SMM Base Metals Market Daily Review (2012-10-15)

SHANGHAI, Oct. 16 (SMM) –

Copper

As LME copper prices plunged last Friday, SHFE 1301 copper contract, the most active one, started RMB 900/mt down at RMB 58,230/mt Monday. Following the opening, China announced its CPI and PPI continued falling and restricted LME copper price trend. As Chinese A-shares slipped, SHFE copper prices mainly moved between RMB 58,400-58,600/mt, dipping to a low at RMB 58,230/mt early in the session and touching a high at RMB 58,610/mt. SHFE 1301 copper contract settled RMB 580/mt or 0.98% lower at RMB 58,550/mt, with trading volumes and positions down by 50,532 lots and 296 lots, respectively. Total trading volumes on the SHFE market fell by 43,334 lots, but total positions added by 2,542 lots. There were noticeable signs of increases in positions for forward SHFE copper contracts, and longs and shorts still struggled at RMB 58,500/mt.  

As SHFE copper prices fell considerably, and as Monday was the last trading day for SHFE 1210 copper contracts, spot copper premiums returned to markets. Mainstream spot copper offers were between discounts of negative RMB 50/mt and premiums of positive RMB 80/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 58,350-58,450/mt, and RMB 58,450-58,580/mt for high-quality copper. Some traders bought high-quality copper at slight premiums and enlivened market activity. However, near the midday, as forward SHFE copper contracts showed resilient, cargo-holders of high-quality copper became unwilling to sell and raised premiums, leading spot copper supply to decrease. Downstream buying increased as copper prices retreated in the morning, and thus improved overall market activity. In the afternoon, SHFE copper prices remained weak, and spot copper supply decreased further, which caused mainstream spot copper premium quotes to remain between positive RMB 0-100/mt. Traded prices were RMB 58,350-58,450/mt in the afternoon, but market activity became somehow lackluster.

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

54% of market insiders are cautious towards the outlook, believing LME and SHFE copper prices will hover around USD 8,100/mt and RMB 58,500/mt, respectively. The European debt crisis prevails as Spain has yet to apply for reuse while markets also focus on Greece’s debt problems. The euro struggles among recent moving averages and is unlikely to trend higher, which will drag commodity markets down. Gold and crude oil prices have been fluctuating within their previous range, which will guide copper price trend. This week is LME’s annual meeting week, and market transactions will decrease some. But the financial market will meet both limited selling pressures and buying support, helping copper prices stay within prior trading range. The Shanghai Composite Index is struggling around 2,100, but wins temporary support between 2,070 and 2,080. Hence, these market insiders see copper prices lurching this week.  

33% of market insiders hold the view that copper prices will extend declines, expecting LME copper prices will lower to test support at USD 8,000/mt and SHFE copper prices will fall to RMB 58,000/mt. The US dollar will likely increase to 80 in the near future and exert pressures to copper prices. From technical indicators, both LME and SHFE copper prices have fallen, with LME copper only finding support at the 60-day moving average. China Monday announced its CPI and PPI continued falling in September and will report the latest GDP data Thursday, which is expected by markets to fall further, and this will weigh on domestic copper prices. In spot markets, copper prices moved significantly lower Monday as SHFE 1210 copper contracts were delivered, but downstream producers were not noticeably seen to buy at the lows. As copper supply increases following the delivery for SHFE 1210 copper contracts, spot copper discounts will return and depress copper prices. Furthermore, traders mostly bought spot copper and sold SHFE copper contracts last week, and if copper prices fall further, profits for hedged copper will increase and compel this part of goods cargo-holders to make profit-taking. In this context, sufficient market supply and weak copper demand will force copper prices down this week. 

The remaining 13% of insiders are optimistic over the outlook, anticipating that LME copper may rise to around USD 8,200/mt and SHFE copper will challenge resistance at RMB 58,800/mt. Recent US economic data came in favorable and meant the US economy is still recovering mildly. Markets therefore are positive over this week’s home data and PMI data, and US equity markets will probably increase from lows and drive copper prices higher. More importantly, according to CFTC report, net long positions rose to 11,891 lots October 9, up appreciably from the previous 9,014 lots, an indication that speculators become more optimistic over future copper price trend. London spot copper premiums closed higher at USD 2-6/mt Monday, and the proportion of cancelled warrants to total LME copper stocks remained high at around 22%. As such, in these optimists’ views, copper prices will increase this week.

Aluminum

The SHFE 1212 aluminum contract opened lower at RMB 15,425/mt on Monday. The most active contract briefly touched a high of RMB 15,480/mt, but later hovered around RMB 15,450/mt and met strong resistance at the 60-day moving average as shorts and longs exited the market after profit-taking. Finally, the three-month contract shed RMB 25/mt or 0.16% to close at RMB 15,460/mt. Positions were down 924 lots to 59,722 lots. The Chinese economy has yet to hit bottom, dampening market confidence. The domestic stock market and futures market fell as a result. The most-traded contract is expected to find very weak support at RMB 15,400/mt in the short term.

Spot aluminum was mainly traded between RMB 15280-15300/mt in Shanghai on Monday, with premiums between RMB 0-20/mt. Low-iron aluminum was traded between RMB 15350-15360/mt. The SHFE aluminum contract extended losses, dragging spot aluminum prices in east China below RMB 15,300/mt, near the lowest for the year. Most downstream buyers stood on the sidelines at the beginning of the week, while cargo holders were unwilling to move goods at discounts even on the last trading day of the 1210 contract, leaving trading quiet. In the afternoon, the current-month contract was mired, depressing trading activity in spot market. Sparse quotations were seen at RMB 15,280/mt. Since inquiries were rarely heard, overall trading was quiet. 

SMM’s statistics reveal that spot aluminum traded prices averaged at RMB 15,396/mt in Shanghai last week. Aluminum prices were generally pressured under RMB 15,300/mt on Monday, nearly the lowest for the year. SMM’s latest survey of 39 aluminum ingot traders shows that 49% believe aluminum prices will fall this coming week. Domestic aluminum inventories in trading markets approached 1 million mt after the Chinese Mid-autumn Festival and National Day holidays, while downstream consumption failed to pick up in traditional high-demand period. With the Chinese economy slowing and aluminum prices falling after-holidays, there is little chance of consumption recovering in 4Q. In the context, bearish traders expect aluminum prices to fall to test support at RMB 15,200/mt this coming week, but the fall should be limited.

38% are neutral towards this week’s aluminum prices as positive exports data for September will give a boost to spot aluminum consumption. Aluminum prices are expected to stabilize around RMB 15,300/mt after days of drop.

With China’s 3Q GDP coming up soon, market expectations are growing that the central government will introduce fresh stimulus measures and that the People’s Bank of China will launch monetary policy easing amid economic slowdown. The rest 13% predict aluminum prices will rise this week, but should meet resistance at RMB 15,400/mt.

Lead

SHFE lead prices opened RMB 120/mt lower at RMB 15,700/mt on Monday. In the morning session, China’s September CPI was reportedly up 1.9%, and PPI down 3.6%, within market expectation. SHFE lead prices moved around RMB 15,690/mt with trading light. At midday, as LME lead prices and Chinese stocks fell further, adding to selling pressures on SHFE lead and driving prices to dip as low as RMB 15,650/mt and to finally end at RMB 15,690/mt, down RMB 130/mt or nearly 1% from the previous trading day. Trading volumes increased 58 lots to 312 lots, and positions were down 28 to 1,220 lots.

In China’s domestic spot markets, well-known brands including Chihong Zn & Ge and Shuangyan were mainly quoted at RMB 15,520-15,550/mt, with spot discounts over the most active SHFE lead contract price narrowing to RMB 180-200/mt. Quotations for Dongling, Hanjiang, and Mengzi were around RMB 15,470/mt, and Shenqian was quoted at RMB 15,450/mt. Downstream consumption was sluggish. Most market players were on the sidelines with numerous risk events within the week, leaving transactions thin.

Regarding to lead price movements this week, a majority of the 30 industry insiders surveyed by SMM presented pessimistic attitude. 73% of them believe spot lead prices may dip as low as RMB 15,300/mt, with LME lead prices expected to touch the 60-day moving average and the 1212 SHFE lead contract price to fall to RMB 15,500/mt. Spot lead market has been quiet recently. Orders for downstream enterprises were poor and most enterprises were bearish as high demand season for motive lead-acid batteries ended while peak season for ignition has yet to come. This has dampened downstream buying interest. On the other hand, as shorts are still the majority after the implementation of QE3 with market concerns still intensifying. In response, LME lead prices fell again after two weeks of increases. Confidence among euro zone consumers and businesses slipped for the sixth month in a row, and economy of major euro zone nations continued to weaken. In addition, S&P’s downgrade of Spain’s credit rating ignited market concerns over further downturn of the euro zone economy. China’s economy also saw no noticeable improvement.

The remaining 27% market players expect market to remain wary before the release of China’s 3Q GDP data and the EU summit. Although consumption in China’s spot lead market remained sluggish and LME lead inventories staged the sharpest increase since late September of last year, some investors believe China should launch stimulus policies against the persistent weakness. Most smelters held prices firm with anticipation that orders for lead-acid batteries will increase in 4Q, a peak demand season for batteries. Meanwhile, goods news was reported from the US, as consumer confidence index hit new high and unemployment rate dropped surprisingly, which indicated the turnaround in the US economy, although some were skeptical toward the figures. Thus, these investors expect spot lead prices to remain around RMB 15,500/mt, with LME lead pries testing the 5-day moving average and SHFE lead prices moving between USD 2,150-2,200/mt.

Zinc

On Monday, SHFE three-month zinc contract prices opened lower at RMB 15,130/mt, below the 30-day moving average. China’s September CPI was up 1.9% YoY, and PPI fell by 3.6% YoY, in line with market expectations. SHFE three-month zinc contract prices fluctuated low between RMB 15,150-15,200/mt. Although many longs entered the market, the shorts also sold off goods, with SHFE three-month zinc contract prices finally closing at RMB 15,175/mt, down RMB 145/mt.

In domestic spot markets, discounts of #0 zinc were between RMB 170-190/mt, with traded prices between RMB 15,000-15,020/mt. #1 zinc prices were between RMB 14,970-14,990/mt. Smelters continued to sell goods despite plunging zinc prices, while goods were also released due to narrowing discounts, with supplies ample. Downstream buying interest was low since zinc prices did not stabilize, with transactions muted.

Last week, zinc prices plummeted due to concerns over European debt crisis upon the reopening of the SHFE market. LME zinc prices also fell to USD 1,900/mt.

60% of market players believe zinc prices should continue to fall this week. SHFE three-month zinc contract prices should fall further to RMB 15,000/mt. The EU summit will take place this week, and whether or not Greece will gain the third round of bailout funds and Spain’s official application for bailout are the focus of markets. The US dollar index will rise to 81. On the other hand, LME zinc prices remained high at 1 million mt, weighing on LME zinc prices. LME zinc prices lost the 60-day moving average today.

SHFE three-month zinc contract prices should fall further, with short momentum stronger. Supply surplus deteriorated as domestic smelters increased output sharply during September and October, while falling SHFE zinc prices narrowed discounts, allowing traders to arbitrage. In this context, goods supply available in the market was ample. Despite the high demand season, downstream buying interest did not improve, so increased supply surplus was barely consumed. Besides, the SHFE/LME zinc price ratio rose, allowing import losses to narrow. Imported zinc will inflow to China if the ratio continues to rise, and supply pressure will enhance. As a result, SHFE three-month zinc contract prices should fall to RMB 15,000-15,200/mt, and spot discounts will narrow to RMB 150-170/mt.

The remaining 40% believe SHFE zinc prices will stop falling and stabilize between RMB 15,200-15,300/mt. LME zinc prices are expected to move between USD 1,920-1,950/mt, around the 60-day moving average. Expectations that the 18th Party Congress will result in additional stimulus policies grew, while China’s 3Q GDP will be released this Thursday. With optimism, SHFE three-month zinc contract prices should stabilize and hover between RMB 15,200-15,300/mt. Production costs will give support to zinc prices, with spot discounts between RMB 170-190/mt.

Tin

In Shanghai tin market, spot tin prices were mainly between RMB 154,000-156,000/mt on Monday, lower than last Friday. Trading was still quiet. Since LME tin prices slumped last Friday and continued to fall on Monday, combined with the sluggish demand, spot prices followed a weak trend. Yunxi was traded at RMB 156,000/mt, and Yunheng was traded at RMB 155,000/mt, deals for Yunxiang and Nanshan were mainly done at RMB 154,000-154,500/mt.

SMM’s survey revealed that 70% market players believe tin prices should continue to fall this week to test RMB 150,000/mt, as LME tin prices moved lower toward the 30-day moving average, with technical indicators signifying a downtrend. This week, market will focus on the October ZEW Economic Sentiment Indicator for euro zone and Germany, the UK annualized CPI data for September. Market was not optimistic in general with expectations lower than previous data. The US dollar index showed a strong sign of rebounding, weighing on LME tin prices. Domestic tin market remained weak, and spot tin prices have been falling since last week, coupled with disappointing orders, buying interest downstream was rather low. Thus, these investors believe spot tin prices should fall further against the soft consumption.

30% investors are cautious believing spot tin prices will consolidate. Spot premiums over LME three-month tin price have remained high at USD 90/mt, and canceled warrants for LME tin hit 5,995 lots. Besides, the falling spot tin inventories indicated LME demand was relatively strong, and LME tin prices were still resilient to declines. LME tin prices are testing support at the 30-day moving average, and may struggle at USD 21,000/mt should prices find technical support. On Monday, supply to the market fell from the previous day, as some smelters were less willing to sell goods due to high costs, while others continued to cut production. Meanwhile, goods possessed by traders were mostly purchased at higher prices before the National Day holiday, so traders were also reluctant to move goods. Thus, limited supply is expected to offer support for low-end prices.

Nickel

Last Friday’s LME nickel price tumble weighed on Shanghai spot nickel prices this Monday. During Monday morning trading hours, mainstream traded prices of nickel from Jinchuan Group were between RMB 126,200-126,400/mt and mainstream traded prices of nickel from Russia were between RMB 124,400-124,600/mt. During the afternoon trading hours, as LME nickel prices fell further, mainstream traded prices of nickel from Jinchuan Group fell to around USD 126,000/mt and mainstream traded prices of nickel from Russia were around RMB 124,200/mt.However, Jinchuan Group did not cut ex-works nickel prices, resulted in cautious transactions in the market.

Based on result of an SMM survey on market sentiment, 60% market players believe that LME nickel prices will stabilize in the RMB 17,000-17,500/mt range in the coming week, and their reasons are as follows. First, LME nickel prices will experience correction after sharp decline from USD 18,920/mt to USD 17,000/mt, down 10%. In addition, stainless steel inventories in Wuxi were 176,620 mt, down 5.91% MoM. Inventories of #300, #400 and cold-rolled stainless steel all fell. Inventories of #300 stainless steel, the largest downstream product, were 126,140 mt, down 5.79% MoM, and inventories of #400 stainless steel were down 11.56% MoM. The decline in inventories suggested improvement in downstream consumption, which will lend support for LME nickel prices. Further, a slew of economic data announced from China were better than market expectation. China’s exports for September were up 9.9% YoY, far higher than 5.0% expected, and China’s export value for September hit a record high at USD 186.4 billion. China’s imports also vaulted market expectation. China's M2 for September was up 14.8% YoY, higher than previous 13.5%, suggesting acceleration of China’s loose monetary policy. China’s CPI for September fell from 2.0% to 1.9%, and PPI for September fell from 3.5% to -3.6%.

The remaining 40% market players believe that LME nickel prices will fall to around USD 16,500/mt. Recently, Spain and Greece reported slow progress in their debt issue, and the EU summit scheduled this Thursday is unlikely to come with significant progress. The persistent European debt crisis will continue to weigh on base metal prices. In addition, the US dollar is above 80, and may advance above 30-day moving average, which will weigh on LME base metal prices. Furthermore, technically speaking, LME nickel prices were between 30-day and 60-day moving average and showed a downward track.