SMM Base Metals Daily Review (2013-1-30)

SHANGHAI, Jan. 31 --

Copper

With LME copper rallying from lows overnight, the most active SHFE 1305 copper contract opened RMB 300/mt up at RMB 58,990/mt Wednesday. The contract tested a low at RMB 58,860/mt before marching higher to RMB 59,300/mt owing to buying support, with a high at RMB 59,400/mt, up over RMB 600/mt. The Shanghai Composite Index rebounded by 1% during the day, which also gave support to SHFE copper prices. Despite narrowing gains slightly at the tail of trading, SHFE 1305 copper contract settled RMB 570/mt or 0.97% higher at RMB 59,260/mt, with trading volumes and positions up 8,438 lots and 24,630 lots, respectively. As long investors kept up with rising prices, SHFE copper prices are likely to rebound for the foreseeable future.

SHFE copper prices gained nearly RMB 600/mt after starting higher. Shanghai spot copper discount quotes were largely between negative RMB 130-250/mt in the morning business. Traded prices for standard-quality copper were between RMB 58,330-58,400/mt, and RMB 58,430-58,520/mt for high-quality copper. Some speculators chose to enter markets at lows, but as SHFE copper prices rose appreciably, hedged copper was locked out of spot markets. However, a large amount of imported copper flew into spot markets since the SHFE/LME copper price ratio improved to around 7.29. In this context, overall spot copper supply remained sufficient, causing copper discounts to widen all the way. This failed to entice traders to conduct purchases, however, and downstream producers also expressed no interest in buying. Actual market transactions were limited as a consequence. In the afternoon, with SHFE copper prices fluctuating in a narrow band and market activity becoming more quiet, mainstream copper discounts held firm with morning levels, but discounts for high-quality copper shrank to negative RMB 150-180/mt. Traded prices remained virtually flat with morning levels, but few market participants were seen to inquire prices.

Aluminum

SHFE 1304 aluminum contract prices hit a high of RMB 15,240/mt along with rising copper prices after opening slightly higher at RMB 15,180/mt on January 30. The most active aluminum contract hovered above RMB 15,200/mt in the afternoon, and finally closed RMB 60/mt or 0.40% higher at RMB 15,215/mt. Positions were down 436 lots to 53,666 lots. The Shanghai Composite Index continued to shot up, boosting market confidence and sending SHFE aluminum prices up. However, limited trading volumes ahead of the Chinese New Year curbed gains of SHFE aluminum prices. The April aluminum on the SHFE should repeatedly test support at RMB 15,200/mt.

Spot aluminum was mainly traded at RMB 14,910-14,920/mt in Shanghai on Wednesday, with discounts at RMB 80-90/mt. Low-iron aluminum was traded at RMB 15,000-15,020/mt. SHFE current-month aluminum contracts rose to challenge resistance at RMB 15,000/mt, allowing cargo holders to hike offers despite thin trading activity in spot markets. Spot aluminum prices thus stabilized at RMB 14,900/mt. Cargo holders stood on the sidelines against liquidity crunch at the month’s end and since most downstream producers have closed early for Chinese New Year. Most of the sellers were those who bought at lower prices earlier. In the afternoon, SHFE current-month aluminum contracts held stable at RMB 15,000/mt, but spot aluminum prices failed to rise. Sparse offers were reported at RMB 14,920/mt and deals were rarely done.

Lead

The most active SHFE lead contract price gapped higher at RMB 15,295/mt as LME lead prices stood above USD 2,400/mt overnight. Later, since domestic stocks increased over 1% and LME lead continued to rise, SHFE lead prices moved between RMB 15,315-15,350/mt and closed at RMB 15,350/mt with resistance at the 60-day moving average, up RMB 70/mt. Trading volumes increased 32 lots to 168 lots, while positions were down 32 lots to 2,240 lots.

Spot lead prices in China increased as SHFE lead prices opening higher. Prices for Chihong Zn & Ge were offered as high as RMB 14,900-14,950/mt, but downstream buying interest remained low with enterprises closing for holiday, leaving trading quiet. Traded prices of Chihong Zn & Ge and Nanfang were around RMB 14,900/mt, with spot discounts of RMB 440/mt over the most active SHFE lead contract price. Hanjiang and Mengzi were quoted at RMB 14,800-14,810/mt and quotations for Shenqian were raised to RMB 14,770/mt. Downstream buyers still purchased as needed, and trading remained unimproved.

Zinc

LME zinc prices stood at USD 2100/mt, and soared to fluctuate around USD 2,115/mt. SHFE 1305 zinc contract prices opened RMB 55/mt higher at RMB 15,760/mt, and soared to RMB 15,995/mt due to increasing long momentum, and then fluctuated around RMB 15,930/mt, up RMB 220/mt, or 1.4%. Trading volumes of SHFE 1305 zinc contract increased by 87,132 lots, to 150,778 lots, and total position increased by 36,408 lots to 124,482 lots.

SHFE three-month zinc contract prices fluctuated at high levels today. Discounts of #0 zinc against SHFE 1304 zinc contract prices expanded to RMB 300-310/mt, with traded prices around RMB 15,330/mt after opening, and mainstream prices then rose to RMB 15,500/mt. #1 zinc prices were RMB 15,420-15,450/mt. Smelters increased goods supply as spot zinc prices rose along with SHFE zinc prices, but only modestly due to optimism. Spot discounts did not expand noticeably, so arbitrage traders were cautious. Downstream buying interest low, keeping transactions muted.

Tin

Mainstream traded prices in China spot tin market were RMB 158,500-159,500/mt on January 30, with low-priced goods rarely seen. Kaiyuan and Jinlong raised prices to RMB 158,500/mt, and only several deals were made at RMB 158,000/mt in the morning. Traded prices for Yunxi were around RMB 159,000/mt. Some goods were quoted at RMB 159,500/mt but transactions were sparse. In the afternoon, cargo holders increased quotes boosted by LME tin prices, but trading remained light due to high prices.

Nickel

Jinchuan Group raised ex-works nickel prices by RMB 2,00/mt, to RMB 125,00/mt on Wednesday. During the morning trading session in the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were in the RMB 126,000-126,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 125,000-125,000/mt range. Although Jinchuan Group raised ex-works nickel prices, traded prices in the Shanghai nickel spot prices were not affected. Arbitrage opportunities emerged on domestic spot market after LME nickel prices rallied on Tuesday, so transactions between traders were brisk. Meanwhile, some downstream producers also replenished stocks for bullish expectation. Therefore, overall transactions were moderate.