SMM Daily Review - 2012/7/23 Base Metals Market-Shanghai Metals Market

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SMM Daily Review - 2012/7/23 Base Metals Market

Price Review & Forecast 10:55:46AM Jul 24, 2012 Source:SMM

SHANGHAI, Jul. 24 (SMM) --

Copper

As LME copper tumbled overnight, SHFE 1211 copper contract, the most active one, started RMB 840/mt down at RMB 55,280/mt Monday. After the opening, LME copper prices retreated below USD 7,500/mt rapidly, and Chinese stock markets also hit a new recent low. As a large number of longs left the market and new shorts entered, SHFE copper prices slipped all the way after fluctuating temporarily and met resistance at RMB 55,390/mt, losing RMB 55,000/mt completely. SHFE 1211 copper contract touched a low at RMB 54,290/mt in the afternoon and finally ended RMB 1,750/mt or 3.12% lower at RMB 54,370/mt, with trading volumes and positions increasing by 246,000 lots and 61,098 lots, respectively. With growing selling pressures, SHFE copper prices will likely continue to fall over the near term.

SHFE copper prices started lower and then slumped by over RMB 1,000/mt, so hedged copper flew into spot markets. In this context, spot copper supply was both ample and diversified. As SHFE copper prices again fell by nearly RMB 300/mt near the midday, market pessimism grew and spot copper premiums were unable to increase further. Mainstream spot copper offers were between premiums of positive RMB 80-180/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,120-55,420/mt, and RMB 55,150-55,520/mt for high-quality copper. Traders’ buying was restricted in the face of high copper premiums, while downstream producers merely bought at the lows but turned into a wait-and-see posture after copper prices tumbled. Cargo-holders were generally eager to sell for cash amid pessimism over future copper prices, but buyers were wary of purchases. In the afternoon, SHFE 1208 copper contract continued to fall and helped hedged copper come into spot markets again. Therefore, spot copper premium quotes in the afternoon were little changed from the morning levels, between positive RMB 100-180/mt, but traded prices dropped to RMB 54,900-55,150/mt, with limited actual market transactions amid heightening pessimism. 

SMM conducted a survey with regard to this week’s copper price trend.

Based on the survey, 60% of market insiders are pessimistic about the outlook, with LME copper prices expected to retreat to around USD 7,250/mt and SHFE copper prices to RMB 53,500/mt. The European debt crisis is worsening as Spain’s debt problems escalate. It was reported that 6 regions in Spain may seek bailout after the country’s heavily indebted Valencia region requested financial aid last Friday, raising market worries over Spanish debt woes. This sent Spain’s 10-year bond yields climbing over 7% to 7.32%, the highest since the euro was introduced. German sources reported the International Monetary Fund (IMF) would not further provide aid for Greece, weighing on commodity markets. Besides, from the latest CFTC report, net short positions reached 8,287 lots as of last Tuesday, which will guide future copper prices. Both SHFE and LME copper prices have fallen below all moving averages following considerable losses Monday and face growing upside resistance, with technical indicators pointing downside. In China, stock markets have dropped for four consecutive weeks and forced a lot of investors to withdraw from markets, and stock prices hit a new low again Monday as trading volumes contracted. If there are no positive policies, the Chinese stock markets are unlikely to remain weak over the near term and drag down domestic copper prices. In China’s spot markets, investors expect Tuesday’s HSBC manufacturing PIM to remain sluggish, so domestic copper demand is not seen to have improved. Furthermore, as SHFE copper prices lose ground, hedged copper will flow into spot markets and add to supply pressures. In this context, spot copper prices will come under pressure and depress SHFE copper prices. As such, these insiders see copper prices falling this week. 

The remaining 40% anticipate LME copper prices will fluctuate around USD 7,500/mt and that SHFE copper prices will hover between RMB 54,000-55,500/mt. Despite debt woes in the euro zone, the President of the European Central Bank (ECB) Mario Draghi said Sunday when accepting interviews that a united currency system is an irreversible trend, and that Europe is not going to slip into economic recession and the euro zone economy may begin recovering gradually late this year. His positive comments give a boost to the weak euro and help cap its downside room, which can also help support copper’s current trading range. The US this week will release new home sales and durable goods orders, and markets anticipate them to improve mildly, which will drive US equity markets up from previous lows and prop up copper prices. The US dollar index met technical resistance at around 83.8 Monday after a high open, which may help commodity markets rebound. At the same time, once LME copper prices fall below USD 7,300/mt to around USD 7,225/mt, Chinese copper smelters and traders will both catch the opportunity to go bargain hunting since this price mark is already near the lowest level in recent year. Buying on the LME will also help SHFE copper prices rally. In China, the central bank was forced last week to withdraw funds of RMB 40 billion after injecting net funds for five weeks in a row. The Chinese government has relaxed monetary measures but the situation is not stable. However, weak expectations over Tuesday’s HSBC manufacturing index have raised market speculation China’s central bank may cut the reserve ratio again, which can support domestic stock and futures markets. In Chinese spot markets, the SHFE/LME copper price ratio is around 7.3, and incurs slight losses for copper importers. This, though, helps spot copper maintain slight premiums, which restrict copper’s downward space.

Aluminum

The most actively traded SHFE aluminum contract for October delivery gapped lower at RMB 15,500/mt and closed down RMB 270/mt or 1.73% at RMB 15,355/mt on Monday, as renewed worries towards the European debt crisis and sluggish domestic demand fueled short selling. Positions dropped 1,714 lots to 100,266 lots. Positions of SHFE aluminum for November delivery increased during the day, in preparation for a backward shift.

Spot aluminum traded at RMB 15,420-15,450/mt in Shanghai, at discounts of RMB 50-80/mt over current-month SHFE aluminum prices. Low-iron aluminum traded at RMB 15,520-15,540/mt. SHFE aluminum gapped lower and lost over 1%. The current-month contract lost support at RMB 15,500/mt, to the strength of shorts, with strong selling interest shown but purchases only being made on an as-needed basis by downstream and mostly at discounts of RMB 70-80/mt by middlemen. In the afternoon, HFE aluminum continued to weaken, with the current-month contract falling below RMB 15,400 for a short while. The wait-and-see sentiment was strong in the spot market, with sparse but firm quotations at RMB 15,420-15,430/mt being heard. Trading was light due to weak buying from both downstream and middlemen.

A recent SMM survey of 36 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,578/mt last week, up RMB 6/mt from the previous week. The average spot discount dropped from RMB 56/mt to 51/mt. 8 of the 38 traders are neutral towards this week’s aluminum prices, with the remaining expressing bearish views due to sluggish sales and climbing stocks and after the over 1% loss of SHFE aluminum prices on Monday.

The 8 neutral traders said despite the drop on Monday, production losses at most Chinese aluminum smelters mean there is limited downside space. In addition, large aluminum businesses including Chalco and China Power Investment will cut supply to help aluminum prices recover. These traders expect aluminum prices to stay within RMB 15,480-15,580/mt this week.

The 28 bearish traders, which account for 78% of all respondents, said renewed focus on European debt means developments in Spain and Greece will continue to influence markets. The market response is even stronger this time, with the US dollar index being pushed above 83.8 as investors abandon the Euro and buy the US dollar. All base metals prices denominated in US dollar declined. LME base metals started to weaken from last Friday, with the trended being maintained on Monday when it fell to a fresh three-week low of USD 1,864/mt.

Following a plunge of LME aluminum prices on Friday, the most active SHFE aluminum contract for October delivery gapped lower and closed at a half-month low of RMB 15,355/mt. The current-month contract, though showed relatively stability, slipped to a two-week low of RMB 15,455/mt. SHFE aluminum prices face heavy downside pressure given weak support at moving averages below.

These traders also reported production output or even suspension downstream lacking production orders which kept purchases for spot aluminum low despite lower prices. In the meanwhile, aluminum production has been stable. That, combined with a declining demand drove up aluminum stocks by 9,000 mt to 694,000 mt on Monday in Wuxi, Shanghai and Nanhai. Spot aluminum prices fell as low as RMB 15,360/mt in Guangdong on Monday, while a lowest price of RMB 15,430/mt was reported in East China. High stock levels and slow sales mean East China aluminum prices will head toward the range in Guangdong. These traders expect aluminum prices to drop to RMB 15,350-15,450/mt this week.

Lead

SHFE lead prices moved down after gapping RMB 200/mt lower at RMB 14,805/mt July 23, but stabilized to touch RMB 14,900/mt with resistance at the 30-day moving average. In the afternoon, SHFE lead fell again to an intraday low of RMB 14,780/mt due to the slumping LME lead prices, to finally close at RMB 14,805/mt, down RMB 190/mt. Trading volumes were down 44 lots to 328 lots, while positions increased 64 lots to 2,586 lots.

In China’s spot lead market, offers for some brands fell below RMB 15,000/mt again. Shenqian and Mengzi were mainly quoted between RMB 14,960-14,980/mt, and Shuikoushan was quoted at RMB 15,000/mt. Quotations for Nanfang were RMB 15,050/mt, with spot premiums of RMB 160/mt over the most active SHFE lead price. Selling interest at smelters was low as lead prices dropped, while downstream buyers remained cautious due to bearish outlook. In the afternoon, prices for Shuikoushan were lowered to RMB 14,960-14,980/mt.

SMM’s survey to 30 domestic enterprises reveals that 60% industry insiders believe lead prices may fall this coming week, with LME lead prices expected at USD 1,860/mt and SHFE lead prices possibly touching a low of RMB 14,800/mt, and spot lead prices will likely drop below RMB 15,000/mt again. Currently, market is dominated by negative news. Spain’s bond yields have been climbing to creating a new high of 7.18%, mirroring the escalation of the European debt crisis. In the US, initial jobless claims last week and June home sales were both below expectations. In consequence, the US dollar index rose above 83.5. In China’s domestic spot markets, cargo holders will be more reluctant to sell goods if lead prices fall below RMB 15,000/mt. Meanwhile, downstream buyers will be less willing to purchase on bearishness.

The remaining 40% industry insiders expect lead prices will hover around RMB 15,000/mt. Although market confidence is depressed by the escalation of the European debt crisis, SHFE lead remains relatively resilient compared with LME lead prices. Moreover, LME lead inventories continued reducing last week and were down 6,250 mt, with canceled warrants up by nearly 10,000 mt. In China’s spot lead market, demand downstream improved modestly with purchases inching up. Coupled with the tighter supply caused by maintenances at smelters, lead prices should gain certain support. However, the negative economic conditions will limit increase.

Zinc

Dragged down by tumbling LME zinc prices last Friday, SHFE 1211 zinc prices, the most actively-traded zinc contract, opened lower on Monday at RMB 14,610/mt, and then moved narrowly between RMB 14,560-14,630/mt. In the afternoon session, SHFE zinc market retreated lower as LME zinc plunged with a stronger dollar. Sell-offs at the tail of trading sent SHFE zinc prices to a recent low of RMB 14,450/mt. Finally, SHFE three-month zinc prices finished at RMB 14,465/mt, down RMB 320/mt or 2.16%. Technically, downward pressures were still available. Trading volumes were up 59,832 lots to 152,038 lots, and positions were up 24,266 lots to 161,742 lots. 

In the spot market, spot discounts of #0 zinc over SHFE three-month zinc prices were RMB 70/mt in the morning business, with deals between RMB 14,510-14,550/mt. As SHFE zinc prices drifted lower, spot discounts narrowed to RMB 50/mt, and transactions were made RMB 14,480-14,510/mt. Imported zinc was traded at RMB 14,450/mt, and traded prices for #1 zinc were around RMB 14,450/mt. Falling zinc prices depressed smelters’ sales interest, and spot discounts narrowed as a result. Coupled with little arbitrage trading room, market supply was not sufficient on Monday, while downstream buying interest at lows was strong, leaving overall trading moderate. In the afternoon business, spot discounts narrowed further to RMB 20-30/mt in response to continuous declines in the SHFE market, with deals between RMB 14,420-14,430/mt. Transactions in the afternoon business were mainly made by traders. 

Zinc prices stumbled higher last week. But China reemphasized last Friday regulations to the real estate sector should not loosen. On the other hand, Spanish government bond yields hit a record high, causing concerns to improve and zinc prices to plunge last Friday. Will zinc prices stop falling and stabilize this week?

60% market players are pessimistic, believing zinc prices should fall to RMB 14,250-14,350/mt this week. Zinc prices lack support in both macro economy and fundamentals to rebound.  Spanish government bonds yields surged to a record high since the issuance of euro, causing concerns over Europe to grow. Besides, the IMF hinted it will not participate in further bailout to Greece, allowing concerns to improve. In this context, the US dollar index rebounded, pushing down LME zinc prices to USD 1,810/mt. LME zinc inventories have reached 1 million mt, weighing down LME zinc prices. As such, LME zinc prices will likely fall to USD 1,800/mt level.

The Ministry of Land and Resources required last Friday local governments should continue to strictly implement regulations to the real estate sector, causing SHFE three-month zinc contract prices to lose support from all moving averages. July and August are seasonal low demand period for zinc, while power restrictions are implemented in some regions. Imported zinc was highly available post the Dragon Boat Festival due to favorable SHFE/LME zinc price ratio, which had advantages in prices, squeezing domestic consumption and pushing down zinc prices. SHFE 1211 zinc contract prices should fall and fluctuate between RMB 14,250-14,350/mt. Spot prices should fall close to or RMB 50/mt below SHFE 1211 zinc contract prices.

30% investors believe SHFE three-month zinc contract prices should struggle around RMB 14,500/mt. The SHFE/LME zinc price ratio is high as LME zinc prices hit a record low, causing downstream purchases of LME zinc to increase, and giving support to LME zinc prices. LME zinc prices should struggle between USD 1,820-1,840/mt. Domestic smelters maintained operating rates low recently, and more smelters suspended production for maintenance, causing domestic supply surplus to ease. Besides, domestic social inventories have been falling since early 2Q, reflecting fundamentals began to improve. Smelters held goods at lower prices, giving support to zinc prices. As such, SHFE three-month zinc contract prices should move between RMB 14,350-14,500/mt, with spot discounts between RMB 50-80/mt.

Only 10% believe zinc prices will rebound this week, expecting additional stimulus policies will be released. China’s central bank frequently lowered interest rates and deposit reserve ratio, giving hope for the market. As Spanish government bond yields hit a new high, the market expects additional stimulus policies should be taken. As such, LME zinc prices should rebound to USD 1,840-1,850/mt. SHFE three-month zinc contract prices should rise to RMB 14,500-14,600/mt, while spot prices should resist increases, with discounts expanding to RMB 80-120/mt.

Tin

In Shanghai tin market, mainstream traded prices were between RMB 146,000-148,000/mt Monday and trading remained thin with demand still poor. Although LME tin prices closed slightly higher last Friday but moved lower on Monday, spot tin prices in China remained little changed, mirroring the strong wait-and-see sentiment in the market. In the afternoon, trading was lighter with barely any transactions done. Most traders were unwilling to replenish stocks due to poor sales. Yunxi was traded between RMB 147,000-148,000/mt and Yunheng was traded at RMB 147,000/mt. Some deals for Nanshan and Jinlong were made at RMB 146,000/mt.

With respect to tin price this week, 40% market players believe tin prices should remain between RMB 146,000-148,000/mt. With downstream demand remaining weak, smelters limited supply. Since domestic economic situations may not improve in short term, and since no more stimulus policies were reported at present, smelters will continue to limit sales and the softness in demand should persist.

60% market players believe tin prices may continue to fall and move between RMB 145,000-147,000/mt. LME tin prices touched USD 19,000/mt and met resistance at the level last week. LME tin prices were under resistance at USD 19,000/mt but with support at USD 18,500/mt since market focus turned to the European debt issues again and negative news was frequently reported. Given the depressed market confidence, should LME tin prices fall below USD 18,500/mt, further declines are expected, and domestic spot tin prices may continue to drop. Most traders expect domestic tin prices may present continuous decreases this week. Besides, the lackluster demand will also drag down tin prices.

Nickel

On Monday, Jinchuan Group cut ex-works prices for refined nickel to RMB 116,000/mt (large panel), and RMB 117,200/mt (small in barrel), down RMB 3,000/mt.  In the Shanghai nickel market, mainstream traded prices for Jinchuan nickel after price cuts were between RMB 116,600-117,000/mt, and RMB 114,900-115,200/mt for Russian nickel. Price reductions failed to generate buying interest, and the market was dominated by a strong wait-and-see posture. In the afternoon business, spot nickel prices moved lower with plunging LME nickel prices. Prices for Jinchuan nickel slid to RMB 116,500/mt, and MRB 114,000/mt for Russian nickel. Sharp price losses added to market’s wait-and-see stance, with no deals reported. 

According to the SMM survey of price trends this week, 50% players expect LME nickel prices to move between USD 15,300-15,800/mt, and Shanghai nickel spot prices will stabilize in the RMB 113,000-117,000/mt range, with no sharp declines expected in the short term. LME nickel prices staged marked declines last Friday and this Monday, and set a new low since 2009. With the lack of further downward momentum, prices should keep fluctuate this week, and wait for a clear market direction.

Approximately 40% believe nickel prices will continue to drop this week. At present, nickel demand from stainless steel mills have dropped significantly along with the arrival of a weak demand period and negative impact from NPI price cuts. Downstream demand will hardly improve this week, and this will provide no support for nickel prices.

Moreover, Valencia, Spain's most indebted region, asked around 2 billion euros in aid from the government. Reports also said Spain’s eastern region of Murcia would seek some 200-300 million euros from the government. German media reports Sunday that IMF hinted EU that no more financial help will be given to Greece. The European Central Bank also announced to stop accept Greek bonds as collateral, until EU, ECB and IMF completes the evaluation over Greece’s debt issues.

Besides, downward pressures are still available technically. Hence, these market players expect LME nickel prices to slid as low as USD 15,000/mt, and may briefly fall below the price mark. In the Shanghai spot market, Russian nickel prices may dip to RMB 110,000/mt, but any declines will be slower compared with LME nickel due to costs support. 

Despite strong market pessimism, around 10% players understand LME nickel prices will rebound this week. Last week, the Peoples’ Bank of China conducted seven-day reverse repos worth RMB 80 billion, and this was explained by markets as more easing measures will be taken. Meanwhile, these market players believe that the US and EU will take some necessary measures to boost economy. Furthermore, the Shanghai/LME nickel prices will rise along with falling LME nickel prices, and a higher ration may increase imports, and this will support prices. Besides, the shorts will book profits after sharp price declines, and then prices will rebound, and may rally above USD 16,000/mt. After rallies in the LME nickel market, Jinchuan nickel prices will return to RMB 119,000/mt.

 


 

Key Words:  base metals   SHFE   LME 

SMM Daily Review - 2012/7/23 Base Metals Market

Price Review & Forecast 10:55:46AM Jul 24, 2012 Source:SMM

SHANGHAI, Jul. 24 (SMM) --

Copper

As LME copper tumbled overnight, SHFE 1211 copper contract, the most active one, started RMB 840/mt down at RMB 55,280/mt Monday. After the opening, LME copper prices retreated below USD 7,500/mt rapidly, and Chinese stock markets also hit a new recent low. As a large number of longs left the market and new shorts entered, SHFE copper prices slipped all the way after fluctuating temporarily and met resistance at RMB 55,390/mt, losing RMB 55,000/mt completely. SHFE 1211 copper contract touched a low at RMB 54,290/mt in the afternoon and finally ended RMB 1,750/mt or 3.12% lower at RMB 54,370/mt, with trading volumes and positions increasing by 246,000 lots and 61,098 lots, respectively. With growing selling pressures, SHFE copper prices will likely continue to fall over the near term.

SHFE copper prices started lower and then slumped by over RMB 1,000/mt, so hedged copper flew into spot markets. In this context, spot copper supply was both ample and diversified. As SHFE copper prices again fell by nearly RMB 300/mt near the midday, market pessimism grew and spot copper premiums were unable to increase further. Mainstream spot copper offers were between premiums of positive RMB 80-180/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,120-55,420/mt, and RMB 55,150-55,520/mt for high-quality copper. Traders’ buying was restricted in the face of high copper premiums, while downstream producers merely bought at the lows but turned into a wait-and-see posture after copper prices tumbled. Cargo-holders were generally eager to sell for cash amid pessimism over future copper prices, but buyers were wary of purchases. In the afternoon, SHFE 1208 copper contract continued to fall and helped hedged copper come into spot markets again. Therefore, spot copper premium quotes in the afternoon were little changed from the morning levels, between positive RMB 100-180/mt, but traded prices dropped to RMB 54,900-55,150/mt, with limited actual market transactions amid heightening pessimism. 

SMM conducted a survey with regard to this week’s copper price trend.

Based on the survey, 60% of market insiders are pessimistic about the outlook, with LME copper prices expected to retreat to around USD 7,250/mt and SHFE copper prices to RMB 53,500/mt. The European debt crisis is worsening as Spain’s debt problems escalate. It was reported that 6 regions in Spain may seek bailout after the country’s heavily indebted Valencia region requested financial aid last Friday, raising market worries over Spanish debt woes. This sent Spain’s 10-year bond yields climbing over 7% to 7.32%, the highest since the euro was introduced. German sources reported the International Monetary Fund (IMF) would not further provide aid for Greece, weighing on commodity markets. Besides, from the latest CFTC report, net short positions reached 8,287 lots as of last Tuesday, which will guide future copper prices. Both SHFE and LME copper prices have fallen below all moving averages following considerable losses Monday and face growing upside resistance, with technical indicators pointing downside. In China, stock markets have dropped for four consecutive weeks and forced a lot of investors to withdraw from markets, and stock prices hit a new low again Monday as trading volumes contracted. If there are no positive policies, the Chinese stock markets are unlikely to remain weak over the near term and drag down domestic copper prices. In China’s spot markets, investors expect Tuesday’s HSBC manufacturing PIM to remain sluggish, so domestic copper demand is not seen to have improved. Furthermore, as SHFE copper prices lose ground, hedged copper will flow into spot markets and add to supply pressures. In this context, spot copper prices will come under pressure and depress SHFE copper prices. As such, these insiders see copper prices falling this week. 

The remaining 40% anticipate LME copper prices will fluctuate around USD 7,500/mt and that SHFE copper prices will hover between RMB 54,000-55,500/mt. Despite debt woes in the euro zone, the President of the European Central Bank (ECB) Mario Draghi said Sunday when accepting interviews that a united currency system is an irreversible trend, and that Europe is not going to slip into economic recession and the euro zone economy may begin recovering gradually late this year. His positive comments give a boost to the weak euro and help cap its downside room, which can also help support copper’s current trading range. The US this week will release new home sales and durable goods orders, and markets anticipate them to improve mildly, which will drive US equity markets up from previous lows and prop up copper prices. The US dollar index met technical resistance at around 83.8 Monday after a high open, which may help commodity markets rebound. At the same time, once LME copper prices fall below USD 7,300/mt to around USD 7,225/mt, Chinese copper smelters and traders will both catch the opportunity to go bargain hunting since this price mark is already near the lowest level in recent year. Buying on the LME will also help SHFE copper prices rally. In China, the central bank was forced last week to withdraw funds of RMB 40 billion after injecting net funds for five weeks in a row. The Chinese government has relaxed monetary measures but the situation is not stable. However, weak expectations over Tuesday’s HSBC manufacturing index have raised market speculation China’s central bank may cut the reserve ratio again, which can support domestic stock and futures markets. In Chinese spot markets, the SHFE/LME copper price ratio is around 7.3, and incurs slight losses for copper importers. This, though, helps spot copper maintain slight premiums, which restrict copper’s downward space.

Aluminum

The most actively traded SHFE aluminum contract for October delivery gapped lower at RMB 15,500/mt and closed down RMB 270/mt or 1.73% at RMB 15,355/mt on Monday, as renewed worries towards the European debt crisis and sluggish domestic demand fueled short selling. Positions dropped 1,714 lots to 100,266 lots. Positions of SHFE aluminum for November delivery increased during the day, in preparation for a backward shift.

Spot aluminum traded at RMB 15,420-15,450/mt in Shanghai, at discounts of RMB 50-80/mt over current-month SHFE aluminum prices. Low-iron aluminum traded at RMB 15,520-15,540/mt. SHFE aluminum gapped lower and lost over 1%. The current-month contract lost support at RMB 15,500/mt, to the strength of shorts, with strong selling interest shown but purchases only being made on an as-needed basis by downstream and mostly at discounts of RMB 70-80/mt by middlemen. In the afternoon, HFE aluminum continued to weaken, with the current-month contract falling below RMB 15,400 for a short while. The wait-and-see sentiment was strong in the spot market, with sparse but firm quotations at RMB 15,420-15,430/mt being heard. Trading was light due to weak buying from both downstream and middlemen.

A recent SMM survey of 36 aluminum traders reveals that the average traded price of spot aluminum in Shanghai was RMB 15,578/mt last week, up RMB 6/mt from the previous week. The average spot discount dropped from RMB 56/mt to 51/mt. 8 of the 38 traders are neutral towards this week’s aluminum prices, with the remaining expressing bearish views due to sluggish sales and climbing stocks and after the over 1% loss of SHFE aluminum prices on Monday.

The 8 neutral traders said despite the drop on Monday, production losses at most Chinese aluminum smelters mean there is limited downside space. In addition, large aluminum businesses including Chalco and China Power Investment will cut supply to help aluminum prices recover. These traders expect aluminum prices to stay within RMB 15,480-15,580/mt this week.

The 28 bearish traders, which account for 78% of all respondents, said renewed focus on European debt means developments in Spain and Greece will continue to influence markets. The market response is even stronger this time, with the US dollar index being pushed above 83.8 as investors abandon the Euro and buy the US dollar. All base metals prices denominated in US dollar declined. LME base metals started to weaken from last Friday, with the trended being maintained on Monday when it fell to a fresh three-week low of USD 1,864/mt.

Following a plunge of LME aluminum prices on Friday, the most active SHFE aluminum contract for October delivery gapped lower and closed at a half-month low of RMB 15,355/mt. The current-month contract, though showed relatively stability, slipped to a two-week low of RMB 15,455/mt. SHFE aluminum prices face heavy downside pressure given weak support at moving averages below.

These traders also reported production output or even suspension downstream lacking production orders which kept purchases for spot aluminum low despite lower prices. In the meanwhile, aluminum production has been stable. That, combined with a declining demand drove up aluminum stocks by 9,000 mt to 694,000 mt on Monday in Wuxi, Shanghai and Nanhai. Spot aluminum prices fell as low as RMB 15,360/mt in Guangdong on Monday, while a lowest price of RMB 15,430/mt was reported in East China. High stock levels and slow sales mean East China aluminum prices will head toward the range in Guangdong. These traders expect aluminum prices to drop to RMB 15,350-15,450/mt this week.

Lead

SHFE lead prices moved down after gapping RMB 200/mt lower at RMB 14,805/mt July 23, but stabilized to touch RMB 14,900/mt with resistance at the 30-day moving average. In the afternoon, SHFE lead fell again to an intraday low of RMB 14,780/mt due to the slumping LME lead prices, to finally close at RMB 14,805/mt, down RMB 190/mt. Trading volumes were down 44 lots to 328 lots, while positions increased 64 lots to 2,586 lots.

In China’s spot lead market, offers for some brands fell below RMB 15,000/mt again. Shenqian and Mengzi were mainly quoted between RMB 14,960-14,980/mt, and Shuikoushan was quoted at RMB 15,000/mt. Quotations for Nanfang were RMB 15,050/mt, with spot premiums of RMB 160/mt over the most active SHFE lead price. Selling interest at smelters was low as lead prices dropped, while downstream buyers remained cautious due to bearish outlook. In the afternoon, prices for Shuikoushan were lowered to RMB 14,960-14,980/mt.

SMM’s survey to 30 domestic enterprises reveals that 60% industry insiders believe lead prices may fall this coming week, with LME lead prices expected at USD 1,860/mt and SHFE lead prices possibly touching a low of RMB 14,800/mt, and spot lead prices will likely drop below RMB 15,000/mt again. Currently, market is dominated by negative news. Spain’s bond yields have been climbing to creating a new high of 7.18%, mirroring the escalation of the European debt crisis. In the US, initial jobless claims last week and June home sales were both below expectations. In consequence, the US dollar index rose above 83.5. In China’s domestic spot markets, cargo holders will be more reluctant to sell goods if lead prices fall below RMB 15,000/mt. Meanwhile, downstream buyers will be less willing to purchase on bearishness.

The remaining 40% industry insiders expect lead prices will hover around RMB 15,000/mt. Although market confidence is depressed by the escalation of the European debt crisis, SHFE lead remains relatively resilient compared with LME lead prices. Moreover, LME lead inventories continued reducing last week and were down 6,250 mt, with canceled warrants up by nearly 10,000 mt. In China’s spot lead market, demand downstream improved modestly with purchases inching up. Coupled with the tighter supply caused by maintenances at smelters, lead prices should gain certain support. However, the negative economic conditions will limit increase.

Zinc

Dragged down by tumbling LME zinc prices last Friday, SHFE 1211 zinc prices, the most actively-traded zinc contract, opened lower on Monday at RMB 14,610/mt, and then moved narrowly between RMB 14,560-14,630/mt. In the afternoon session, SHFE zinc market retreated lower as LME zinc plunged with a stronger dollar. Sell-offs at the tail of trading sent SHFE zinc prices to a recent low of RMB 14,450/mt. Finally, SHFE three-month zinc prices finished at RMB 14,465/mt, down RMB 320/mt or 2.16%. Technically, downward pressures were still available. Trading volumes were up 59,832 lots to 152,038 lots, and positions were up 24,266 lots to 161,742 lots. 

In the spot market, spot discounts of #0 zinc over SHFE three-month zinc prices were RMB 70/mt in the morning business, with deals between RMB 14,510-14,550/mt. As SHFE zinc prices drifted lower, spot discounts narrowed to RMB 50/mt, and transactions were made RMB 14,480-14,510/mt. Imported zinc was traded at RMB 14,450/mt, and traded prices for #1 zinc were around RMB 14,450/mt. Falling zinc prices depressed smelters’ sales interest, and spot discounts narrowed as a result. Coupled with little arbitrage trading room, market supply was not sufficient on Monday, while downstream buying interest at lows was strong, leaving overall trading moderate. In the afternoon business, spot discounts narrowed further to RMB 20-30/mt in response to continuous declines in the SHFE market, with deals between RMB 14,420-14,430/mt. Transactions in the afternoon business were mainly made by traders. 

Zinc prices stumbled higher last week. But China reemphasized last Friday regulations to the real estate sector should not loosen. On the other hand, Spanish government bond yields hit a record high, causing concerns to improve and zinc prices to plunge last Friday. Will zinc prices stop falling and stabilize this week?

60% market players are pessimistic, believing zinc prices should fall to RMB 14,250-14,350/mt this week. Zinc prices lack support in both macro economy and fundamentals to rebound.  Spanish government bonds yields surged to a record high since the issuance of euro, causing concerns over Europe to grow. Besides, the IMF hinted it will not participate in further bailout to Greece, allowing concerns to improve. In this context, the US dollar index rebounded, pushing down LME zinc prices to USD 1,810/mt. LME zinc inventories have reached 1 million mt, weighing down LME zinc prices. As such, LME zinc prices will likely fall to USD 1,800/mt level.

The Ministry of Land and Resources required last Friday local governments should continue to strictly implement regulations to the real estate sector, causing SHFE three-month zinc contract prices to lose support from all moving averages. July and August are seasonal low demand period for zinc, while power restrictions are implemented in some regions. Imported zinc was highly available post the Dragon Boat Festival due to favorable SHFE/LME zinc price ratio, which had advantages in prices, squeezing domestic consumption and pushing down zinc prices. SHFE 1211 zinc contract prices should fall and fluctuate between RMB 14,250-14,350/mt. Spot prices should fall close to or RMB 50/mt below SHFE 1211 zinc contract prices.

30% investors believe SHFE three-month zinc contract prices should struggle around RMB 14,500/mt. The SHFE/LME zinc price ratio is high as LME zinc prices hit a record low, causing downstream purchases of LME zinc to increase, and giving support to LME zinc prices. LME zinc prices should struggle between USD 1,820-1,840/mt. Domestic smelters maintained operating rates low recently, and more smelters suspended production for maintenance, causing domestic supply surplus to ease. Besides, domestic social inventories have been falling since early 2Q, reflecting fundamentals began to improve. Smelters held goods at lower prices, giving support to zinc prices. As such, SHFE three-month zinc contract prices should move between RMB 14,350-14,500/mt, with spot discounts between RMB 50-80/mt.

Only 10% believe zinc prices will rebound this week, expecting additional stimulus policies will be released. China’s central bank frequently lowered interest rates and deposit reserve ratio, giving hope for the market. As Spanish government bond yields hit a new high, the market expects additional stimulus policies should be taken. As such, LME zinc prices should rebound to USD 1,840-1,850/mt. SHFE three-month zinc contract prices should rise to RMB 14,500-14,600/mt, while spot prices should resist increases, with discounts expanding to RMB 80-120/mt.

Tin

In Shanghai tin market, mainstream traded prices were between RMB 146,000-148,000/mt Monday and trading remained thin with demand still poor. Although LME tin prices closed slightly higher last Friday but moved lower on Monday, spot tin prices in China remained little changed, mirroring the strong wait-and-see sentiment in the market. In the afternoon, trading was lighter with barely any transactions done. Most traders were unwilling to replenish stocks due to poor sales. Yunxi was traded between RMB 147,000-148,000/mt and Yunheng was traded at RMB 147,000/mt. Some deals for Nanshan and Jinlong were made at RMB 146,000/mt.

With respect to tin price this week, 40% market players believe tin prices should remain between RMB 146,000-148,000/mt. With downstream demand remaining weak, smelters limited supply. Since domestic economic situations may not improve in short term, and since no more stimulus policies were reported at present, smelters will continue to limit sales and the softness in demand should persist.

60% market players believe tin prices may continue to fall and move between RMB 145,000-147,000/mt. LME tin prices touched USD 19,000/mt and met resistance at the level last week. LME tin prices were under resistance at USD 19,000/mt but with support at USD 18,500/mt since market focus turned to the European debt issues again and negative news was frequently reported. Given the depressed market confidence, should LME tin prices fall below USD 18,500/mt, further declines are expected, and domestic spot tin prices may continue to drop. Most traders expect domestic tin prices may present continuous decreases this week. Besides, the lackluster demand will also drag down tin prices.

Nickel

On Monday, Jinchuan Group cut ex-works prices for refined nickel to RMB 116,000/mt (large panel), and RMB 117,200/mt (small in barrel), down RMB 3,000/mt.  In the Shanghai nickel market, mainstream traded prices for Jinchuan nickel after price cuts were between RMB 116,600-117,000/mt, and RMB 114,900-115,200/mt for Russian nickel. Price reductions failed to generate buying interest, and the market was dominated by a strong wait-and-see posture. In the afternoon business, spot nickel prices moved lower with plunging LME nickel prices. Prices for Jinchuan nickel slid to RMB 116,500/mt, and MRB 114,000/mt for Russian nickel. Sharp price losses added to market’s wait-and-see stance, with no deals reported. 

According to the SMM survey of price trends this week, 50% players expect LME nickel prices to move between USD 15,300-15,800/mt, and Shanghai nickel spot prices will stabilize in the RMB 113,000-117,000/mt range, with no sharp declines expected in the short term. LME nickel prices staged marked declines last Friday and this Monday, and set a new low since 2009. With the lack of further downward momentum, prices should keep fluctuate this week, and wait for a clear market direction.

Approximately 40% believe nickel prices will continue to drop this week. At present, nickel demand from stainless steel mills have dropped significantly along with the arrival of a weak demand period and negative impact from NPI price cuts. Downstream demand will hardly improve this week, and this will provide no support for nickel prices.

Moreover, Valencia, Spain's most indebted region, asked around 2 billion euros in aid from the government. Reports also said Spain’s eastern region of Murcia would seek some 200-300 million euros from the government. German media reports Sunday that IMF hinted EU that no more financial help will be given to Greece. The European Central Bank also announced to stop accept Greek bonds as collateral, until EU, ECB and IMF completes the evaluation over Greece’s debt issues.

Besides, downward pressures are still available technically. Hence, these market players expect LME nickel prices to slid as low as USD 15,000/mt, and may briefly fall below the price mark. In the Shanghai spot market, Russian nickel prices may dip to RMB 110,000/mt, but any declines will be slower compared with LME nickel due to costs support. 

Despite strong market pessimism, around 10% players understand LME nickel prices will rebound this week. Last week, the Peoples’ Bank of China conducted seven-day reverse repos worth RMB 80 billion, and this was explained by markets as more easing measures will be taken. Meanwhile, these market players believe that the US and EU will take some necessary measures to boost economy. Furthermore, the Shanghai/LME nickel prices will rise along with falling LME nickel prices, and a higher ration may increase imports, and this will support prices. Besides, the shorts will book profits after sharp price declines, and then prices will rebound, and may rally above USD 16,000/mt. After rallies in the LME nickel market, Jinchuan nickel prices will return to RMB 119,000/mt.

 


 

Key Words:  base metals   SHFE   LME