago.  Transactions were muted and downstream buying interest was extremely low, with some traders reporting no downstream inquiries. According to insiders, many traders dared not arbitrage since China is now inspecting local bourses. Transactions were quiet as a result, so domestic spot prices continued to fall as LME nickel prices fluctuated narrowly due to soft demand.