SHANGHAI, Jan. 22 (SMM) -
With LME copper posting strong performance last Friday, SHFE 1304 copper contract, the most active one, started RMB 110/mt up at RMB 58,380/mt Monday. The contract fell immediately after the opening, so the opening price became the intraday high level. In the afternoon, as LME copper prices lost ground, SHFE copper prices slipped further and tested a low at RMB 58,150/mt at the tail of trading. Completely coming under pressure at the daily moving average, SHFE 1304 copper contract fluctuated by merely RMB 200/mt during the day and closed RMB 80/mt or 0.14% lower at RMB 57,190/mt. Trading volumes and positions for the most active copper contract decreased by 72,736 lots and 4,090 lots, respectively. Total trading volumes on the SHFE fell by 117,000 lots and 1,736 lots, respectively. With weak support at the 10-day moving average, long and short investors generally took a wait-and-see posture. SMM believes that SHFE copper prices are unlikely to move out of current fluctuating range over the short term.
As SHFE copper prices fluctuated at current levels, Shanghai copper discounts stabilized between negative RMB 120-220/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,650-57,720/mt, and RMB 57,700-57,780/mt for high-quality copper. Buying interest from both traders and downstream producers abated. Cargo-holders offered lower discounts to move goods for cash during the second trading session when copper futures prices slipped, keeping market transaction volumes light. Overall copper supply still exceeded demand. In the afternoon, with SHFE copper prices coming under pressure, copper discounts remained unchanged from morning levels, between negative RMB 120-220/mt. Traded prices were RMB 57,600-57,720/mt in the afternoon, and some traders chose to purchase at lows.
SMM conducted a survey with regard to copper price trend this week.
Based on the survey, 22% of market insiders are optimistic, believing that LME copper can challenge USD 8,100/mt and SHFE copper will increase to RMB 58,500/mt. Recent US economic data was positive, heightening market expectation over the housing data to be released this week. This will boost the financial markets and US equity markets and help drive copper prices higher. Besides, investors anticipate that euro zone finance ministers' meeting January 21 evening should make new progress in the bank restructuring plan, which is likely to lift the euro higher. Jeroen Dijsselbloem's favorable comments on the euro zone have also boosted market sentiment. From a comprehensive perspective, situation in the bloc is improving, so the euro may challenge high levels. Furthermore, crude oil prices recently continued rising on higher Chinese economic growth and International Energy Agency's move of raising global demand, while gold prices have also posted better performance, which will guide future copper price movements.
According to the latest CFTC reports, net long positions decreased slightly January 15 from a week ago, but long positions held by noncommercial and commercial investors both increased, which will help copper prices extend gains. Both LME and SHFE copper prices have risen above recent moving averages with technical indicators pointing upside. In China's markets, markets are upbeat about the HSBC China PMI data to be announced this Thursday. According to WIND statistics, there is RMB 150 billion worth of reverse repurchases due in the open market during January 19-25, so cash flow pressures are relatively small. Coupled with the action of China's central bank in introducing short-term liquidity adjusting tool, credit will remain stable in the near term. Hence, these insiders expect copper prices to extend increases this week.
Around 51% of market insiders see no major changes in copper prices, anticipating LME copper will fluctuate between USD 8,000-8,080/mt and SHFE copper will hover around RMB 58,200/mt. Last Friday, Republican leaders in the House of Representatives submitted a new bill, which allowed the US Treasury Department to continue issuing debts for three months to maintain government spending after reaching the debt ceiling. If this bill can be passed in the House this Wednesday, the US debt ceiling negotiations scheduled to start January 23 will be delayed after mid-April. This at least has won precious time for the two political parties on the budget talks, significantly reducing risks in defaulting.
evertheless, the US government's deficit expanded to USD 1.316 trillion in 2012 from USD 1.313 trillion in 2011, and the proportion of the nation's debts to its GDP rose to 73% in 2012, up from 68% seen in late 2011. This means uncertain factors prevail in the US. In Chinese markets, as high as 287 companies on the Shenzhen and Shanghai markets have slashed position holdings. Moreover, spot copper cargo-holders expressed strong willingness in moving goods for cash. But Chinese A-shares should fluctuate at highs during the week, helping support copper prices. Hence, copper prices are expected to hold flat with current levels.
The remaining 27% of insiders are pessimistic, and contributable to the following factors. In their views, LME copper prices will slip to USD 8,000/mt, and SHFE copper will test support at RMB 57,800/mt. Recently, copper prices have followed same directions with the US dollar, but risk aversion exists. The US dollar will give pressures to copper prices once standing above 80 effectively. Meanwhile, LME copper stocks remain the highest since the end of 2011, while Chinese copper stocks are also high. Supply surplus will continue to weigh on copper markets. In China's spot markets, downstream producers has yet to replenish stocks in large quantities ahead of the Chinese Near Year holiday owing to thin orders, while cargo-holders have stepped up sale volumes for cash. In this context, spot copper has been traded at discounts, which is unable to buoy copper prices.
SHFE 1303 aluminum contract prices opened slightly higher at RMB 15,245/mt on January 21. The contract immediately gave back gains in early session, dropping below RMB 15,200/mt as markets were pessimistic. Finally, the most active contract shed RMB 15/mt or 0.10% to close at RMB 15,160/mt. Positions were down 864 lots to 58,140 lots. Trading volume of SHFE 1303 aluminum contracts were less than 5,000 lots as there is little chance that LME aluminum will regain USD 2,050/mrt and as Chinese investors are standing on the sidelines due to the upcoming Chinese New Year. The most-traded SHFE aluminum contract is expected to hover at RMB 15,150/mt in the near term.
Spot aluminum was mainly traded at RMB 14,950-14,960/mt in Shanghai on Monday, with discounts at RMB 120-130/mt. Low-iron aluminum was traded at RMB 15,050-15,060/mt. SHFE 1303 aluminum contract prices moved lower after a high opening, dampening market sentiment. Downstream restocking for the upcoming Chinese New Year was limited, while cargo holders were less willing to sell at lower prices, leaving mainstream traded prices stagnant at RMB 14,950/mt. In the afternoon, prices of the most active SHFE aluminum contracts edged down. Some traders in spot market remained active in moving goods, with offers at RMB 14,950/mt. Inquiries were rarely reported among downstream producers and middlemen, leaving overall trading muted.
SMM statistics show that SMM aluminum price averaged RMB 14,970/mt on Monday, slightly lower than last week’s RMB 14,974/mt. According to SMM’s survey of 41 domestic aluminum ingot traders and producers, most of the surveyed market players expect aluminum prices to meet resistance at RMB 15,000/mt at the upper end and stabilize at RMB 14,950/mt at the bottom ahead of Chinese New year holiday.
54% of market players are neutral towards this week’s aluminum prices. They understand that aluminum prices are now moving within narrow ranges following a RMB 100/mt drop last week. LME aluminum prices have been stagnant at USD 2,050/mt for a week. Deadlocked debt ceiling issues in the US will constrain upward momentum of aluminum prices. However, the rebound of economic data from China and the US will help aluminum prices resist reclines. The most active SHFE aluminum contracts will thus hover around RMB 15,150/mt. In spot market, traders will refrain from selling at lower prices, while downstream producers will restock modestly before the upcoming Chinese New Year, thereby keeping aluminum prices stable.
24% of market players are bullish towards this week’s aluminum prices and believe SMM aluminum prices will climb to RMB 15,000/mt for the following reasons. First, the US dollar index met resistance at 80, helping LME aluminum prices resist declines and stabilize at USD 2,030/mt at the bottom. Second, SHFE 1303 aluminum contract prices opened higher at RMB 15,200/mt on January 21, indicating that some investors are still willing to buy at higher prices. Therefore, prices of the most active SHFE aluminum contracts will likely regain earlier losses and spot aluminum prices will rise along to test resistance at RMB 15,000/mt.
The remaining 22% hold the view that aluminum prices will edge down and that SMM aluminum price will fall to near RMB 14,900/mt. LME aluminum and SHFE aluminum prices have been mired recently. Besides, markets are expecting no large-scale restocking in spot aluminum market ahead of Chinese New Year, triggering strong bearish sentiment. Cargo holders will be eager to sell, while downstream producers and middlemen will exhibit low buying interest, thus weighing down spot aluminum prices.
The SHFE 1303 lead contract price gapped higher at RMB 15,270/mt on Monday influenced by the rising LME lead prices last Friday, but fluctuated down to RMB 15,195-15,230/mt due to unimproved demand. In the afternoon, SHFE lead prices fell further to close at RMB 15,140/mt, down RMB 50/mt. Prices are expected to open lower on Tuesday.
In China’s spot lead market, quotations remained firm on Monday due to limited supply for branded goods. Chihong Zn & Ge was quoted at around RMB 14,780/mt, with spot discounts of RMB 410/mt over the 1303 SHFE lead contract price. Quotations for Mengzi and Hanjiang were mainly at RMB 14,680/mt, while those for Shenqian were around RMB 14,660/mt. Transactions remained quiet with most downstream enterprises buying as needed.
With respect to lead price trends this week, 33% of industry insiders surveyed by SMM are optimistic, expecting downstream buyers to replenish goods for the Chinese New Year holiday, which will help buoy lead market. Besides, the high spot discounts over the most active SHFE lead contract price encouraged arbitrage, leaving spot lead supply tight. This may also drive up lead prices, with traded prices expected at RMB 14,700-14,850/mt. Meanwhile, the better-than-expected 4Q GDP data in China and the rising US housing starts for December which hit a high never seen since July 2008, combined with positive technical indicators, may cause LME lead prices to move between USD 2,300-2,325/mt.
67% industry insiders believe spot lead prices should remain flat at RMB 14,650-14,750/mt this week. In spite of positive economic data in China and the US, the US debt ceiling issue remains a market concern and should restrict any increase in LME lead prices. The US House will vote on a three-month debt limit increase, while the Eurozone finance ministers will make a crucial decision on bank restructuring and bailout funds. The uncertainty surrounding these events and declining trading volume will cause LME lead prices to test USD 2,300/mt. In China’s spot lead market, a majority of lead-acid battery producers, except a few large ones which directly purchase from smelters, will still purchase on an as-needed basis, leaving trading muted.
LME zinc prices last Friday soared by 1.323%. SHFE 1304 zinc contract prices opened higher at RMB 15,435/mt, and were dragged down by LME zinc prices immediately following opening. SHFE 1304 zinc contract prices continued to fall and dipped to RMB 15,340/mt, and closed at RMB 15,365/mt, down RMB 20/mt, or 0.13%. Trading volumes decreased by 20,186 lots, to 47,974 lots, and total position increased by 142 lots to 93,458 lots.
SHFE three-month zinc contract prices inched down after opening higher. Discounts of #0 zinc against SHFE three-month zinc contract prices expanded to RMB 250-270/mt, with traded prices RMB 15,110-15,130/mt. #1 zinc prices were around RMB 15,080/mt. Good supply tightness alleviated. Traders lacked buying interest, while downstream buyers remained cautious, keeping transactions quiet.
In response to improving China's 4Q GDP, LME zinc prices broke through the 20-day moving average.
60% market players believe zinc prices will lack upward momentum and fluctuate in a narrow range this week. US January manufacturing index from Richmond Federal Reserve and Kansas Federal Reserve will be released this week, which is expected to be lukewarm. Besides, investors do not expect Bank of Canada will use easing policies, and the country will maintain interest rates unchanged for January. In addition, LME zinc inventories are at a high 1.22 million mt. As such, LME zinc prices should struggle between USD 2,000-2,040/mt.
In China, as recent domestic positive economic data was absorbed, and since the Shanghai Composite slowed increases, SHFE zinc prices will lose support and move between RMB 15,350-15,500/mt this week, with spot discounts between RMB 270-320/mt.
20% market players believe LME zinc prices should try to break through the 20-day moving average. US existing home sales and new home sales data to be released this week are expected to improve. Besides, HSBC's January PMI for China will be announced, which is optimistic. Bank of Japan will decide its interest rates in January this week, and investors expect it will enhance easing polices, which will positively affect base metals market. In this context, LME zinc prices are expected to edge up to USD 2,040-2,070/mt, and SHFE 1304 zinc contract price should track LME zinc price, moving between RMB 15,500-15,600/mt, with spot discounts expanding to RMB 320-370/mt.
The remaining 20% believe zinc prices should weaken this week. January economic sentiment index from euro zone and Germany will reflect a slower German economy dragged down by the entire euro zone economy. Negotiations on US debt ceiling issue are moving towards resolving slowly, and will continue to dominate the market. As such, LME zinc prices should inch down to USD 1,960-2,000/mt.
In China, investors lack buying interest leading up to the Chinese New Year holiday, with transactions muted. SHFE three-month zinc contract prices will fall to RMB 15,200-15,350/mt. due to cash flow problems and a lack of orders, downstream processors have no plan to replenish stocks, and some of them are going to suspend production. Demand will not improve in the short term. Spot discounts against SHFE three-month zinc contract prices are expected to be RMB 220-270/mt, with transactions remaining muted.
Spot tin prices in Shanghai were mainly between RMB 159,500-160,000/mt on Monday. Some brands were traded at RMB 159,000/mt, while a few goods of Yunxi were traded at RMB 160,500/mt. Quotation for Yunxi was held firm at RMB 164,000/mt. LME tin prices lacked impetus to rise, triggering market concerns on price decrease, combined with weak consumption, spot tin prices came under downward pressure.
SMM’s survey reveals that 40% market players believe spot tin prices will fall this week. LME tin prices failed to rise further and will unlikely break through the resistance at USD 25,200/mt, igniting market expectation for a pullback in LME tin prices. Plus the softening consumption in spot market, spot tin prices will be dragged down.
35% market players expect spot tin prices to remain stable. LME tin prices may be difficult to rise above the USD 25,200/mt mark, leaving little support for spot lead prices. However, these market players anticipate downstream buyers to start replenishing goods for the Chinese New Year holiday, which may drive up tin demand in spot market and help bolster spot tin prices. In this context, spot tin prices are expected to remain stable.
25% investors believe spot tin prices may continue to rise this week, noting that LME tin prices may rise later this week after amassing motive power during the corrections. Market sentiment will be boosted if LME tin prices increase, combined with the maintenance of Yunnan Tin Group and replenishment expected ahead of the holiday, smelters will continue to hold prices high, and traders will also hike their quotations, offering room for spot tin prices to rise.
In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 124,000-124,200/mt, and mainstream traded prices of nickel from Russia were between RMB 123,000-123,200/mt. Demand improved, and inquiries increased. Transactions of Jinchuan nickel were largely around RMB 124,000/mt. During the afternoon trading hours, suppliers hiked offers but transactions turned quiet.
Based on SMM result on market sentiment, 40% market players believe that LME nickel prices may advance and break through USD 17,700/mt in the coming week. Annualized growth of China’s 4Q GDP was 7.9%, slightly better than the forecasted 7.8% and up from 3Q’s 7.4%. In addition, China’s annualized retail sales and industrial output for December were both better than expectations. Besides, new housing starts in the US during December rose by 12.1% compared to November, the largest gain since July 2008. In addition, initial jobless claims were only 335,000, better than the 369,000 expected and down from the previous reading of 372,000, and the largest decline in four years. In addition, 4Q earnings reports from Citigroup, JPMorgan, Goldman Sachs and other financial giants were better than markets expected, helping boost markets, despite the 63% drop in profits at Bank of America. Finally, stainless steel inventories in Wuxi fell by 3.68% from late December to 181,546 mt in early January. Inventories of #300 stainless steel, major consumer of nickel, fell 4.72% to 131,245 mt. The drop in stainless steel inventories indicated that demand improved.
40% market players believe that LME nickel prices believes that LME nickel prices will fluctuate between USD 17,350-17,600/mt. Considering the lack of solid news and no clear technical trend, SMM expects that LME nickel prices will consolidate around existing level.
The remaining 20% market players hold that LME nickel prices will fall between USD 17,150-17,300/mt. LME nickel inventories surged after the New Year holiday, from 139,908 mt on December 31st to 147,342 mt January 17th, a gain of over 5%. Inventory pressure may now prevent LME nickel prices from rising further. In addition, the University of Michigan consumer confidence index and the Philadelphia Fed manufacturing index for January were both lower than market expectation.