SHANGHAI, Oct.15 (SMM) –

The IMF cut its global economic forecast and the Eurozone financial ministers meeting failed to report significant progress. Meanwhile, Standard & Poor’s cut Spain’s sovereign credit rating from BBB+ to BBB- on October 10 with a negative outlook. China’s PMI for September was 49.8%, up 0.6 percentage point, its first monthly rebound since May. Although the PMI did advance, each of its major sub-indexes remained below 50. As such, many have exited risky assets, returning to the US dollar as a safe haven. The US dollar successfully advanced above 80 mark, weighing on base metal prices. SMMI.Ni led the decline last week, down 1.57%, and SMMI.Zn and SMMI. Al was down 1.3% and down 1.03% respectively. SMMI.Cu was relatively resilient, with SMMI.Cu was only down 0.08%. Tin prices slipped earlier, but finally advanced and closed with gains, with SMMI. Sn up 0.8%.

Copper

China's central bank continued reverse purchases ahead of China's National Day holiday, but tight market liquidity heightened market anticipation of a cut in the reserve ratio. As Central Huijin Investment raised stock holdings in four major Chinese banks to help prop up markets, the Shanghai Composite Index rose sharply to 2,100, but SHFE copper prices followed LME copper downward trend to hit RMB 58,500/mt post-holiday, a loss of over 1.3%. However, buying support and technical resistance at this level caused positions and trading volumes to increase.

In spot copper markets last week, post-holiday copper supply was stable and copper discounts were around RMB 100/mt. The price gap between SHFE 1210 and 1211 copper contracts narrowed gradually, heightening market expectation copper premiums may increase early in the coming week. Traders favored high-quality copper, and as domestic copper prices proved more resilient mid-week, the SHFE/LME copper price ratio rose to around 7.23, reducing losses on imported copper. Downstream producers still only purchased as needed early in the week, but purchase activity increased at prices below RMB 59,000/mt mid-week. Market transactions increased after initially falling, with market transactions driven by speculators buying spot copper and selling SHFE copper contracts.

In the coming week, SHFE copper prices are expected to challenge highs between RMB 59,500-59,800/mt.

Aluminum

SHFE aluminum proved resilient to declines compared with LME aluminum, but the SHFE 1212 aluminum contract extended losses after the Chinese Mid-autumn Festival and National Day holidays, with prices falling below RMB 15,500/mt. The most active SHFE aluminum contract failed to rebound as longs took profits in the first half of last week, but returned above RMB 15,500/mt due to short-covering in the second half of last week. Resistance at the 5-day moving average, however, was still strong since longs were cautious towards buying. Total positions of the three-month SHFE aluminum contract have been decreasing for nearly one month, down from nearly 30,000 lots to the current 60,000 lots, indicating a lack of confidence by investors. Total positions of the 1301 aluminum contract were merely 48,000 lots. Hence, it will take some time before the 1301 aluminum contract can become the most active contract.
  
Arrivals of spot aluminum were normal during the 8-day Chinese holidays, with total inventories up by 96,000 mt and total trading inventories approaching 1 million mt. However, consumption failed to pick up post-holidays as downstream processors only purchased as needed, depriving spot aluminum prices of upward momentum. Last week, spot aluminum prices dropped along with SHFE aluminum. Spot discounts disappeared due to the upcoming delivery date of 1210 contracts. However, mainstream traded prices dropped from RMB 15,470/mt to RMB 15,360/mt as supply exceeded demand. Low buying interest from downstream producers and middlemen also depressed trading activity.

LME aluminum prices will hover near USD 2,000/mt, while the most active SHFE aluminum contract price will move around RMB 15,500/mt. Spot discounts will expand to RMB 50-100/mt as the SHFE 1211 aluminum contract will become the current-month contract on Tuesday. Trading should be light since downstream producers will purchase on an as-needed basis despite cargo holders’ willingness to move goods.

Lead

During the first trading week following China’s National Day holiday, SHFE lead prices fell to RMB 15,800/mt, down 1.2%. The most active SHFE lead contract price may move between the 10- and 30-day moving averages, influenced by the A-shares and with strong support at the 30-day moving average.

In China’s domestic spot market, prices for well-known brands fell to RMB 15,600/mt, down from RMB 15,700/mt, with spot discounts of RMB 250-300/mt over the most active SHFE lead contract price. Spot prices for other lead brands also fell by RMB 100/mt to RMB 15,500/mt. Stock replenishments in large amounts were not reported post-holiday as downstream buyers purchased when prices were rising. Some enterprises purchased mid-week when lead prices fell, but trading remained modest. Smelters reported normal supply. Smelters will be more willing to move goods this week, but downstream enterprises and traders will be cautious, leaving trading light. Traded prices are expected between RMB 15,500-15,700/mt, with spot discounts over the most active SHFE lead contract price at RMB 300/mt.

Zinc

SHFE three-month zinc contract prices have been weak since the reopening of the SHFE market. Dragged down by lower LME zinc prices, SHFE three-month zinc contract prices opened lower early in the week and struggled between RMB 15,500-15,600/mt. Prices fell below RMB 15,500/mt later in the week as LME zinc prices moved lower, finally hovering between RMB 15,200-15,300/mt.

In domestic spot markets, downstream buyers made post-holiday stock replenishments, especially since zinc prices were lower. Spot discounts against SHFE three-month zinc contract prices rose to RMB 260-300/mt early in the week as traded prices fell to RMB 15,200-15,300/mt. Smelters reduced supply, but since traders were actively arbitraging,  transactions were brisk.

The US dollar index finally met resistance after rising over the past week, and is expected to fluctuate around 80 in the near-term. Spain’s debt problems will continue to dominate markets, but China’s September CPI and 3Q GDP to be released in the coming week are also expected to be disappointing. Zinc prices should fluctuate weakly in the coming week, with LME zinc prices moving between USD 1,930-1,970/mt, and SHFE three-month zinc contract prices  between RMB 15,000-15,300/mt, with spot discounts of RMB 200-260/mt.

Tin

Spot tin prices in Shanghai tin market moved up to a high of RMB 160,000/mt last Monday due mainly to the rising LME tin prices during the National Day holiday. However, spot prices fell since actual demand remained weak and LME tin prices pulled back. Smelters only moved goods limitedly given high costs and low prices. Goods available to the market were adequate and mainly from Yunnan and Jiangxi. By last Friday, spot tin prices were mainly at RMB 155,000-156,500/mt. Domestic spot market was depressed compared with LME market, but prices were relatively more resilient than other metals, with SMMI.Sn inching up 0.8%.

Nickel

The IMF cut its global economic forecast and the Eurozone financial ministers meeting failed to report significant progress. Meanwhile, Standard & Poor’s cut Spain’s sovereign credit rating from BBB+ to BBB- on October 10 with a negative outlook. China’s PMI for September was 49.8%, up 0.6 percentage point, its first monthly rebound since May. Although the PMI did advance, each of its major sub-indexes remained below 50. As such, many have exited risky assets, returning to the US dollar as a safe haven. The US dollar successfully advanced above 80 mark, weighing on base metal prices. SMMI.Ni led the decline last week, down 1.57%, and SMMI.Zn and SMMI. Al was down 1.3% and down 1.03% respectively. SMMI.Cu was relatively resilient, with SMMI.Cu was only down 0.08%. Tin prices slipped earlier, but finally advanced and closed with gains, with SMMI. Sn up 0.8%.

Nickel

During China’s National Day holiday, LME nickel prices moved higher to hit a high of USD 18,920/mt, but renewed Spanish and Greek debt issues dampened upward momentum.  Early last week, markets were concerned that improving US employment numbers would cause the Fed to halt QE3, which also weighed down base metal prices. The World Bank also cut economic growth forecasts for east Asia and said China’s economic slowdown may last longer than markets expect. LME nickel prices fell for three consecutive days following a cut in Spain’s credit rating, falling as low as USD 17,580/mt. Late in the week, however, the US dollar index fell below 80 and helped push up LME nickel prices.

Jinchuan Group raised ex-works nickel prices by RMB 2,000/mt on October 2nd but cut prices by RMB 3,000/mt on October 9th, which brought ex-works nickel prices back to RMB 130,000/mt. In the Shanghai nickel spot market, SMM’s #1 nickel averaged RMB 129,690/mt, up RMB 2,490/mt from a week earlier. Some downstream producers replenished stocks after the holiday, but only in limited amounts, with most transactions still largely made by arbitrage traders. Based on results of a recent SMM survey, most market players were optimistic towards the LME nickel price outlook, so traders kept offers firm. 

Generally speaking, market sentiment is bearish now that any positive impact from QE3 has been absorbed and since ongoing Greek and Spanish debt issues continue to dampen market sentiment. These two countries are not expected to report any significant progress in the coming week, but any positive news may ease market concerns. In the coming week, SMM expects LME nickel prices will move in the USD 17,500-18,000/mt range in the following week. 

In China’s nickel spot markets, prices for stainless steel have been steadily rising, so inventories, especially #300 stainless steel, have begun falling. SMM expects spot nickel prices will remain firm as downstream demand may improve in the coming week.