SMM Base Metals Market Daily Review (2013-1-7)

SHANGHAI, Jan. 8 (SMM) –

Copper
SHFE 1304 copper contract price opened RMB 40/mt lower at RMB 58,330/mt on Monday. The pullback in LME copper and rebound in domestic A-shares left SHFE copper in a narrow band with prices falling after touching RMB 58,450/mt. In the afternoon, SHFE copper prices dropped to RMB 58,030/mt and finally closed at RMB 58,220/mt, down RMB 150/mt or 0.26%, with trading volumes down 19,020 lots and positions increasing 5,068 lots. Technical indicators show that SHFE copper prices may fall to test RMB 58,000/mt in the short term.

Shanghai spot copper discounts were negative RMB 70-150/mt in on Monday. Traded prices were between RMB 57,470-57,550/mt for standard-quality copper, and RMB 57,520-57,650/mt for high-quality copper. Cargo holders were unwilling to move goods at low prices, causing spot discounts over the most active SHFE copper contract price to narrow. As downstream buyers rarely replenished stocks, most transactions were done by traders.

An SMM survey shows that 27% market players are still upbeat on copper price movement this week, expecting LME copper prices to rise to USD 8,200/mt, and SHFE copper prices to test a high of RMB 59,200/mt. The US factory orders to be released this week are expected to remain strong. The latest CFTC reports showed that net long positions were up 936 lots to15,924 lots for the third trading week as of the week ended on December 31, with a bullish outlook for copper price trends. Meanwhile, canceled warrants for LME copper surged 23,075 mt with the proportion up to 22.35% last Friday, also lending support to copper prices. Technically, both LME and SHFE copper prices have crossed above all moving averages, leaving less resistance for prices to rise. In China, with banks issuing new loans for 2013, easing financial pressures facing enterprises, combined with the approach of the Chinese New Year, transactions will be enlivened. As such, spot discounts over the most active SHFE copper contract price may narrow, and rebound in copper prices can be expected this week.

However, 46% market players believe copper prices should be deprived of momentum to rise further after the growth during the holiday period and will remain stable, with LME copper prices expected at USD 8,100/mt and SHFE copper prices at RMB 57,800-58,500/mt. In Europe, despite the recovery in PMI data, market remains highly focused on the unresolved European debt crisis. If the European Central Bank failed to keep the continuity of its structural reforms, the debt crisis will deteriorate, impacting financial market and copper prices. Despite the slight fallback in oil and gold markets, two major indicators in commodities markets, oil prices remained strong at USD 90/barrel while gold prices also gained strong support, providing guides for copper prices. Technical indicators show that LME three-month contract price may meet resistance at USD 8,200/mt. In China’s stock markets, data from Southwest Securities revealed that the number of shares to be unlocked will hit 439.2 billion in 2013 with 793 companies involved, three folds over the number in 2012. The market value of these unlocked shares should total RMB 1.98 trillion, up 71% YoY, while the value for shares unlocked in January alone will be RMB 151.7 billion, causing great pressure to stock market. That, combined with A-shares which fluctuate at high levels, will lead copper prices to move within a narrow range.

The remaining 27% industry insiders believe copper prices will fall this week and expect LME copper prices to fall below USD 8,000/mt with SHFE copper prices down to RMB 57,500/mt. The US dollar index which stood at 80.5, may continue to rise if the Fed put an end to the QE3, weighing on copper prices. Besides, most investors opted to book profits after the continuous rallies in LME and SHFE copper prices, denting traders’ confidence in the rise in copper prices. Besides, trading will turn lighter given the upcoming Chinese New Year holiday, the lower buying interest will result in less support for copper prices. Moreover, technical indicators for LME and SHFE copper prices signified selling pressures, and price actions also started to gap. In spot copper market in China, some traders conducted arbitrage operations before the delivery, adding to selling pressures in the futures market, which will weigh down SHFE copper prices. In this context, these investors believe copper prices may drop to the level before the New Year holiday with LME copper prices falling back to USD 7,950/mt

Aluminum
SHFE 1303 aluminum contract prices opened lower at RMB 15,310/mt on January 7. Trading activity was muted, with trading volumes a mere over 5,000 lots. The contract hovered near RMB 15,300/mt in the morning, but retreated below the mark in the afternoon due to sell-off. Finally, the March aluminum on the SHFE ended the day down RMB 85/mt or 0.55% at an intraday low of RMB 15,265/mt. Positions were up 48 lots to 65,636 lots. SHFE aluminum prices drifted lower after a low opening due to falling LME aluminum prices, but still showed some resilience because of expectations for the State Reserve Bureau to buy aluminum ingot again. The most active SHFE aluminum contract is expected to struggle at RMB 15,300/mt in the short term.

Spot aluminum was mainly traded at RMB 15,050-15,070/mt in Shanghai on Monday, with discounts at RMB 30-50/mt. Low-iron aluminum was traded at RMB 15,100-15,120/mt. SHFE 1303 aluminum contract prices edged down, sending spot aluminum prices down as well. Cargo holders still held back goods after the New Year holiday, helping aluminum prices stay firm at RMB 15,050/mt, resilient compared with SHFE aluminum prices. Downstream producers and middlemen replenished some stocks, improving overall trading slightly. In the afternoon, prices of the most active SHFE aluminum contracts expanded losses. Traders still refrained from selling to hold offers firm at above RMB 15,050/mt. Middlemen purchased limited amounts at lows and overall trading was light. 

SMM statistics show that SMM aluminum prices averaged RMB 15,050/mt on Monday, compared with last week’s RMB 15,060/mt. Aluminum prices were stable both before and after the New Year holiday. According to SMM’s survey of 31 domestic aluminum ingot traders and producers, most of the surveyed market players expect aluminum prices to hover around RMB 15,050/mt this week.

An overwhelming majority of 58% market players understand that worries that QE3 may end in advance caused LME aluminum prices to drop recently, and this will weigh on SHFE aluminum prices. Nevertheless, expectations are running high that the State Reserve Bureau (SRB) will buy aluminum ingot again in January, helping SHFE aluminum prices resist declines. Besides, cargo holders are in no hurry to move goods at the start of the month, which will limit the downside space of aluminum prices. Hence, these neutral market players expect LME aluminum prices to struggle at USD 2,050/mt, SHFE 1303 aluminum contract prices to move around RMB 15,300/mt and spot aluminum prices to hover around RMB 15,050/mt, with trading up slightly.   

19% of market players are bullish towards this week’s aluminum prices for the following reasons. First, there is possibility that the SRB will conduct the next round of aluminum ingot in January. Second, downstream producers will begin to stockpile aluminum ingot as the Chinese New Year holiday is approaching. Third, aluminum smelters will hold offers firm at the start of the year, which will help SHFE aluminum prices rebound mildly. These bullish market players thus believe that LME aluminum prices will return above USD 2,050/mt, SHFE 1303 aluminum contract prices should regain RMB 15,300/mt and spot aluminum prices will test resistance at RMB 15,100/mt, with trading up.

The remaining 23% hold the view that sharply falling LME aluminum prices will send SHFE aluminum prices down. Aluminum inventories in trading markets are growing, but downstream producers have not yet begun to restock aluminum, unfavorable for aluminum prices. Since the possibility of SRB aluminum ingot buying still exists, downside space should be limited. In this context, these bearish market players anticipate that LME aluminum should meet resistance at USD 2,050/mt, SHFE 1303 aluminum contract prices will test support at RMB 15,200/mt and spot aluminum prices will likely retreat from RMB 15,000/mt, with trading modest. 

Lead
The most active SHFE lead contract price opened lower at RMB 15,235/mt on Monday as market confidence was dampened by the doubts about the sustainability of Fed’s stimulus measures and the falling LME lead prices. Prices remained around the opening level in the morning session but touched a low of RMB 15,165/mt since LME lead prices fell further to finally end the day at RMB 15,170/mt, down RMB 80/mt. Trading volumes were down 136 lots to 266 lots, and positions fell 44 lots to 2,344 lots.

On Monday, SHFE lead prices were still weighed on, but investors in China spot lead market were optimistic to lead demand due to the price increase for motive lead-acid batteries. Thus, quotations for spot lead were firm. Chihong Zn & Ge was quoted at RMB 14,780/mt, with spot discounts of RMB 420/mt over the most active SHFE lead contract price. Quotations for Chengyuan and Nanfang were RMB 14,750-14,760/mt. Offers for Dongling and Mengzi were mainly at RMB 14,700/mt while those for Shenqian and brands from Gejiu region remained low at RMB 14,660/mt. Transactions improved from last Friday.

According to SMM survey to 30 industry insiders, 13% market players hold a positive attitude to lead market this week. The US fiscal cliff issue was resolved and market is optimistic to the 4Q report of the US enterprises to be released recently. Plus the mild growth in nonfarm payrolls, market concerns were eased somewhat. Besides, LME lead inventories fell 7,700 mt to 312,625 mt during the first three trading days in 2013, giving support to lead prices. Thus, these market players expect LME lead prices to rise to move between USD 2,350-2,400/mt this week. In China’s spot lead market, prices on motive lead-acid batteries began increasing with the onset of the high demand season, strengthening market expectations to a more brisk lead market. In this context, cargo holders should hold lead prices firm, with spot lead prices expected at RMB 14,750-14,850/mt, up RMB 50/mt from the average price in last week.

The remaining 87% investors are cautious due mainly to the concerns over the termination of QE3 by the Fed in 2013 which overshadowed the positive influence from the settlement of the US fiscal cliff issue. Besides, the US dollar index remained high at 80.5, combined with spot discounts of USD 10/mt over LME lead prices, LME lead prices will be weighed on, but LME lead should still gain support from longs, with prices expected to hover around USD 2,350/mt. In spot lead market in China, despite the price increase for lead-acid batteries, the overcapacity in battery industry should not be neglected. Therefore, the higher prices are not generally accepted in the market, so investors believe spot lead prices will unlikely improve significantly but should be RMB 14,650-14,800/mt.

Zinc
Today SHFE 1304 zinc contract became the most actively traded one, with prices opening lower at RMB 15,540/mt, and generally fluctuating around RMB 15,570/mt, and touching RMB 15,615/mt. But with resistance at the 5-day moving average, and since the Shanghai Composite fell along with LME zinc prices, SHFE three-month zinc contract prices reversed their increases. As long momentum mounted in the afternoon, SHFE three-month zinc contract prices fell again after briefly moving around RMB 15,530/mt, and finally closed at RMB 15,470/mt, down RMB 170/mt. Total position increased by 9,794 lots to 89,150 lots.

SHFE three-month zinc contract prices fluctuated at low levels. Discounts of #0 zinc against SHFE three-month zinc contract prices narrowed to RMB 260-280/mt, with traded prices between RMB 15,200-15,210/mt. #1 zinc prices were RMB 15,160-15,170/mt. Smelters still lacked interest to move goods, and supply tightness did not ease. Traders were pessimistic and purchaseeed modestly, and downstream buying interest was low, keeping overall transactions muted.

US fiscal cliff problems resulted in an agreement last week. LME zinc prices were boosted and touched a near-half-year high of USD 2,185/mt, but then rolled back previous gains in the following two days.

With regard to zinc price trends this week, 80% market players believe LME zinc prices should stop falling and fluctuate. Interest rates in England and euro zone for January will be decided this week. As European debt crisis eased, the market anticipates eurozone will maintain interest rates unchanged, so zinc prices will lack guidance. Besides, the number of US first-time and continued jobless claims for last week will be released, which will remain within investors expectations. US dollar index rallied to 80, but has little room to rise further. As such, LME zinc prices should move between the 20-day and 30-day moving averages, fluctuating between USD 2,040-2,080/mt.

In China, as upward momentum of the Shanghai Composite waned, and since LME zinc prices fluctuated, SHFE 1304 zinc contract prices should vacillate between RMB 14,450-15,650/mt. In domestic spot markets, the willingness of smelters to move goods did not improve, and arbitrage traders also barely released goods, with spot supply tightness and firm prices. Spot discounts against SHFE 1304 zinc contract prices should remain between RMB 350-400/mt.

20% market players believe LME zinc prices should extend declines, falling between 30-day and 60-day moving average, below USD 2,000/mt. On the news side, concerns that the US Federal Reserve will quit easing policies continued to depress the market, causing the US dollar index continued to rebound. Besides, eurozone November unemployment rate and December CCI will be announced this week. Investors are pessimistic towards November unemployment data since it reached 11.7% the previous month, weighing down market confidence. As such, both gold and crude oil prices fell, dragging down zinc prices. In this context, LME zinc prices should fall below the 30-day moving average to USD 2,000/mt.

In China, many downstream processors will suspend production leading up to the Chinese New Year holiday, with consumption weakening. But domestic smelters will generally maintain normal production during the holiday. As a result, severe supply and demand imbalance will remain in the foreseeable future, and will pull zinc prices on the downside. SHFE three-month zinc contract prices should drop to RMB 15,350-15,450/mt, with spot discounts between RMB 300-350/mt.

Tin
In Shanghai tin market, spot tin prices remained strong between RMB 156,000-158,000/mt on Monday with transactions also improved. Traded prices for Yunxi and Yunheng were between RMB 157,000-158,000/mt, and those for Yunxiang and Nanshan were RMB 156,000-165,500/mt. A few goods were traded at RMB 155,500/mt. Most traders were bullish on market outlook, and prices for tin concentrate and scrap tin also climbed. Yunnan Tin Group’s quotations were raised noticeably after the company started maintenance, helping drive up tin prices. The limited supply of non-leading brands in the market also contributed to the price increase.

According to SMM survey, 60% industry insiders believe tin prices will continue to rise this week. The maintenance of Yunnan Tin Group curtailed supply from the company and drove up its quotations, which will help boost prices for leading brands. In addition, tin concentrate prices increased notably after the New Year holiday with tin concentrate (Sn 40%) traded at RMB 117,500-120,000/mt (tin content), and tin concentrate (Sn 70%) traded at RMB 126,000-129,000/mt (tin content). Quotations from traders are expected to rise further. This will give a rise to production cost for tin smelters, and push up tin prices. Above all, non-leading brands are rarely seen in the market after the holiday, and traders and smelters are not willing to move goods at low prices. As such, tin prices may still increase with downstream buyers replenishing stocks ahead of the Chinese New Year.

The remaining 40% market players believe tin prices should hold steady this week instead of climbing further, noting that base metals will be weighed on by the strong US dollar index, and LME tin prices, once dropping below the 5-day moving average, will likely return to USD 23,200-23,500/mt. Meanwhile, the rapid growth in domestic spot tin prices was not acceptable for downstream buyers, so the stalemate between buyers and sellers should leave spot tin prices little changed.

Nickel
Jinchuan Group raised ex-works nickel prices by RMB 1,000/mt to RMB 121,000/mt on Monday. During the morning trading hours in the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 121,500-121,800/mt, and mainstream traded prices of nickel from Russia were between RMB 120,500-120,800/mt. After Jinchuan Group hiked ex-works nickel prices, traders in the Shanghai nickel spot market also hiked offers of Jinchuan nickel prices to RMB 122,0000/mt and Russian nickel prices to RMB 120,800/mt. However, almost no transactions were reported after price hike. During the afternoon trading hours, spot prices fell along with LME nickel prices, but transactions were still quiet amid strong wait-and-see sentiment.

Based on SMM survey result on market sentiment, 40% market players believe that LME nickel prices will fluctuate in wide band in the coming week. They hold that market lack guidance after positive impact from the non-farm employment data and fiscal cliff negotiation waned, and LME nickel prices will fluctuate between USD 17,200-17,600/mt in the coming week.  Technical indicators do not suggest clear trend either. Indicators suggest that LME nickel prices meet resistance at USD 17,500/mt and may fall below USD 17,200/mt. However, if the US dollar fell after previous surge, LME nickel prices will struggle around 10-day, 20-day and 30-day moving average. With regard to supply, most nickel producers reported stable output in January. Although bad weather in Xinjiang will restrict local nickel output, and production resumption at Yuanjiang Nickel Industry will make overall supply stable. With regard to demand, downstream producers do not replenish stocks in a large amount, and transactions were still made among traders. It is expected that both supply and demand still not change, which fuels their expectation that LME nickel prices will remain stable in the coming week.

40% market players believe that LME nickel prices will fall below USD 17,000/mt to test support at 60-day moving average and may hit a low at USD 16,800/mt. They believe that although non-farm employment data did not fluctuate much, but US unemployment rate fell from 8.5% to 7.7%, which stoked speculation that the Fed will lessen efforts on QE. This boosted the US dollar and weighed on base metal prices.

20% market players were optimistic, believing that LME nickel prices will resume upward momentum and may break through USD 17,900/mt. They believe that bank will release the first round of loans. Meanwhile, China central bank injected RMB 90 billion liquidity into market through 5-day reverse repos, which will help ease cash flow pressure. Furthermore, a slow of economic reports will be released. It is reported that most report for November were better than market expectation, which will boost base meal prices.