SMM Base Metals Market Daily Review (2013-1-14)

SHANGHAI, Jan. 15 (SMM) –

Copper
With LME copper prices falling last Friday, SHFE 1304 copper contract, the most active one, started RMB 380/mt down at RMB 58,280/mt Monday. The contract gained support at the 10-day moving average following the opening and touched a low at only RMB 58,270/mt before stabilizing gradually. In the afternoon, as the Shanghai Composite Index surged by 3.2% and recouped 2,300, SHFE copper prices broke resistance at RMB 58,500/mt and narrowed daily losses, touching a high at RMB 58,730/mt. But SHFE 1304 copper contract dropped at the tail of trading and settled RMB 140/mt or 0.24% lower at RMB 58,520/mt, with trading volumes and positions down 52,278 lots and 2,254 lots, respectively. Long and short investors generally stood on the sidelines. With pressure at the 5-day moving average but strong support at RMB 58,200/mt, SHFE copper prices will probably fluctuate at current values over the short term.

As SHFE copper prices retreated, and as the delivery day for SHFE 1301 copper contracts neared, cargo-holders tried to raise copper premiums. Hedged copper flew into spot markets and kept copper supply plentiful, restricting further upside room in premiums. Standard-quality copper traded at slight discounts. Shanghai spot copper offers were largely between discounts of negative RMB 40/mt and premiums of positive RMB 50/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,650-57,720/mt, and RMB 57,700-57,800/mt for high-quality copper. With the price gap between SHFE 1301 and 1302 copper contracts remaining around RMB 300/mt, trader buying interest weakened, while downstream producers still bought to need at lows. Therefore, overall market supply still exceeded demand. In the afternoon, since SHFE copper prices continued rising, copper discounts widened, and mainstream copper offers were discounts of negative RMB 50/mt and premiums of positive RMB 50/mt. Traded prices increased to RMB 57,700-57,900/mt, but actual market transactions were limited as only a small number of downstream producers took opportunities to enter markets.

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

Based on the survey, 30% of market insiders are upbeat about the outlook, believing LME copper will rise to USD 8,150-8,200/mt and SHFE copper will challenge RMB 59,000/mt. Market focus has shifted to the Fed's beige book to be released January 17, and at least 7 Fed officials this week will make speeches on monetary policies and future economic prospects. Chicago Federal Reserve Bank President Charles Evans said Monday that the Fed's latest monetary measures can help stimulate economy and stabilize commodity prices. Besides, markets are positive toward the US economic data due this week, including home starts and PMI indexes for various regions. In the euro zone, the financing costs of heavily-indebted countries have fallen, as Italian three-year bond yields slipped below 2%, the best result in the past two years. Meanwhile, the Greek Parliament January 12 passed a bill aimed to increase tax and simplify the tax system, which is one of the conditions set by the EU and IMF for rescue funds. The ECB President Mario Draghi made extremely optimistic statements last week, which will help the euro march higher further. China, the US, and Europe have all kept loose monetary measures in 2013, with China reporting favorable economic figures last week. Despite high Chinese inflationary rate, investors are confident about China's GDP data to be released this Friday. Furthermore, cash flows front is favorable for crude oil, downstream chemical products, as well as silver and gold. According to the latest CFTC reports, net long positions increased to 12,376 lots as of January 8, which will guide future copper price trends. China's central bank drained a net RMB 220 billion last week in the open markets, a three-month high. The bank is expected to maintain loose monetary policy, and combined with comments of Guo Shuqing, chairman of the Chinese Securities Regulatory Commission, on the cross-border RMB transactions, Chinese stock markets will probably reach new highs this week. As such, these insiders expect copper prices to trend higher this week.      

Around 24% of market insiders anticipate that LME and SHFE copper will dip below USD 8,000/mt and RMB 58,000/mt, respectively, and due to the following factors. LME copper stocks continued increasing sharply last Friday as London spot copper traded at large discounts. Moreover, technical indicators for both LME and SHFE copper are pointing downside. In Chinese spot markets, copper discounts will return after SHFE 1301 copper contracts are delivered Tuesday amid slack downstream consumption. Cash flow pressures will force smelters to move goods for cash, increasing spot copper supply.

The remaining 46% of insiders see no major changes in copper prices. LME copper will fluctuate around USD 8,100/mt, and SHFE copper will hover around RMB 58,500/mt. The US dollar has recently retreated appreciably and is likely to remain weak, but will have a limited impact on copper prices. Market participants are more inclined to buy at lows but are cautious of keeping up with rising prices. This indicates copper prices have good support at lows but lack further rising momentum. In this context, copper prices will stay within current trading range this week.

Aluminum
SHFE 1303 aluminum contract prices dipped to the 5-day moving average after opening at RMB 15,270/mt on January 14. Prices of the most active SHFE aluminum contracts fluctuated in the band of RMB 15,230-15,250/mt in the session and finally finished at RMB 15,235/mt, down RMB 40/mt or 0.26%. Positions were up 112 lots to 62,370 lots. Stable LME aluminum prices and soaring Shanghai Composite Index failed to push SHFE aluminum prices up. The most-traded SHFE aluminum contract should continue to test support at RMB 15,200/mt in the near term.

Spot aluminum was mainly traded at RMB 15,030-15,040/mt in Shanghai on Monday, with discounts at RMB 0-10/mt. Low-iron aluminum was traded at RMB 15,100-15,120/mt. SHFE current-month aluminum contract prices extended losses, causing spot discounts to fall to zero before delivery of SHFE 1301 aluminum contracts and stimulating traders to sell. However, downstream producers and middlemen showed low buying interest, sending traded prices down to RMB 15,030/mt. Divergence among sellers and buyers over prices left overall trading thin.  In the afternoon, some traders in spot market remained active in moving goods, but offers were lowered to RMB 15,020/mt. Inquiries were rarely reported, leaving overall trading muted. 

SMM statistics show that SMM aluminum prices averaged RMB 15,050/mt on Monday, compared with last week's RMB 15,046/mt. According to SMM's survey of 48 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 62% market players understand that the US dollar index has been falling recently and met strong resistance at 80. LME aluminum has found strong support at the 30-day moving average, helping domestic aluminum prices resist declines. There is little chance that SHFE 1303 aluminum contract prices will fell below RMB 15,200/mt for the foreseeable future. Spot aluminum inventories kept dropping due to transportation problems. Cargo holders held back goods to support prices after spot aluminum prices dropped to near RMB 15,000/mt, pushing aluminum prices up slightly. However, traders became aggressive in selling after prices rose to near RMB 15,100/mt, causing aluminum prices to pull back into correction. In this context, neutral market players expect aluminum prices to hover near RMB 15,050/mt.

21% of market players are bullish towards this week's aluminum prices and believe SMM aluminum prices will climb above RMB 15,050/mt. First, Guo Shuqing, Chairman of the China Securities Regulatory Commission, said during the Asian Financial Forum that investment scale by RQFII and QFII can expand 10 times of the existing level. The surge in investment has helped the Shanghai Composite Index soar 3%. The rebound of confidence from investors will help SHFE aluminum prices rise along with LME aluminum prices. These bullish market players thus believe that LME aluminum prices will stabilize at USD 2,100/mt, SHFE 1303 aluminum contract prices should test resistance at RMB 15,300/mt and spot aluminum prices will rise mildly to near RMB 15,100/mt.

The remaining 17% hold the view that aluminum prices will edge down and that SMM aluminum price will fall to RMB 15,000/mt. Fund firms will restructure the proportion of base metals in 2013. For example, the proportion of aluminum in Dow Jones-UBS Commodity Index has already dropped to 4.9% from 5.9%, increasing short selling pressure. LME aluminum will likely lose support at USD 2,100/mt, and this will weigh down domestic aluminum prices. Despite falling domestic spot aluminum inventories, downstream processors are cautious towards pre-Chinese New Year restocking. Small and medium processors will close early for the Chinese New Year holiday. Investors will generally choose to close positions and stand on the sidelines before the Chinese New Year, and this will send aluminum prices down. These bearish market players anticipate that SHFE 1303 aluminum contract prices will decline to near RMB 15,200/mt and spot aluminum prices will test support at RMB 15,000/mt.

Lead
The SHFE 1303 lead contract price became the most active one on Monday and opened at RMB 15,260/mt. Although the Shanghai Composite Index rose 3% to 2,300, SHFE lead prices failed to increase and mainly moved between RMB 15,240-15,280/mt, and finally closed at RMB 15,270/mt, down RMB 75/mt Trading volumes were down 48 lots to 222 lots, and positions were up 68 lots to 2,170 lots.

Spot lead prices in China also edged down. Chihong Zn & Ge was quoted at RMB 14,750-14,760/mt, with spot discounts of RMB 500/mt over the 1303 SHFE lead contract price. Quotations for Dongling, Hanjiang and Mengzi were mainly at RMB 14,660/mt, and those for Shenqian were RMB 14,630-14,640/mt. Downstream buyers did not actively replenish goods, while selling interest among cargo holders was still strong. Trading was muted on the whole.

According SMM's survey to 30 industry insiders, 67% of them believe lead price will remain in a narrow band this week. Base metals will be directionless given a lack of significant economic reports. Although the US dollar index is under downward pressures, metals markets are unlikely to be greatly boosted. Spot discounts over LME lead prices remain unabated at USD 10/mt. Technically, LME lead prices should remain vacillating at the current levels in the short term given the resistance between the upper and middle Bollinger bands. Besides, the US companies will release their financial reports for 4Q, and China's 4Q GDP data should also be unveiled, market will be cautious before the releases. Thus, these investors expect LME lead prices to move around USD 2,330/mt. In China's spot lead market, most downstream enterprises reflect they will unlikely start replenish stocks for Chinese New Year holiday until the end of January, with spot lead prices expected at RMB 14,650-14,750/mt.

The remaining 33% market players are not optimistic. As China's CPI staged a rebound in December, triggering concerns over China's monetary policies and domestic demand. The Shanghai Composite Index also fell noticeably, weighing on base metals. In Europe, the slipping GDP data for Germany in 4Q rekindled investors' worries. In China, as both sellers and buyers are in need of cash for account settlement and worker' wages, more sellers are willing to move goods at low prices, while downstream enterprises are reluctant to purchase to avoid risk. In this context, some investors believe spot lead prices will be dragged down to RMB 14,600-14,700/mt this week.

Zinc
LME zinc prices last Friday plunged. SHFE 1304 zinc contract prices opened lower at RMB 15,410/mt on Monday, and plummeted to an intraday low of RMB 15,330/mt due to increasing selloffs in the morning trading. But as the Shanghai Composite soared to 2,300, SHFE 1304 zinc contract prices climbed to RMB 15,495/mt. The Shanghai Composite continued to rise later in the day, with increases exceeding 3%. But SHFE 1304 zinc contract prices lacked upward momentum and fluctuated narrowly between RMB 15,430-15,450/mt, and finally closed at RMB 15,455/mt, down RMB 75/mt. Total position increased by 3,352 lots to 95,472 lots.

SHFE three-month zinc contract prices inched up slowly after plunging today. Discounts of #0 zinc against SHFE three-month zinc contract prices narrowed to RMB 280-300/mt, with traded prices between RMB 15,090-15,110/mt. #1 zinc prices were RMB 15,070-15,080/mt. Smelters were more willing to move goods, but traders lacked buying interest due to high quotes, and they bought from other traders at lower prices. Due to narrowing discounts, arbitrage traders were more willing to sell goods, and downstream buyers purchased at lower prices, causing overall transactions to improve.

LME zinc prices advanced due to improving China trading data last week, but plummeted after pointing towards the 30-day moving average.

With regard to zinc price trends this week, about 73% market players believe zinc prices will stop falling but lack upward momentum, remaining fluctuating during the week. The market is optimistic towards US January manufacturing index at local Federal Reserves and December housing starts, and this will back zinc prices to stabilize. Besides, the US dollar index has fallen below 80, and lacks momentum to rebound soon. But given LME zinc inventories maintaining above 1.21 million mt and sluggish consumption, LME zinc prices should vacillate between USD 2,000-2,050/mt.

China's December CPI and PPI released last Friday were both worse than expected, depressing investors' optimism, and causing the Shanghai Composite limited increases. Besides, the market is pessimistic towards China's 4Q GDP which will be released this week, so the Shanghai Composite will remain fluctuating. In this context, SHFE three-month zinc contract prices should move between RMB 15,350-15,500/mt, with spot discounts between RMB 300-350/mt.

The remaining 27% believe LME zinc prices will continue to fall, losing the 5-day moving average. December CPI and PPI in major eurozone countries due this week are pessimistic. Besides, Dow Jones-UBS index lowered base metal proportion, with the proportion of zinc down from 3.4%, to 2.5%. That reflects the well-known institution is pessimistic towards zinc prices in 2013. As a result, LME zinc prices are expected to fall below USD 2,000/mt.

In China, investors lacked enthusiasm to enter the market leading up the Chinese New Year holiday. Besides, downstream processors mostly plan to suspend production by the end of January due to a lack of orders, which will weigh down zinc prices in the foreseeable future. SHFE 1304 zinc contract prices should lost the 5-day moving average and inch down to the 60-day moving average, moving between RMB 15,200-15,350/mt, with spot discounts RMB 250-300/mt.

Tin
In Shanghai tin market, mainstream traded prices were RMB 160,000-161,000/mt on Monday. Deals for Yunxiang and Nanshan were made around RMB 160,000/mt, while Yunxi and Yunheng were mainly traded at RMB 160,500-161,000/mt. Trading was quiet on the whole. In the afternoon, transactions remained modest, but traders reflected limited resources, combined with the continuous rises in LME tin prices, selling interest was dampened, and transactions were mainly done at RMB 160,500-161,000/mt. Spot tin prices continued to increase due to strong trend in LME tin, but downstream consumption remained unimproved, and domestic spot prices still lacked buying support.

With respect to tin price trends this week, 50% market players believe spot tin prices will continue to rise given the firm LME tin prices. Risk appetite was boosted recently and LME tin prices also presented the biggest gain among base metals. Despite the resistance at USD 25,000/mt, the price gap between LME and domestic tin was still large. Thus, these investors believe even though LME tin prices should meet resistance, domestic spot tin prices will be driven up given the strong expectation for higher prices in domestic market to narrow the price gap with LME tin. Plus the maintenance at Yunnan Tin Group and the travel rush around Chinese New Year holiday which will hamper transportation, tin prices will be resistant to declines.

40% market players expect spot tin prices to remain stable, noting that LME tin prices should come under resistance at USD 25,000/mt, impairing upward impetus for domestic spot prices. Besides, then unimproved demand may also prevent spot tin prices from increasing further. However, the bullish mood in domestic market and the maintenance at Yunnan Tin Group may give certain support to prices, leaving spot tin prices stable.

The remaining 10% market players expect spot tin prices to fall this week, believing that domestic spot prices will be dragged down by the weak demand if LME tin prices fail to break through the resistance at USD 25,000/mt.

Nickel
During the morning trading hours in the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 123,800-124,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 122,700-122,900/mt range. During the afternoon trading hours, traders rolled back goods by hiking offers when domestic stock market rallied. Therefore, offers of nickel from Jinchuan Group rose to RMB 124,000-124,200/mt, and nickel from Russia were between RMB 123,000-123,200/mt. However, downstream price acceptance was low, and transactions were quiet in the market.

According to SMM survey on market sentiment, 70% market players believe that LME nickel prices will advance to break through USD 17,600/mt and USD 17,900/mt in the following week. They believe that LME nickel prices will receive upward momentum from economic improvement in China. Not only domestic stock market rallied, economic data were also positive. It was reported last Thursday that China's trade surplus hit USD 31.62 billion in December, better than USD 19.7 billion expected and USD 19.6 recorded last month. Meanwhile, China's central bank continued to inject RMB 183 billion liquidity into market through reverse repos, which greatly boosted market confidence. Meanwhile, China will announce GDP for 4Q. As newly-released PMI and CPI both suggested economic recovery in China, market expectation towards GDP for 4Q was also positive, which will fuel optimistic sentiment in the market. Although technical indicators were stable, the daily K chart showed that LME nickel prices were poised to rise.

Furthermore, it was reported that a large amount of nickel was imported via Shanghai Customs, which was speculated by market players as purchases by State Reserve Bureau. This boosted transactions at ports, pushing up mainstream premiums at ports to USD 130-150/mt. Some overseas suppliers even quoted premiums as high as USD 150-200/mt. Therefore, large amounts of purchases from the State Reserve will boost nickel demand, which will improve transactions of nickel.

However, the remaining 30% market players believe that LME nickel prices will fall below to around USD 17,300/mt in the coming week. First, LME nickel inventories surged by 2,814 mt to 147,060/mt on Monday, which will weigh on nickel prices in the long term. In addition, Macquarie's latest report forecasts that nickel prices in 2013 will fall by 6.8%. Finally, downstream demand from buyers was not brisk, as players were not optimistic towards downstream demand.