SHANGHAI, Jan. 29 --
With LME copper settling down last Friday, SHFE 1305 copper contract started RMB 330/mt down at RMB 58,500/mt Monday. The contract followed LME copper lower after temporarily touching a high at RMB 58,690/mt, but still won strong support at the opening price since the Shanghai Composite Index surged by over 2.4%. SHFE copper prices recouped daily moving average in the afternoon and rose to levels around the intraday high. SHFE 1305 copper contract still ended RMB 210/mt 0.36% lower at RMB 58,620/mt, with trading volumes down 33,738 lots but positions up 3,524 lots. SHFE copper prices were restricted between the 5 and 10-day moving average, with KDJ technical indicator tending to point downside, but won growing support at the lows.
As SHFE copper prices slipped marginally, some hedged copper flew into spot markets, keeping spot copper supply comparatively sufficient. Shanghai spot copper discounts were largely between negative RMB 100-200/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,850-57,910/mt, and RMB 57,920-58,020/mt for high-quality copper. Traders took a wait-and-see posture following copper price drops, but downstream producers stepped up purchase volumes at prices below RMB 58,000/mt. Overall market supply still surpassed demand, however. In the afternoon, SHFE copper prices continued fluctuating in a narrow band, but spot copper supply decreased, helping copper discounts shrank marginally to negative RMB 90-180/mt. Traded prices in the afternoon saw no major changes from morning levels.
SMM conducted a survey with regard to copper price movement this week.
Based on the survey, 44% of market insiders believe copper prices are likely to rebound this week. In their views, LME copper prices will rally to USD 8,200/mt, and SHFE copper prices will challenge RMB 59,000/mt, due largely to the following factors. US durable goods data came in better than expected and buoyed market confidence over the upcoming Conference Board's consumer confidence index, ADP employment data, non-farm payrolls report, unemployment rate for January, as well as the ISM manufacturing data for December. Once the US economic data proves to be favorable, market risk appetites will grow. The US dollar index, though, will suffer pressures, giving support to copper prices. Moreover, crude oil prices hold firm while investors take gold as a safe-haven.
However, 47% of market insiders see no major changes in copper prices, expecting LME and SHFE copper prices will fluctuate around USD 8,050/mt and RMB 58,500/mt, respectively. The ECB announced the amount of LTRO funds the banks returned, noticeably higher than anticipated, which indicated improvement in liquidity in the euro zone's banking industry. In response, the euro surged to 1.3480, the highest in recent 11 months and has remained strong recently. However, Fitch the same day lowered the credit rating of the euro zone member Cyprus by two notches to B while giving a negative outlook, which cited growing uncertainty in the country's banking sector. The international rating agency estimated that the recapitalization cost of Cyprus's banking industry may reach as high as EUR 10 billion, which will continue weighing on copper markets. According to CFTC reports, net long positions on the LME fell to 9,535 lots January 22, but positions held by both commercial and noncommercial investors increased notably. From technical indicators, LME copper prices struggled among recent daily moving averages following drops last Friday, without directions over the short term. Owing to rising companies' profits, Chinese stock markets rose significantly with the Shanghai Composite Index closing at 2346.50, a gain of 2.41%. But Chinese stock markets are likely to fluctuate at highs for the near future. Data revealed that China's central bank will conduct RMB 121 billion reverse repurchases this week (January 26-February 1), and the scale is not considered big. Cash flows thus will keep relatively sufficient. The central bank is expected to step up capital injection with the arrival of the Chinese New Year holiday, which will exacerbate fluctuations in stock and futures markets. In China's spot markets, downstream producers will buy at lows once copper prices experience drops, which will help copper prices stop falling. As such, these insiders hold the view that copper prices will keep fluctuating near current values.
The remaining 9% of market insiders are pessimistic over the outlook, believing that LME copper will lower to test USD 8,000/mt and SHFE copper will test support at RMB 58,000/mt. In China's spot copper markets, cash flow pressures will compel cargo-holders to sell aggressively, so copper supply will increase. In this context, copper discounts will continue and drag down copper prices.
SHFE 1303 aluminum contract prices opened at RMB 15,115/mt on January 28. The most active contract lost support at RMB 15,100/mt and remained at low levels in the afternoon. Finally, the March aluminum closed down RMB 55/mt or 0.36% at RMB 15,075/mt. Positions were down 254 lots to 54,122 lots. SHFE 1304 aluminum contracts may become the most active one today. Weak fundamentals depressed trading activity. The most-traded SHFE aluminum contracts should extend losses and fall to RMB 15,100/mt at the bottom in the short term.
Spot aluminum was mainly traded at RMB 14,900-14,910/mt in Shanghai on Monday, with discounts at RMB 90-100/mt. Low-iron aluminum was traded around RMB 15,000/mt. SHFE current-month aluminum contracts lost support at RMB 15,000/mt. Cargo holders stood on the sidelines, holding offers firm at RMB 14,900/mt. Downstream producers showed little buying interest, while middlemen were buying modest amounts at bottom prices. In the afternoon, prices of the most active SHFE aluminum contracts moved at low levels. Spot aluminum prices continued to edge down, with some offers down to RMB 14,890/mt. Overall trading was muted.
SMM data shows that SMM aluminum price averaged RMB 14,900/mt on Monday, down from last week’s RMB 14,946/mt. Most of the 34 domestic aluminum ingot traders and producers surveyed by SMM expect aluminum prices to fall slightly due to weak fundamentals.
53% of market players are bearish towards this week’s aluminum prices. Some even lowered offers to RMB 14,890/mt yesterday afternoon. LME aluminum prices frequently fell back after hitting high as investors were hesitant. LME aluminum prices were under downward pressure, causing SHFE aluminum to extend losses. SHFE current-month aluminum contracts failed to regain RMB 15,000/mt on Monday, turning markets more bearish. Downstream producers have mostly closed as Chinese New Year nears, causing inventories to grow, and thus depressing trading activity in spot markets. However, shorts will be limited ahead of Chinese New Year, so the downside space of aluminum prices should be limited. Bearish market players anticipate that aluminum prices will dip to a low of RMB 14,850/mt at the bottom.
The remaining 47% expect SMM aluminum price to fluctuate in the band of RMB 14,900-14,950/mt. These neutral market players understand that although LME aluminum are hovering around USD 2,050/mt and SHFE aluminum prices are under downward pressure, bullish Shanghai Composite Index should help aluminum prices stabilize at the bottom. Both longs and shorts will exit the market due to the upcoming Chinese New Year, and this will also help aluminum prices resist declines. Traders will take a wait-and-see stance and hold offers firm at RMB 14,900/mt despite dwindling downstream demand. Aluminum prices will meet strong resistance at above RMB 14,950/mt, though.
The most active SHFE lead contract price opened lower at RMB 15,295/mt on January 28 due to the negative news from the US and Europe last Friday, and moved fell to RMB 15,245-15,260/mt due to falling LME lead prices. Prices finally ended at RMB 15,245/mt, down RMB 95/mt. Trading volumes slumped 216 lots to 70 lots, while positions were up 2 lots to 2,300 lots.
Cargo holders in China’s spot lead market held quotations firm, expecting downstream buyers to replenish goods ahead of the holiday. Quotations for Chihong Zn & Ge were at RMB 14,860/mt, with spot discounts of RMB 400/mt over the most active SHFE lead contract price. Transactions were rarely made at high prices. Hanjiang and Shenqian were quoted at RMB 14,760/mt and RMB 14,710/mt, respectively. Downstream buyers still purchased goods as needed.
With the approach of the Chinese New Year holiday, many lead-related enterprises plan to close for the holiday in early February. SMM conducted a survey to 30 industry insiders, finding that opinions on whether downstream buyers will replenish stocks in large amounts this week remain diverged.
A majority, or 80%, of industry insiders believe spot lead prices will be little changed but remain between RMB 14,650-14,850/mt this week. Although China’s economic data were reported optimistic, raw materials and finished goods inventories are still high, leaving noticeable decline in replenishments. Besides, the large spot discounts over the most active SHFE lead contract price prompted producers of branded lead to trade goods on the futures market. Thus, transactions in spot lead market were mainly concluded for non-leading brands, giving little support to lead prices. Coupled with replenishments in early January, downstream enterprises will only purchase as needed recently. But smelters’ selling interest should increase in late January, limiting growth in lead prices. In addition, since the releases of US 4Q GDP and nonfarm payrolls, as well as the Fed’s policy meeting are scheduled for this week, most investors will be cautious and book profits given the uncertainty surrounding these risky events. Most market players expect LME lead prices to move around USD 2,360/mt.
The remaining 20% market players are relatively optimistic. As China’s economy presented steady recovery recently, combined with the US and Japan’s easing policies, as well the stabilization of European economy, investor sentiment will be lifted. These investors thus expect LME lead prices to remain high around USD 2,400/mt this week. The positive technical indicators and the US dollar index remaining below 80 will also help bolster LME lead prices. In China’s spot lead market, purchases by downstream enterprises should improve to certain degree this week as the Chinese New Year holiday is only two week away. As such, spot lead prices are expected at RMB 14,700-14,900/mt.
SHFE 1304 zinc contract prices opened at RMB 15,570/mt, and soared to an intraday high of RMB 15,640/mt as long momentum mounted. But in response to falling LME zinc prices, SHFE 1304 zinc contract prices inched down to RMB 15,550/mt, fluctuating between RMB 15,580-15,600/mt, and finally closed at RMB 15,570/mt, down RMB 10/mt, or 0.06%. Trading volumes of SHFE 1304 zinc contract decreased by 18,378 lots, to 43,316 lots, and total position decreased by 12,352 lots to 77,752 lots.
SHFE three-month zinc contract prices fell after rising initially today. Discounts of #0 zinc against SHFE three-month zinc contract prices remained around RMB 300/mt, with traded prices between RMB 15,280-15,300/mt. #1 zinc prices were RMB 15,240-15,250/mt. Traders left the market as the Chinese New Year holiday neared, while downstream buyers only purchased on an as-needed basis, keeping transactions muted.
In response to positive macroeconomic news, LME zinc prices edged up last week, breaking through all moving averages.
63% market players believe LME zinc prices should continue to test USD 2,100/mt, and SHFE three-month zinc contract prices will move between RMB 15,500-15,700/mt, with spot discounts between RMB 290-330/mt. The US debt ceiling issue will remain the focus of markets in the coming week. Near-term market concerns over US default will ease if the US Senate passes the debt ceiling bill next week. The US will also announce 4Q GDP results, January interest rates by the US Federal Reserve and January non-farm data. Given sluggish US manufacturing in 4Q, GDP will not rise sharply. But US January non-farm data is expected to boost the market. In general, macroeconomic news is expected to be upbeat. But given the 1.2 million mt of LME zinc inventories, LME zinc prices should meet resistance at USD 2,100/mt.
Investors left the market as the Chinese New Year holiday neared, keeping transactions extremely quiet. The Shanghai Composite fell last week after rising initially. But after the NBS announced gains of enterprises in 4Q offset negative 3Q earnings, the Shanghai Composite rallied to 2,300. The index is expected to maintain upward track, so SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt this week.
20% market players are pessimistic, believing LME zinc prices should fall to USD 2,020/mt. US January CCI was 71.3, lower than forecast and 72.9 in December 2012. Besides, US existing home sales and manufacturing index from Richmond Federal Reserve in January fell short of expectations and previous data. Investors are thus cautious.
Due to shrinking demand and high domestic zinc inventories, SHFE three-month zinc contract prices should fall to RMB 15,350-15,500/mt, with spot discounts between RMB 250-280/mt. Transaction will be quieter.
The remaining 17% are optimistic. January ZEW economic sentiment index for Germany and euro zone topped forecasts. China’s January PMI was also better than forecasts and the previous data. As global economy is improving, and combined with positive fiscal earnings reports of major US enterprises, LME zinc prices are expected to break through USD 2,100/mt. coupled with loosening cash flows and strengthening Shanghai Composite, SHFE three-month zinc contract prices will hover around RMB 15,700/mt, and spot discounts will expand to RMB 300-350/mt.
In Shanghai tin market, mainstream traded prices were between RMB 157,500-158,500/mt Monday morning with trading quiet. Leading brands were traded at RMB 158,000-158,500/mt, while other brands were traded at RMB 157,500/mt. In the afternoon, transactions improved slightly, as downstream buyers started to enter the market. Resources quoted around RMB 157,500/mt were limited. Deals were mainly made at RMB 158,000/mt with cargo holders unwilling to move goods.
SMM survey shows that 40% market players expect spot tin prices to remain flat this week. LME tin prices will still be bolstered by the 20-day moving average and fluctuate at high levels. Despite the approach of the Chinese New Year holiday, downstream consumption remains unimproved, negatively affecting tin prices. However, the high LME tin prices and low selling interest of cargo holders will lend some support to spot tin prices.
35% market players believe spot tin prices will edge up this week. Goods quoted around RMB 157,500/mt were sparse Monday afternoon, with trading improving slightly and some cargo holders reluctant to sell goods. In this context, about one third investors believe spot tin prices should find some support and remain above RMB 158,000/mt, but the increase should be limited.
25% investors expect tin prices will fall due to the continued correction of LME tin prices and a lack of replenishments downstream.
In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were in the RMB 123,900-124,100/mt range, and mainstream traded prices of nickel from Russia were in the RMB 122,900-123,000/mt range. Transactions were largely done by downstream producers, which was due to lack of arbitrage opportunity and pre-holiday stock replenishment demand.
Based on result of an SMM survey on market sentiment, 40% market players believe that LME nickel prices will stabilize between RMB 17,300-17,500/mt range in the coming week, and their reasons are as follows. They believe that LME nickel prices have been fluctuating for two weeks and shall not make significant breakthrough without good news. Second, RSI indicators and the bollinger band both suggested no clear direction.
Around 30% market players expect that LME nickel prices will be weighed down by high inventories and soft demand. As of last Friday, LME nickel inventories surged to 150,216 mt, which dampened upward momentum of LME nickel prices. With regard to demand, most downstream traders were off on holiday, lowering demand and transactions for nickel. According to most producers and traders, stainless steel market is unlikely to improve before holiday, and they expect improvement after holiday. According to data from National Bureau of Statistics, China's industrial profits for December posted RMB 895.2 billion, up 17.3% YoY. However, profits for ferrous smelting and rolling fell by 37.3%, reflecting sluggishness in nickel and its downstream sectors. Therefore, pessimistic players believe that LME nickel prices are quiet likely to fall in the coming week.
The remaining 30% market players were optimistic, holding LME nickel prices will break through resistance at USD 17,550/mt, and will advance further to USD 17,700/mt. Based on SMM historical data, nickel prices were relatively firm in 1Q every year, with performance most striking in February every year. From 1987 to 2012, nickel prices rallied in February for 19 years, and only fell in February for 6 years. The 6 years seeing nickel price decline in February include Asian financial crisis in 1999, global financial crisis in 2009, and the European debt crisis in 2012. Moreover, China’s economy began to rebound, and euro zone and the US stepped output of plight, which provide upward momentum for LME nickel prices in February. A slew of economic data will be released this week, including GDP, the Fed interest rate, nonfarm employment report and PMI from China, US and the euro zone. If the data are positive, base metal prices may be pushed up.