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SMM Daily Review – 2012/9/3 Base Metals Market

iconSep 4, 2012 10:56
Source:SMM
77% of market insiders are optimistic over the outlook.

SHANGHAI, Sept. 4 (SMM) --

Copper

SHFE 1212 copper contract, the most active one, started slightly RMB 80/mt down at RMB 55,420/mt Monday. China’s PMI data released both at weekend and Monday was down and softer than market anticipated, raising investor expectations that China’s central bank will further stimulus the economy. Besides, a falling US dollar index helped LME copper prices rebound above USD 7,600/mt. In this context, SHFE copper prices trended higher all the way and broke through resistance at RMB 56,000/mt in the afternoon, up to as high as RMB 56,207/mt. SHFE 1212 copper contract finally settled RMB 680/mt or 1.23% higher at RMB 56,180/mt, with trading volumes and positions increasing by 177,000 lots and 29,836 lots, respectively. As longs became more willing to keep up with rising prices, SHFE copper prices are likely to keep strong momentum over the near term and try to challenge the previous high of RMB 56,350/mt.
   
HSBC announced that China’s PMI dropped significantly in August, heightening market expectations China’s central bank would introduce looser monetary measures. This helped SHFE copper prices rebound and enticed spot copper cargo-holders to move goods at the highs, keeping spot copper supply sufficient. Spot copper premiums thus slipped and even turned into slight discounts. Mainstream spot copper offers were between discounts of negative RMB 20/mt and positive RMB 50/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 56,200-56,280/mt, and RMB 56,230-56,350/mt for high-quality copper. Optimists chose to enter markets in the morning, while purchase volumes from downstream producers increased some owing to improvement in cash flows. Optimistic sentiment began growing in markets. In the afternoon, as SHFE copper prices drifted higher, market optimism towards future copper prices continued to grow, compelling spot copper cargo-holders to insist on firm quotations. Standard-quality copper was already rarely seen to trade at discounts, and its price gap with high-quality copper narrowed further. Mainstream spot copper offers in the afternoon were positive RMB 0-30/mt, while traded prices surged to RMB 56,400-56,550/mt, with market transactions decreasing since downstream consumers mostly kept on the sidelines.  

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

Based on the survey, 77% of market insiders are optimistic over the outlook, believing LME copper may rebound to USD 7,700-7,800/mt and that SHFE copper will challenge resistance between 56,500-57,000/mt. Many central banks will announce latest interest rate decisions this week, while the European Central Bank (ECB) will hold a press conference and respond to details on the new bond buying plan. Markets are positive about central banks’ actions, which will help copper prices climb. Besides, euro zone countries will release the latest manufacturing figures, and although these figures are not expected to improve, they will boost investor speculation central banks would adopt looser monetary measures. Recent US economic data is positive, and this week’s ISM manufacturing index, ADP employment data, and non-farm payrolls will become market focuses. US equity markets are likely to increase and help drive copper prices higher. Gold and crude oil prices have also posted prominent performance recently. From technical indicators, copper prices have moved above all recent moving averages, and once standing steadily at the 5 and 10-day moving averages, LME copper prices will directly point levels above USD 7,700/mt. Domestic spot copper consumption will probably warm up in September and October, which will lay a foundation for copper premiums for the near term and thus support copper prices. As such, these optimists hold the view copper prices will keep the rising momentum this week. 

The remaining 23% of market insiders see copper prices holding flat, with LME and SHFE copper expected to hover around USD 7,600/mt and 55,500/mt, respectively. Despite many favorable factors, pressures prevail. Markets expect that forthcoming PMI data from euro zone countries will indicate economy continues to fall, which will weigh on commodity markets. The US dollar index has gained support at around 81.18 following several days’ declines, and has large upside space, exerting great resistance to copper prices. Moreover, a total of RMB 18.163 billion already withdrew from domestic stock markets for five consecutive trading days, with the money withdrawal of nonferrous metals and machinery equipments most severe. In this context, the Shanghai Composite Index is likely to lose 2,000, which will drag down domestic copper prices. Hence, these insiders anticipate copper prices will move cautiously in previous trading ranges.

Aluminum

SHFE aluminum contract for November delivery opened slightly higher at RMB 15,390/mt on September 3. As weak manufacturing data raised hopes for easing policies, the most active contract found strong support at RMB 15,400/mt in the afternoon. Finally, the three-month contract gained RMB 80/mt or 0.52% to close at RMB 15,430/mt. Positions were down 420 lots to 90,298 lots. Aluminum prices rebounded, thanks to expectations for easing policies in the US and China. SHFE 1211 aluminum contract is expected to stagnate near RMB 15,400/mt in the short term due to cautious responses from investors.

Spot aluminum was mainly traded between RMB 15,340-15,370/mt in Shanghai on September 3, with discounts between RMB 80-50/mt. Low-iron aluminum was traded between RMB 15,420-15,430/mt. The absence of buying at highs in SHFE aluminum market curtailed rising momentum of spot aluminum. Cargo holders stood on the sidelines due to eased cash flows as the new month starts. Downstream buying interest remained low, so a small number of traders were eager to move goods with lower quotations. In the afternoon, the most active contract inched up, but traded prices of spot aluminum hovered around RMB 15,350/mt due to sufficient supply, except for some deliverable goods which were firm at RMB 15,370/mt. Overall trading was extremely thin.

SMM’s latest survey of 34 aluminum ingot traders shows 18 traders (53%) believe aluminum prices will rise above Monday’s traded prices of RMB 15,350/mt this coming week, 12 traders (35%) expect prices to stay unchanged, and the rest 4 traders (12%) hold a dim view of this week’s prices. Compared with last week, the proportion of bullish traders increased 34 percentage points this week, while that of bearish traders dropped to 12% from 57%.

Bullish traders believe the US dollar index may fall due to growing expectations for easing monetary policies by the Federal Reserve, despite the European debt crisis. Therefore, base metals prices will be lifted. The US dollar index slipped below 81 last Friday because of rising hopes for US easing monetary policies. Prices of most base metals in domestic markets opened higher on Monday, also pointing to the great impact of positive expectations.

LME aluminum prices climbed to USD 1,860/mt from USD 1,827/mt last week. LME aluminum touched a high of USD 1,904/mt prior to last Friday’s central bank meeting. On Monday, LME aluminum extended gains and stabilized above the 60-day moving average. Therefore, markets generally believe that LME aluminum prices are resilient to declines in the short term. Bullish traders expect SHFE aluminum and spot aluminum prices will follow LME aluminum and spot aluminum prices will move between RMB 15,400-15,450/mt this coming week.  

Neutral traders note the Federal Reserve will not introduce easing policies in the near term, as US economic data has shown signs of pick up. Even if easing policies are implemented, they will do little to help lift base metals prices given the European debt crisis and China’s economic slowdown. A slew of weak manufacturing PMI data of China and the euro zone has dampened market confidence. Besides, high inventories and sluggish consumption will continue to keep aluminum prices in check. Hence, neutral traders expect spot aluminum prices to move between RMB 15,300-15,400/mt this coming week.

Bearish traders understand the European debt crisis will deteriorate, which will cause base metals prices to fall. Besides, there is little chance the Fed will introduce QE3 in the near term. Economic slowdown of emerging economies like China may create oversupply of commodities. China’s manufacturing PMI for August slid to a 41-month low. Spot aluminum inventories have exceeded 800,000 mt. Depressing orders and low operating rates at downstream processors will continue to weigh on aluminum prices. Tight cash flows should also drag down prices. Bearish traders expect spot aluminum prices to move between RMB 15,250-15,300/mt this coming week due to sluggish consumption, excess supply and high selling interest. 

Lead

On Monday, SHFE lead prices gapped RMB 30/mt higher at RMB 15,205/mt boosted by Fed’s Chairman Bernanke’s hint on QE3 last Friday and followed a weak trend in the morning. In the afternoon, SHFE lead moved up influenced by stock markets and strong buying support at RMB 15,200/mt. SHFE lead prices fell later due to the decline in LME lead prices before finally closing at RMB 15,200/mt, up RMB 30/mt. Trading volumes fell 26 lots to 104 lots, while positions fell 44 lots to 1,850 lots.

SHFE lead prices moved around RMB 15,200/mt on September 3, and spot lead prices in China’s domestic markets edged up. Nanfang was mainly quoted at RMB 15,170/mt, with spot discounts over the most active SHFE lead price at RMB 30/mt. Quotations for Chihong Zn & Ge were RMB 15,200/mt, close to the most active SHFE lead price. Mengzi and Hanjiang were quoted at RMB 15,100-15,120/mt, and prices for Shenqian were offered at RMB 15,090/mt. Downstream buyers waited on the sidelines due to the rising lead prices, and most cargo holders moved goods moderately with bullish outlook, leaving trading unimproved. In the afternoon, SHFE lead prices moved up RMB 50/mt, but traders in spot market did not raise prices due to sparse inquries.

Opinions have been divided on lead price trends this coming week due to numerous uncertain factors in the market. 33% of market players are relatively optimistic, believing LME lead prices will climb to USD 1,980/mt, and SHFE lead prices should move around RMB 15,250/mt, buoying spot lead prices to RMB 15,100-15,250/mt. The Fed’s Chairman Bernanke affirmed the positive effect of the previous two rounds of QE policies at the annual central bank meeting last Friday, driving the US dollar index to drop below 81. In Europe, market expects the European Central Bank may start buying government bonds this week, further easing market concerns over the European debt issues. In China’s spot lead market, smelters will limit supply again with financial pressure easing, the tight supply will help support lead prices.

40% of investors remain wary, saying although Bernanke confirmed the effect of quantitative easing, as no details about QE3 have been revealed, uncertainty remains on implementation of QE3 with the Fed requiring monetary stability on one hand, while intending to boost economy on the other. Meanwhile, since a series of risk events, including the euro zone PPI for July and GDP data for 2Q, the ECB’s decision on interest rate, the US August ISM manufacturing index, as well as non-farm payrolls, will be released this week, market should be cautious. In this context, these investors expect LME lead prices to move around the 5-day moving average. In spot lead market, lead prices should fluctuate between RMB 15,050-15,150/mt due to the stalemate between buyers and sellers.

The remaining 27% market players were pessimists. China’s manufacturing PMI fell for a 10th month at 49.2 in August, according to the China Federation of Logistics and Purchasing, and new export orders fell to a 41-month low, signifying a continued contraction in China’s economy. In spot lead markets, since orders for lead-acid batteries remained unimproved, downstream buyers mainly purchased on an as-needed basis. The sluggish rigid demand left little impetus for lead prices to rise. Besides, technical indicators also showed a sign of downtrend. As such, pessimistic investors predict lead prices may possibly move around RMB 15,000/mt or even fall below RMB 15,000/mt.

Zinc

SHFE 1212 zinc contract, the most traded one, opened at RMB 14,655/mt on September 3 and hit a high of RMB 14,855/mt at midday due to rallies of LME lead prices and Chinese stocks, as well as Fed’s Chairman Bernanke’s speech last Friday which boosted the market. SHFE zinc prices later moved between RMB 14,830-14,850/mt and finally closed at RMB 14,840/mt, up RMB 160/mt, or 1.09%. Trading volumes were up 24,816 lots to 102,306 lots, and positions rose 15,854 lots to 167,020 lots.

In China’s spot zinc market, discounts of #0 zinc against SHFE three-month zinc contract prices were RMB 50-60/mt, with traded prices between RMB 14,670-14,680/mt. As SHFE zinc prices increased later, discounts of #0 zinc against SHFE three-month zinc contract prices expanded to RMB 70-80/mt, with traded prices around RMB 14,670-14,680/mt. #1 zinc prices were at RMB 14,640/mt. Smelters sold goods moderately at higher prices, while the expanded discounts attracted some traders to conduct hedging trades. Downstream buyers, however, were cautious and only purchased as needed on account of the high zinc prices. In the afternoon, SHFE zinc prices continued to rise, driving spot discounts to RMB 100/mt with traded prices for spot zinc reaching RMB 14,700-14,740/mt. Downstream buyers remained wary and most deals were done by traders.

Market expectations over the introduction of QE3 by the Federal Reserve (Fed) helped drive up LME and SHFE zinc prices. During the global central bankers’ meeting last Friday, the Fed Chairman did not provide explicit hints on further measures, and only left the possibility when necessary.

Based on the latest SMM survey of price trends this week, approximately 60% of market players expect zinc prices to hover at the existing price band this week, with SHFE three-month zinc prices between RMB 14,600-14,700/mt. Market optimism over new stimulus measures has faded, and the US dollar index has experienced consolidations after hovering at low levels for one week.  These neutral players expect LME zinc prices to move between USD 1,840-1,860/mt this week.  

In domestic zinc market, spot prices are slower to rise as downstream producers have showed little acceptance to high prices due to weak demand, and spot discounts are expanding. Some traders were acting to buy spot and sell futures, restricting price gains in the SHFE zinc market. This week, SHFE three-month zinc prices are expected to hover between RMB 14,600-14,700/mt, and spot discounts will be between RMB 50-60/mt.

Around 20% of market players understand that SHFE zinc prices will advance this week, with SHFE three-month zinc prices expected between RMB 14,700-14,900/mt. The possibility of introduction of QE3 remains a positive factor for markets.  Meanwhile, countries in the euro zone will release PMI and final GDP for 2Q this week, and markets expect weak results for these readings, and this will raise market expectations over fresh stimulus measures. Hence, LME zinc market is expected to hover between USD 1,860-2,020/mt this week.

In domestic zinc market, cash tightness will ease at the beginning of month, and so domestic smelters will hold quotations firm. Besides, the approach of a traditional peak demand period in September and October will boost downstream demand, and this will help support prices. Coupled with upward momentum technically, SHFE three-month zinc prices will move between RMB 14,700-14,900/mt, and spot discounts will expand slightly to RMB 60-80/mt this week.

The rest 20% note that zinc prices will drop this week, and SHFE three-month zinc prices may test support at RMB 14,500/mt. Late this week, the US will announce the private sector employment, and non-farm payroll data. Employment data is not expected to drop further, and this will reduce the possibility that the Fed will take new stimulus measures in the short term. Hence, the pessimists expect LME zinc to drop slightly to USD 1,820-1,840/mt this week.  In domestic zinc market, low possibility of new incentive measures and weak performance in domestic stocks market will drag down SHFE zinc market, with SHFE three-month zinc prices down to RMB 14,500/mt, with prices expected between RMB 14,500-14,600/mt. The high SHFE/LME zinc price ratio has left profits for imported zinc, and the arrivals of imported zinc will depress domestic zinc spot prices, and spot discounts are expected to be between RMB 30-50/mt.

Tin

In Shanghai tin market, spot tin prices were mainly between RMB 148,000-152,000/mt on Monday. Transactions were quiet with strong wait-and-see sentiment in the market and goods available to the market were inadequate. In the afternoon, some traders raised low-end prices, leaving fewer goods quoted at RMB 148,000/mt. Yunxi was traded at RMB 149,000-149,500/mt, and Yunheng was traded at RMB 149,000/mt. Some imported tin and goods from Weitai were traded at RMB 148,000-148,500/mt. Smelters still held quotations firm.

According to SMM’s survey, 60% of market players expect tin prices should remain stable. The US dollar index was weighed down due to expectations on QE3. However, the Bernanke and the Fed did not make actual statement about QE3, hurting investors’ confidence, and the implementation of QE3 has always faced opposition. Thus, the hope on QE3 was not sufficient to drive the US dollar index to dip further. Meanwhile, the continuous global downturn which pushed risk aversion up also lent some support to the US dollar index. This week, market should be cautious awaiting the US non-farm payrolls and ECB’s interest rate decision, so LME tin prices will unlikely stage violent movements. Besides, PT Timah Tbk announced to restart spot tin sales, resulting in less supply support for tin prices.

30% of investors believe spot tin prices will fall this week due to the weak consumption. Since many traders and downstream enterprises have replenished stocks last week when tin prices surged, tin demand may fall back this week, and buying interest is expected to be low with strong wait-and-see sentiment in the market. In addition, output of home appliances and tinplate exports staged declines. Meanwhile, HSBC final China manufacturing PMI fell to 47.6 in August, the lowest level since March 2009, indicating limited downstream orders and staying weak demand. The soft consumption will lead traders to cut prices, so spot tin prices should continue to slip. However, since LME tin prices are not likely to present sharp decline, spot tin prices are not expected drop significantly but to move below RMB 148,000/mt.

10% of market players expect tin prices to rise this week, since the expectations on QE3 may weigh on the US dollar index and help support LME tin prices and since smelters will be unwilling to move goods with financial pressures easing, driving spot tin prices to rise.

Nickel

In China’s nickel spot market, Jinchuan Group cut ex-works nickel prices by RMB 2,000/mt to RMB 114,000/mt on Tuesday. In response, mainstream traded prices of nickel from Jinchuan Group were in the RMB 114,700-114,900/mt range, and mainstream traded prices of nickel from Russia were between RMB 113,100-113,900/mt. Arbitrage opportunity emerged between futures market and spot market, increasing demand for spot nickel. However, traders still kept offers firm, leaving transactions unimproved.

Based on result of most recent SMM survey, 50% market players believe that LME nickel prices will continue to rally this week and will break through resistance at USD 16,500/mt and USD 16,700/mt and may poise to test USD 17,000/mt mark. Their reasons are as follows. First, Fed Chairman Ben Bernanke’s remark at the Jackson Hole conference fueled investors’ expectation over QE3, which weigh down the US dollar. Second, the European central bank will announce interest rate meeting result on Thursday, and market widely expects that the ECB may announce its plan to purchase Spanish government bond. Inspired by two positive factors, market sentiment is going to improve greatly. Furthermore, they expect that nickel demand will recover in September, as domestic large stainless steel mills will resume production line for #300 stainless steel.

30% market players are cautious and predict that LME nickel prices will remain between USD 16,000-16,500/mt ahead of US nonfarm employment data release. They believe that Friday’s nonfarm employment data will greatly affect base metal price movement. It is widely expected in the market that unemployment rate will remain unchanged at 8.3%, and nonfarm employment payrolls will increase 125,000.If employment data is within market expectation, the Fed may postpone implementation of loose monetary policy. In addition, manufacture PMI announced on Monday from China was not optimistic, which will cap gains of LME nickel prices.

The remaining 20% market players hold that LME nickel prices will fall below support at USD 16,000/mt in this coming week. Weak demand for refined nickel and China’s economic slowdown are major concerns for pessimistic players. The Shanghai Composite Index challenged 2000 points, and economic data were also disappointing. However, Chinese government still did not implement a new round of stimulus policy, which adds difficulties for downstream demand recovery. What's more, Catalonia, the largest autonomous region in Spain failed to receive financing and asked for central government help. The Spanish economy is challenged by debt crisis. If the ECB fails to release aid measures, the prolonged European debt crisis may erode market confidence and weigh down the euro. The US dollar is well supported at 81.18 and may rebound back, which will drag down base metal prices.


 

LME base metal price
Shanghai spot base metal price

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