SHANGHAI, Jan. 28 -- The US House of Representatives voted to extend the debt ceiling through May, and the US housing sales were also positive, sending the US equity market to close with gains for the firth consecutive day. Japan’s central bank (BOJ) raised the inflation goal to 2% and also announced it will buy back debt without a preset limit. In response, the Yen surged and the US dollar was weighed down around 60-day moving average. Base metal prices were poised to rise, with copper, lead and zinc advancing most remarkably. However, the Shanghai composite index fell after hitting resistance at 2300 points, which dampened upward momentum of base metals. Last week, SMMI advanced slightly by 0.51%, with SMMI.Zn rebounding by 0.93%, SMMI.Cu up 0.82% and SMMI. Pb increasing by 0.51%. Tin prices began to experience corrections after surging for 2 consecutive weeks, and fell by over 3% last week, with SMMI.Sn 1.4%. SMMI. Al and SMMI. Ni. slightly fell by 0.33% and 0.2%, respectively.
The Shanghai Composite Index dipped below 2,300 during the past week. China's copper output hit a historical high as well, so SHFE copper prices had little upward momentum and moved largely between RMB 58,200-58,800/mt, a gain of only 0.09% for the week. The most active copper contracts also shifted to SHFE 1305 copper contracts.
As copper futures prices drifted higher last week, traded prices for spot copper also rose gradually to RMB 58,000/mt on Friday. Copper discounts remained stable between RMB 120-220/mt as cargo-holders moved goods aggressively at highs, which kept market supply plentiful. Downstream producers refrained from purchasing at prices above RMB 58,000/mt, but continued buying as needed at lows. The overall copper supply surplus was still pronounced, and with market deals largely made by traders.
SHFE copper prices in the coming week will probably find solid support at RMB 58,500/mt before challenging RMB 59,000/mt.
LME aluminum prices edged up after climbing to the 5-day moving average. Prices for the most active SHFE aluminum contracts, on the other hand, bucked the trend by falling. SHFE 1303 aluminum contract prices fluctuated between RMB 15,150-15,190/mt during the first three days of last week, but later lost support at RMB 15,150/mt, despite positive manufacturing PMI announced last Thursday in China. The March aluminum on the SHFE is expected to test support at RMB 15,100/mt in the short term.
Most aluminum processors in east China have cut or suspended production before Chinese New Year to preserve liquidity, curtailing pre-holiday restocking. Cargo holders, on the other hand, have become anxious to sell to raise cash and to avoid carrying excess inventories through the holiday. This drove a retreat in mainstream spot aluminum prices to RMB 14,920/mt, causing spot discounts to expand to RMB 130/mt even as SHFE aluminum prices have been falling as well. Downstream producers purchased only on an as-needed basis, while middlemen bought modestly at bottom prices, depressing overall trading.
In this coming week, LME aluminum prices will continue to struggle at USD 2,050/mt and prices for the most active SHFE aluminum contracts will meet resistance at RMB 15,200/mt. Spot aluminum prices should test support at RMB 14,900/mt, with spot discounts expected around RMB 100/mt. Fewer downstream producers and traders will enter markets as the Chinese New Year nears.
SHFE lead prices were relatively stable and mainly moved around RMB 15,200/mt last week, with resistance at the 20-day moving average, but support at the 5-day moving average. High production costs at domestic smelters limited any downward room for SHFE lead prices. SHFE lead prices should hover around the 20-day moving average this week.
Spot lead prices in China were between RMB 14,660-14,800/mt, with spot discounts of RMB 400/mt over the most active SHFE lead price contract price. Quotations for branded lead remained high due to limited supply, leaving trading light. Downstream buyers still purchased only as needed. Selling interest at smelters may increase before the upcoming Chinese New Year holiday, but buying interest will be dampened since some traders and downstream enterprises will close early for the holiday. Those enterprises remaining open will likely purchase on an as-needed basis, leaving trading quiet and spot prices between RMB 14,650-14,800/mt this week.
Last week, SHFE zinc prices tracked LME zinc prices, but lacked upward momentum due to sluggish market fundamentals as the Chinese New Year holiday neared. SHFE three-month zinc contract prices rose along with LME zinc prices early in the week, up from RMB 15,400/mt, but rose slower than LME zinc prices. Despite HSBC’s upbeat January PMI for China, SHFE three-month zinc contract prices did not rise, and actually fell slightly below the 20 and 30-day moving averages. Finding support from LME zinc prices again on Thursday, SHFE three-month zinc contract prices rose above all moving averages and hit RMB 15,600/mt.
In China’s domestic spot markets, demand was soft and transactions muted. Spot discounts grew from RMB 250-270/mt early in the week to RMB 270-290/mt, with spot prices between RMB 15,100-15,200/mt. Smelters increased goods supply due to rising zinc ingot prices, a result of final deliveries to the SRB. A growing number of downstream enterprises cut output or suspended production entirely due to the upcoming Chinese New Year holiday, and were also unwilling to purchase as prices rose. Traders also were closing for the holidays, which cause trading volumes to contract as well.
Last week, most smelters completed deliveries to the SRB, causing spot inventories to again grow sharply. Stocks in east China grew by nearly 10,000 mt, to 385,400 mt, and inventories in south China grew by 400 mt, to 109,900 mt. Stocks in north China remained unchanged at 8,000 mt. Downstream producers will suspend production in the coming week and since spot demand should be sluggish, spot inventories will grow further.
Last week, spot tin prices in China dropped below RMB 160,000/mt due to a lack of support from LME tin and depressed demand. Last Friday, mainstream traded prices were between RMB 157,500-159,000/mt, but Yunnan Tin Group held quotations firm at RMB 162,000/mt. The absence of replenishments from downstream enterprises prior to Chinese New Year holiday further damped trading and drove prices lower.
Early last week, LME nickel prices were steady, but even after significant economic and political news was announced later in the week, LME nickel prices still moved only narrowly between USD 17,300-17,600/mt.
Japan announced new policies of purchasing YEN 13 trillion in financial assets each month, with no upper limit on bond purchases. Subscriptions for Spanish 10-year government bonds hit EUR 24 billion, while the US House of Representatives voted to extend the debt ceiling for another three months, helping ease market concerns. Despite positive macroeconomic news, LME nickel inventories still continued to grow and put downward pressure on prices. With LME nickel inventories as of last Thursday reaching 150,000 mt, LME nickel prices struggled between the 5-day and 10-day moving averages while awaiting further guidance from markets.
In the Shanghai nickel spot market, #1 nickel averaged RMB 123,600/mt, up RMB 330/mt from a week earlier. Low-priced nickel ore from South Africa priced at RMB 121,000/mt reduced transactions for nickel from Russia. Demand has improved slightly from a week ago and transactions were relatively brisk early in the week, although prices did not fluctuate much.
In the coming week, LME nickel prices are moving in narrow range awaiting guidance. Since market sentiment is positive, LME nickel prices are more likely to advance than fall, but will still meet strong resistance at USD 17,700-17,900/mt. Therefore, any room for LME nickel prices to increase significantly will be limited.
In the Shanghai nickel spot market, transactions of spot nickel were sluggish since some steel mills have already replenished nickel stocks. However, since some traders are bullish toward prices after the Chinese New Year holiday, stock replenishment by traders may occur if nickel prices fall.