Home / Metal News / SMM Base Metals Market Daily Review (2012-11-5)

SMM Base Metals Market Daily Review (2012-11-5)

iconNov 6, 2012 10:20
Source:SMM
Three-month aluminum contract shed RMB 60/mt or 0.39% to close at RMB 15,290/mt Monday, and SHFE lead prices ended the day at RMB 15,155/mt, down RMB 115/mt.

SHANGHAI, Nov. 6 (SMM) –

Copper
As LME copper fell considerably last Friday, SHFE 1302 copper contract, the most active one, started RMB 710/mt down at RMB 56,100/mt Monday. Following the opening, the contract moved lower all the way amid short selling, with a high at merely RMB 56,170/mt and coming under noticeable pressure at the daily moving average. SHFE copper prices tested support at RMB 55,500/mt in the afternoon and dipped to as low as RMB 55,460/mt. SHFE 1302 copper contract ended RMB 1,030/mt or 1.81% lower at RMB 55,780/mt, with trading volumes and positions up by 78,394 lots and 25,360 lots, respectively. With selling pressures growing, SHFE copper prices are likely to continue slipping over the near term.  

SHFE copper prices slumped by RMB 1,000/mt, so copper discounts narrowed and turned to premiums for high-quality copper. Mainstream spot copper offers were discounts of negative RMB 40/mt and premiums of positive RMB 60/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,650-55,880/mt, and RMB 55,700-55,950/mt for high-quality copper. A small number of traders chose to buy, but markets resisted premiums, which failed to increase even after copper prices dipped all the way. With market pessimism increasing, buying did not increase noticeably at the lows as most market participants remained cautious during the first trading day of the week. In the afternoon, SHFE copper prices drifted lower further, but consumption became softer, helping spot copper offers remain basically unchanged from morning levels, with market pessimism spreading.  

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

Based on the survey, 71% of market insiders are pessimistic over the outlook, expecting LME and copper will fall to USD 7,500-7,550/mt and that SHFE copper will test support at RMB 55,000/mt. The finance ministers of G20 and governors of central banks held a meeting in city Mexico November 4-5 and mainly discussed the European debt crisis, with the ECB's president Mario Draghi and US Treasury Secretary Geithner absent. Greek Prime Minister Samaras warned that Greece may be forced to exit the euro zone if austerity plan cannot be approved this week. In these finance ministers' views, should the US Congress not reach a consensus on budget plan before January 1, 2013, the country would face a “financial cliff” of as much as USD 600 billion. In this context, risky factors in both the US and European debt woes are increasing. The result of the US presidential election will be released this week, and if Obama, candidate of the Democratic Party, wins, markets are worried that the US will be mired in a “financial cliff”. With the Republican Party dominating the US Senate, discussion on the “financial cliff” is expected to come to a standstill. Hence, the US dollar will be favored as a safe-haven, which will bring more pressures to copper prices. Furthermore, both crude oil and gold prices have fallen following rebounds last Friday, with gold losing key level of USD 1,700/oz. Technical indicators for both LME and SHFE copper are not optimistic. As such, these insiders anticipate copper prices to retreat this week.     

22% of market insiders see copper prices fluctuating near current values, with LME and SHFE copper expected between 7,600-7,700/mt and around RMB 56,000/mt, respectively. Despite growing market pessimism, technical indicators are approaching overbought territory, which can support low-end copper price. The US dollar rebounded last week following favorable US economic data and sent risk aversion higher. But US equity markets won firm support at the lows and will prop up copper prices. In Chinese domestic markets, unlocked shares in Shenzhen and Shanghai stock markets totaled RMB 8.447 billion and will likely bring heavy pressures to Chinese A-shares. However, China's central bank injected net capital of RMB 379 billion last week in the open monetary market, alleviating tight cash flows. Therefore, Chinese A-shares are expected to move cautiously. In spot markets, buying at the lows increased noticeably after copper prices fell significantly, which will help copper prices fluctuate at current values.

The remaining 7% of market insiders are optimistic, anticipating LME copper will rally above USD 7,750/mt and SHFE copper may return to around RMB 57,000/mt. Markets expect more stimulus measures as the 18th National Congress nears. Meanwhile, markets anticipate that China's CPI to be announced this Friday will remain below 2%.

Aluminum
The SHFE 1301 aluminum contract opened slightly lower at RMB 15,320/mt on November 5. Falling LME aluminum prices sparked short selling. As a result, the most active contract met strong resistance at the 5-day moving average and failed to hold onto RMB 15,300/mt. Finally, the three-month contract shed RMB 60/mt or 0.39% to close at RMB 15,290/mt. Sluggish consumption turned investors bearish. As such, aluminum prices will extend losses and the most active SHFE aluminum contract should test support at RMB 15,200/mt until more stimulus measures are introduced.

Spot aluminum was mainly traded between RMB 15,110-15,130/mt in Shanghai on Monday, with discounts between RMB 50-80/mt. Low-iron aluminum was traded between RMB 15,170-15,190/mt. Commodity prices fell despite positive US nonfarm payrolls. The current-month contract was pressured under RMB 15,200/mt, driving spot aluminum prices down to near RMB 15,100/mt, a new low for the year. Prices for some deliverable branded goods were firm at RMB 15,130/mt, but prices for non-deliverable goods continued to drop, with some dipping to a low of RMB 15,100/mt. Downstream producers showed little buying interest at the beginning of the week, leaving trading light. In the afternoon, SHFE aluminum prices continued to drop. Buyers and sellers showed little interest in entering spot markets. Sparse quotations were seen firm at RMB 15,110-15,120/mt and overall trading was light.

SMM's statistics reveal that spot aluminum traded prices averaged RMB 15,130/mt in Shanghai on Monday against RMB 15,170/mt last week. Spot aluminum prices hit a new low for the year due to mounting inventories from sluggish consumption and weak macro economy.

According to SMM's latest survey of 35 aluminum ingot producers and traders, an overwhelming majority of 63% are bearish towards this week's aluminum prices as SHFE aluminum prices showed no upward momentum and frequently lost support.31% of market players expect aluminum prices to stay unchanged this week and the rest 6% believe aluminum prices will edge up.

Bearish market players understand that it remains to be seen who will win in the US presidential election. Market is more concerned about issues like whether the “fiscal cliff” will improve after a new round of government takes office and whether the US Federal Reserve will continue QE3. Investors turned to the safe heaven of the US dollar amid global economic recession. In response, the US dollar index broke through the 60-day moving average and challenged resistance at 81, weighing on commodities. Demand from China, the world's biggest consumer of metals, has shown no signs of recovery and no big rebound is expected in the remaining two months of this year. Pro-growth policy remains the major task of the central government. Huge inventories drove aluminum prices down to a new low for the year. In this context, bearish market players believe LME aluminum will struggle at USD 1,900/mt this coming week, the most active SHFE aluminum contract will test support at RMB 15,200/mt and spot aluminum prices will drop to RMB 15,000/mt.  

Neutral market players note the positive US nonfarm payrolls will help the US economy recovery. Commodity prices fell only limitedly despite a firm US dollar. Market is expecting more stimulus measures from the ongoing US presidential election and upcoming 18th CPC National Congress in China, offsetting sour sentiment from sluggish consumption. Hence, neutral market players expect LME aluminum prices to find support at USD 1,900/mt, the three-month SHFE aluminum contract prices to hover near RMB 15,300/mt and spot aluminum prices to hold RMB 15,100/mt in this coming week.    

Bullish market players hold the view that major economies are seeking economic stimulus policies. Aluminum prices both home and abroad are repeatedly testing previous support, indicating limited short selling. The Chinese government may introduce stimulus policies and inflationary pressure is easing. Costs will also help support aluminum prices. As such, bullish market players believe LME aluminum prices will test resistance at USD 1,960/mt, the three-month SHFE aluminum contract prices should test support at RMB 15,300/mt and spot aluminum prices  may likely return above RMB 15,200/mt in this coming week. 

Lead
High risk currency fell sharply influenced by the above-expected nonfarm payrolls, while the US dollar index rallied. In response, SHFE lead prices opened lower at RMB 15,160/mt Monday, and followed a weak trend between RMB 15,130-15,170/mt due to a lack of important reports. SHFE lead prices ended the day at RMB 15,155/mt, down RMB 115/mt. Trading volumes were down 50 lots to 170 lots, while positions increased 50 lots to 1,248 lots.

In China's domestic spot lead markets, prices were RMB 50/mt lower compared with last Friday. Prices for Nanfang and Chihong Zn & Ge were RMB 15,000-15,020/mt, with spot discounts over the most active SHFE lead contract price at RMB 150/mt. Mengzi was mainly offered at RMB 14,980-14,950/mt. It was reported that lead from Zhurong was traded at RMB 14,850/mt. Market players were bearish with lead prices falling, undermining buying interest. Trading was light on the whole.

With respect to lead price movements this coming week, 80% market players believe market should be cautious given numerous uncertain factors, including the US general election, the 18th Congress of Communist Party of China, and the policy meeting of world's major central banks. LME lead prices are expected to test USD 2,100/mt and SHEF 1212 lead contract prices should mainly move between the 5-and 10-day moving averages. Orders for lead-acid batteries are limited in the current low-demand season, so battery producers will unlikely purchase actively. Meanwhile, cargo holders, with financial pressures easing in early November, should be reluctant to move goods at low prices and will hold prices firm. In this context, spot lead prices are expected to remain stable around RMB 15,000/mt.

The remaining 20% investors are more pessimistic. Although the above expected US nonfarm payrolls indicated that QE3 has been functioning well, investors worried the economic recovery may leave less room for implementation of easing policies. Thus, the US dollar index is likely to rise to 81. Besides, the eurozone manufacturing sector has been contracting for 15 months in a row, with new orders falling for 16 months. In China, although both official and HSBC PMI for October were reported better, PMI data are still likely to present a downward trend in the long run. Thus, the economic conditions are not optimistic on the whole, and LME lead prices may come under pressures at the 60-day moving average, while SHFE lead prices are expected to move between RMB 15,000-15,200/mt. In China's spot lead market, cargo holders are holding prices firm, but weak demand will finally force sellers to lower prices. Some downstream enterprises should purchase when prices fall below RMB 15,000/mt, but sluggish demand should still weigh down spot lead prices.

Zinc
The above-expected US nonfarm payrolls drove the US dollar index to rise above the 60-day moving average, weighing on base metals on Monday. SHFE 1302 zinc contract price opened lower at RMB 14,800/mt, below the 5-day moving average. Later, as Chinese A-shares fell. The most active SHFE zinc contract price was dragged to a low of RMB 14,660/mt. In the afternoon, as the A-shares stabilized, SHFE zinc prices moved around RMB 14,700/mt and regained some losses at the tail of trading to end at RMB 14,775/mt, down RMB 115/mt. Resistance at the 5-day moving average was strong.

In China's spot zinc market, #0 zinc prices were between RMB 14,570-14,590/mt in the morning, with spot discounts over the most active SHFE zinc contract price at RMB 160-180/mt. #0 zinc prices then fell to RMB 14,530-14,550/mt as SHFE zinc prices dropped, with spot discounts unchanged. #1 zinc was mainly traded around RMB 14,500/mt due to the rising supplies. Smelters remained unwilling to move goods, while traders were reluctant to purchase and intended to sell goods. Downstream buyers only made inquiries, leaving transactions limited.

Zinc prices stabilized and edged up last week. This week, market will be largely influenced by the US general election and the 18th National Congress of Communist Party of China.

SMM's survey showed that 60% market players believe the SHFE 1302 zinc contract price should hover between RMB 14,600-14,800/mt this coming week after dipping low. The European debt issues were eased somewhat as Greece passed the new austerity plan, while its negotiation with the troika also produced some results, relieving market fears. Thus, the euro will stabilize against the dollar, and LME zinc prices should remains table at USD 1,830-1,860/mt.

In China, market expectations are that inflation will be further contained with the upcoming 18th National Congress of Communist Party of China and the release of October PPI data this Friday. More stimulus policies are expected to be introduced during the 18th National Congress. Besides, the strengthening Chinese A-shares will also give a boost to SHFE zinc prices. As such, the most active SHFE zinc contract prices should return to RMB 14,800/mt. In spot zinc markets, smelters will be unwilling to move goods with no urgent need for cash, while downstream buyers will be willing to purchase at low prices. The stronger demand for spot zinc may drive SHFE zinc prices to rebound, with spot discounts over the most active SHFE zinc contract price expected at RMB 160-180/mt.

40% market players believe the most active SHFE zinc contract price should continue the downward trend this week to test a low of RMB 14,500/mt. The US ISM non-manufacturing index will be released this week. Although the US economic data turned out positive recently, investors fear that the recovery may limit implementation of further easing measures. Thus, the US dollar index should be pushed up with LME zinc prices weighed on. Besides, LME zinc inventories remained at a record high of 1.17 million mt, reflecting a serious surplus in zinc supplies, which may also pose resistance to LME zinc prices. In this context, LME zinc prices are likely to fall to USD 1,800/mt and move between USD 1,800-1,830/mt.

In China's domestic spot markets, the technical indicators allow some room for SHFE 1302 zinc contract price to drop further. Meanwhile, as the SHFE/LME zinc price ratio has been rising and hit a high of 8.4 last week, imported zinc was favored in the market. The increasing amount of imported zinc flowing into domestic market will also drive down spot zinc prices. As such, pessimistic investors expect SHFE 1302 zinc contract price will test RMB 14,500/mt, and spot discounts over the SHFE 1302 zinc contract price should narrow to RMB 120-160/mt.

Tin
In Shanghai tin market, spot prices fell on Monday with trading light. LME tin prices showed a sign of slipping last Friday and kept falling during Asian trading hours on Monday, depressing market confidence. Mainstream traded prices for spot tin were between RMB 148,500-149,500/mt in the morning, but sparse transactions forced cargo holders to lower prices, with several well-known brands quoted at RMB 148,500/mt. Goods available in the market were mainly from Yunxi, Yunheng, Yunxiang, Jinlong, and Nanshan.

With respect to tin price movements this week, SMM survey showed that 70% investors believe spot tin prices should fall again. Market will focus on the US general election and the vote in Greece this week. In the US, since Mitt Romney opposes QE measures and support fiscal austerity, market will be greatly hit if he is elected the president, while market should be relatively stable if President Obama continues to take the office. In Greece, the third round of fiscal aid and debt buyback should be two major issues. The EU commission is reportedly planning to discuss the aid on November 12, and a report on the issue will be developed by the troika. It seems that Greece stand high chance of obtaining to bailout loan. However, the market will be in chaos if the country fails to obtain the bailout. Given these risk events, metals will be weighed down and LME tin prices are expected to test a low of RMB 19,500/mt. Thus, these investors expect spot tin prices will fall further due to the sluggish downstream demand.
30% market players believe tin prices should remain stable. LME tin prices will unlikely to fall sharply despite the weak trend. Besides, the market will be briefly boosted if Obama win the election, which will drive LME tin prices to rise. In domestic market, although demand remained weak, the low selling interest among smelters will give some support to tin prices, so these investors hold that spot tin prices are not likely to fall.

Nickel
During the morning trading hours in the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 115,000-115,300/mt, and mainstream traded prices of nickel from Russia were between RMB 114,100-114,400/mt. Downstream price acceptance was still low, so transactions were extremely quiet. During the afternoon trading hours, traders lower Jinchuan nickel price to RMB 114,700-115,000/mt and Russia nickel prices to RMB 113,800-114,000/mt, in order to promote sales. However, overall trading sentiment did not improve much, with sparse dip-buying reported.

According to SMM survey on market sentiment, 50% market players believe that LME nickel prices will continue to fall and will find support at RMB 15,300/mt range. LME nickel prices will initially fell to USD 15,500/mt and will fluctuate around this level later. The pessimistic players believe that the following factors will drag down LME nickel prices. During the first nine months of 2012, iron and steel demand from 27 euro zone countries fell by 5.6% YoY. According to the executive director of Eurometal, European steel makers have already cut or halted production to lower output China, stainless steel inventories in Wuxi were 190,100 mt in late October, up 6.37% compared to levels in middle October. However, inventories of #300 stainless steel, major consumer of nickel, grew by 7.44% from levels in middle October. Therefore, sluggish downstream demand will be the major factor dampening LME nickel prices.

The remaining 50% market players hold that LME nickel prices will fluctuate between USD 15,500-16,000/mt. This week's major risk event is the US presidential election. The US encountered financial cliff in the wake of QE3, so this round of election result will affect the US economic plan in the future. Other risk events include the ECB's interest rate meeting, Greek parliament's vote on 2013 budget plan, the 18th National Congress of Communist Party of China, and China's CPI and PPI for October. Since there are so many risk events, they expect that LME nickel prices will be volatile this week.
   
   

 

SHFE base metals
Shanghai base metals

For queries, please contact Michael Jiang at michaeljiang@smm.cn

For more information on how to access our research reports, please email service.en@smm.cn