SHANGHAI, Dec. 24 (SMM) – Economic data from the US were positive. However, market concerned that positive economic data may made the Fed to postpone stimulus policy. As the US fiscal cliff talk stagnated and as investors exited market before Christmas holiday, base metal prices fell across the board. SMMI fell by 1.37% on a weekly basis, with SMMI. Cu and Ni leading the decline by 2.02% and 2.1%. However, lead and zinc were relatively resilient and even rebounded slightly by 0.16%.

Copper

With Chinese A-shares fluctuating at recent highs, SHFE copper prices proved more resistant to declines than LME copper, but still fell below RMB 57,000/mt to test RMB 56,560/mt, a drop of 1.6%. The most active copper contract tended to shift to SHFE 1304 copper contracts. Investors were wary of buying at lows, and selling pressure for forward contracts increased, with technical indicators pointing down.

In spot markets over the past week, discounts grew all the way following delivery for SHFE 1212 copper contracts, up to as much as RMB 400/mt for standard-quality copper Thursday. Hedged copper flew into markets after copper prices fell and imported copper supply also increased as the SHFE/LME copper price ratio increased. Cargo-holders were eager to move goods to generate cash at the year’s end. Speculators bought spot copper and sold SHFE copper contracts, but traders were not purchasing in large quantities given year-end cash flows problems.  Downstream producers stood on the sidelines, resulting in market oversupply. Cargo-holders sold aggressively later in the week.

In the coming week, SHFE copper prices will test RMB 56,000/mt and may fall further to trading ranges seen in late November.

Aluminum

The Ministry of Land and Resources reiterated its adamant stance on controlling the property sector, along with no news of the State Reserve Bureau conducting the next round of aluminum ingot purchase, weakening expectations for consumption growth in 2013. LME aluminum prices declined as a result, sending SHFE aluminum prices down as well. SHFE 1303 aluminum contract prices retreated from RMB 15,440/mt to RMB 15,180/mt last week due to short selling, with strong resistance at the daily moving average. Positions exceeded 10,000 lots. SHFE aluminum prices should remain low for the short term due to a lack of market confidence.
Cargo holders rushed to move goods with lower quotations to generate cash against tight liquidity at the year’s end, but downstream producers and middlemen only purchased limited amounts at lower prices, dragging spot aluminum prices in east China down. Coupled with high inventories in spot markets, spot aluminum prices tracked SHFE aluminum prices down. Mainstream traded prices dropped from RMB 15,050/mt to RMB 15,000/mt, with spot discounts expanding to RMB 100/mt after SHFE 1301 aluminum contracts became the current-month contracts. Sparse deals at RMB 14,990/mt were also reported. Spot aluminum prices hit a fresh year’s low and market expects no support at RMB 15,000/mt. Without any positive news in the short term, aluminum prices will continue to come under downward pressure.

 In this coming week, LME aluminum prices should move between USD 2,050-2,100/mt and SHFE 1303 aluminum contract prices will repeatedly test support at RMB 15,200/mt. Spot aluminum prices will stall at RMB 15,000/mt since tight cash flows will limit purchases.  

Lead

Last week, SHFE lead prices were not boosted by rising LME lead prices, with the most active SHFE lead contract price still meeting resistance at the 20-day moving average and moving between RMB 15,260-15,350/mt. This week, Chinese stock markets will not experience any sharp movements at the end of the year due to a lack of capital injection, so SHFE lead prices are expected to hover around the 20-day moving average.

Domestic spot lead prices last week were mainly between RMB 14,650-14,780/mt, with spot discounts of RMB 550-650/mt over the most active SHFE lead contract price. Due to year-end financial pressures, cargo holders were actively moving goods, but downstream enterprises only purchased as needed, leaving trading activity modest at best. This week, cargo holders will be actively selling goods, but downstream demand is expected to be soft, with lead prices between RMB 14,600-14,800/mt.

Zinc

LME zinc prices were steady but still below USD 2,100/mt, but in China, SHFE three-month zinc contract prices extended losses. SHFE three-month zinc contract prices surged to RMB 15,500/mt early in the week, boosted by strong LME zinc prices two Fridays ago, but due to strong short momentum, SHFE three-month zinc contract prices reversed direction, falling to RMB 15,300/mt.

In China’s domestic spot markets, spot discounts did not narrow noticeably despite falling SHFE three-month zinc contract prices since goods supply was ample immediately following the delivery date early in the week. Smelters continued to move goods due to cash flow problems at the year’s end, and arbitrage traders were also aggressively selling goods to take profits as SHFE zinc prices fell, causing supply to grow even more. Spot discounts remained between RMB 340-370/mt, but downstream buyers showed little interest at prices above RMB 15,000/mt, continuing to purchase on an as-needed basis only.

Last week, spot inventories stabilized and remained largely unchanged from the previous week. Inventories in east China were unchanged at 386,400 mt, while stocks in south China fell by 700 mt, to 95,300 mt. Inventories in north China grew by 1,000 mt, to 7,000 mt as local smelters raised output and since downstream producers cut production, which also helped push down prices.

Tin

Last week, LME tin prices presented a strong trend and approached to a high of USD 24,000/mt. However, domestic spot tin prices only moved up RMB 500/mt to RMB 151,500-154,500/mt early in the week and fell on Thursday. Some brands from Jiangxi, including Nanshan, were traded as low as RMB 150,500/mt. Trading remained light as demand was till sluggish. Enterprises were under financial pressures by year’s end, combined with unimproved orders, spot tin prices lacked momentum to rise. Quotations from Yunxi were still firm, and smelters in Jiangxi were unwilling to move goods. The limited supply for low-priced goods gave certain support to spot prices.

Nickel

Economic data last week from major economies was positive and Asian stock markets rallied on successful presidential elections in Japan and South Korea. In Europe, Greece’s credit rating was raised, yields fell for Spanish and Italian government bonds, and Germany’s IFO business climax index continued to advance. In the US, 3Q GDP was above market expectations, but weak market fundamentals still weighed down base metal prices, with LME nickel prices fluctuating between USD 17,500-17,900/mt. Cancelled warrants were down, and discounts were poised to expand. LME nickel prices failed to move higher, with all indictors suggesting a near-term correction.

In the Shanghai nickel spot market, #1 nickel averaged RMB 122,340/mt, down RMB 490/mt from a week earlier. Spot markets were extremely quiet, with downstream purchases low and arbitrage transactions limited. Nickel prices in a domestic electronic exchange moved lower, dragging down spot nickel prices.

In general, market sentiment was relatively positive, but was dampened by the unresolved US deficit issue. Coupled with lower market activity around the Christmas holiday, LME nickel prices failed to extend recent gains, hovering at current levels instead. LME nickel prices will likely hover at existing levels since the LME market will be closed during the Christmas holiday, but LME nickel prices may surge if any positive news is reported on US deficit negotiations. 

In domestic spot markets, the pessimistic trading sentiment is expected to remain in the near-term, so spot nickel prices will remain weak and trading volumes will remain low.