SHANGHAI, Feb. 5 (SMM)--
With LME copper advancing significantly last Friday, the most active SHFE 1305 copper contract opened RMB 90/mt up at RMB 60,020/mt Monday. As shorts withdrew from the market after triggering the stop-loss limit, SHFE copper prices followed LME copper higher to RMB 60,270/mt, but gradually narrowed daily increases since longs made profit-taking. SHFE copper prices then slipped to around RMB 60,000/mt, with a low at RMB 59,900/mt. But SHFE 1305 copper contract still settled RMB 450/mt or 0.76% higher at RMB 59,950/mt, with trading volumes and positions up 13,414 lots and 666 lots, respectively. Total copper trading volumes on the SHFE added by 39,278 lots, while total positions decreased by 3,242 lots. Both longs and shorts exerted caution after SHFE copper prices rebounded to RMB 60,000/mt. Hence, SHFE copper prices posted weaker performance than LME copper and are likely to test the RMB 60,000/mt mark repeatedly for the immediate future.
With SHFE copper starting higher, copper discounts expanded. Some spot copper cargo-holders, especially imported copper cargo-holders, chose to sell aggressively at large discounts ahead of the Chinese New Year holiday, while hedged copper cargo-holders became reluctant to move goods. Shanghai spot copper discounts were largely quoted between negative RMB 170-250/mt in the morning business. Traded prices for standard-quality copper were between RMB 59,020-59,080/mt, and RMB 59,070-59,150/mt for high-quality copper. Both traders and downstream producers mostly took a wait-and-see posture, resulting in muted market activity. In the afternoon, SHFE copper prices hovered in a narrow band, but spot copper market transactions decreased further. Mainstream copper discounts widened to negative RMB 180-280/mt in the afternoon, but traded prices remained virtually flat with morning levels.
SMM conducted a survey with regard to copper price trend this week.
Based on the survey, 53% of market insiders are optimistic, believing LME copper will challenge resistance at USD 8,350/mt and that SHFE copper will fluctuate at highs between RMB 60,000-60,500/mt. A spate of US economic figures indicated continuous recovery in the US economy at the beginning of 2013, in strong contrast with the release of last Wednesday's 4Q GDP which fell by 0.1%. Coupled with encouraging manufacturing data and consumer confidence index reported last Friday, markets generally believe that the unexpected drop in the US economy in 4Q was due mainly to severe weather and significantly falling defense spending, but is not going to become a trend. These favorable key economic figures further boosted the financial market last week as US equity markets rose to a new five-year high and are likely to post strong performance this week. Moreover, investors have shifted attention to the upcoming policy meetings of Reserve Bank of Australia and British central bank and anticipate that the two banks will keep the interest rate unchanged. Earlier data revealed that European banks will repay EUR 137.16 billion of long-term refinancing operations (LTRO) they borrowed from the European Central Bank two years early, which further proved that the European debt crisis has alleviated noticeably. Meanwhile, economic data out of Germany, the euro zone's biggest economy, was also positive recently. Hence, the euro will keep fluctuating at highs. According to CFTC reports, net long positions for the euro already totaled USD 4.6 billion as of January 29, far above USD 3.6 billion a week ago. In this context, the US dollar index will probably slip below 79, lifting copper markets somehow. In China's domestic markets, Chinese stock markets continued the winning streak last week, with the Shanghai Composite Index breaking through 2,400 easily, up as high as 5.57% and registering the largest weekly gain in 15 months. Chinese stock markets still have rising momentum, with the Shanghai Composite Index expected to challenge last year's high of 2,478. As such, these market insiders hold the view that copper prices will march higher this week.
The remaining 47% of market insiders, however, are cautious towards the outlook. They predict that LME and SHFE copper prices will fluctuate around USD 8,270/mt and RMB 59,800/mt, respectively, this week, and mainly contributable to the following factors. Technical indicators for LME copper are still pointing up, but the RSI indicator for both LME and SHFE copper is gradually approaching overbought territory. Furthermore, the CFTC reports displayed that net long positions dropped from 9,535 lots to 9,367 lots as of January 29, while both long and short positions held by commercial and noncommercial investors experienced some increases. In addition, gold and crude oil prices have recently suffered resistance to trend up. In China's domestic markets, the SHFE announced to raise deposit for base metals 2 percentage points higher ahead of the Chinese New Year holiday. Combined with the fact that investors will avert risks before the holiday, both buying support and felling pressures will weaken. In the spot markets, copper consumption is unlikely to improve as both cargo-holders and downstream producers chose to stay out of markets for the holiday. Large copper discounts therefore will continue and drag copper prices down.
SHFE 1305 aluminum contract became the most active one and opened slightly higher at RMB 15,335/mt on February 4. The most active aluminum contract pared gains shortly after shooting up to RMB 15,375/mt, meeting resistance at the 30-day moving average, but did find support at the 5-day moving average. Trading volumes were up nearly 20,000 lots. Finally, the most-traded aluminum contract closed at RMB 15,330/mt, up RMB 40/mt or 0.26%. Positions were up 10,424 lots to 55,112 lots. All base metals rose along with LME aluminum prices, except for SHFE aluminum prices, which were mired. The most active SHFE aluminum contracts should hold stable at RMB 15,300/mt in the short term as short selling pressure will wane before the Chinese New Year.
Spot aluminum was mainly traded at RMB 14,910-14,920/mt in Shanghai on Monday, with discounts at RMB 80-100/mt. Low-iron aluminum was traded around RMB 15,000/mt. Prices of the most active SHFE aluminum contracts drifted lower after a low opening, regardless of other surging base metal prices. Cargo holders were anxious to sell against growing inventories, but inquires were rarely heard since most downstream producers and middlemen are on Chinese New Year holiday early, stalling any uptick in spot aluminum prices. Overall trading was muted.
SMM data shows that SMM aluminum price averaged RMB 14,930/mt on Monday, up from last week's RMB 14,912/mt. Cargo holders were eager to sell against mounting inventories, but consumption was sluggish as Chinese New Year is drawing near, keeping aluminum prices in check. Most of the 31 domestic aluminum ingot traders and producers surveyed by SMM expect aluminum prices to stagnate at RMB 14,900/mt during the last week before the Chinese New Year due to growing oversupply pressure, despite bright economic outlook.
32% of market players are bullish towards this week's aluminum prices for the following reasons. First, most of the January economic data from major economies was positive, a sign of economic recovery and boosting market confidence. Second, the US stock markets and Shanghai Composite Index soared, making the US dollar index vulnerable at 79. A weaker US dollar has helped commodity prices extend gains. Third, LME aluminum prices have found support at all daily moving averages, albeit meeting resistance at USD 2,150/mt. SHFE aluminum prices rose slower, but investors are optimistic towards trading during the Chinese New Year. Positions of the most active SHFE aluminum contracts surged on Monday, so the light metal will probably rebound post-holiday. With the Chinese New Year only a few days away, few suppliers and buyers will enter spot aluminum markets. Sparse offers will edge up with SHFE aluminum prices, and spot aluminum prices will test resistance at RMB 14,950/mt.
The remaining 68% expect SMM aluminum prices to stabilize at the bottom. The rebound in macro economy has enabled LME aluminum prices to extend gains. However, spot aluminum stocks are mounting in Chinese markets and will probably exceed 1 million mt post-holiday since demand will be tepid this week. Cargo holders are in a hurry to sell to ease pressure from high inventories and to increase liquidity. This will drag aluminum prices down to RMB 14,900/mt.
The 1304 SHFE lead contract price gapped nearly RMB 100/mt higher at RMB 15,600/mt on Monday due to the positive US economic data released last Friday and the lower US dollar index. Some investors booked profits later, driving SHFE lead prices to edge down, but prices returned to RMB 15,520-15,570/mt due to strong LME lead prices and rising domestic stocks and finally ended at RMB 15,535/mt. Trading volumes increased 174 lots to 336 lots, while positions were up 112 lots to 2,418 lots.
Quotations and inquiries in China's spot lead market were fewer with enterprises closing for the Chinese New Year holiday. Quotations for Chihong Zn & Ge was rose above RMB 15,000/mt to RMB 15,030/mt, with spot discounts over the 1304 SHFE lead contract price at RMB 520/mt. Hanjiang and Shenqian were quoted at RMB 14,950/mt and RMB 14,880/mt, respectively. Transactions were rarely made at high prices.
Although most enterprises will halt operations in the last week before the Chinese New Year holiday, SMM conducted a survey to 30 industry insiders regarding to lead price trends this weeks, hoping to offer guides for lead-related enterprises.
67% of the surveyed market players were optimistic. LME lead prices traditionally rise around the Chinese New Year holiday. The US employment saw mild recovery recently, and ISM manufacturing index hit a high never seen since April 2012, combined with the lifted consumer confidence, the US equities rose significantly. In China, the official non-manufacturing PMI grew for the fourth straight month in January, reaffirming the rebound in China's economy. The improving economic conditions strengthened market expectations for rising base metals. In addition, the US dollar index hovered at low levels around 79, lending some support to LME lead prices, and technical indicators also reflected upward trends. In this context, LME lead prices should move around USD 2,500/mt this week. In China, cargo holders, taking the initiative in spot lead market, will hold quotations firm given the strong LME lead prices, driving spot lead prices to RMB 14,900-15,050/mt.
The remaining 33% market players expect spot lead prices at RMB 14,850-14,950/mt, noting that downstream consumption will be soft ahead of the holiday even though sellers keep quotations high. Most investors will stay out of the market this week, and those entering the market should only purchase in limited amount at low prices. As such, any increase in SHFE lead prices will little affect spot lead prices. Furthermore, as the SHFE will be closed for a week during the Chinese New Year, market players will book profits and wait on the sidelines to avoid risks, leaving little room for SHFE lead prices to rise sharply. Thus, some industry insiders believe SHFE lead prices, less volatile than LME lead, may hover around RMB 15,550/mt this week.
SHFE 1305 zinc contract prices opened higher at RMB 16,160/mt. Both LME zinc prices and the Shanghai Composite fluctuated narrowly due to a lack of positive news, so SHFE 1305 zinc contract prices fluctuated between RMB 16,180-16,235/mt, and closed at RMB16,170/mt, up RMB 135/mt, or 0.84%. Trading volumes of SHFE 1305 zinc contract decreased by 16,330 lots, to 137,510 lots, and total position increased by 4,852 lots to 182,456 lots.
SHFE three-month zinc contract prices opened higher today. Discounts of #0 zinc against SHFE 1305 zinc contract prices were between RMB 400-430/mt, with traded prices between RMB 15,750-15,780/mt. #1 zinc prices were RMB 15,700/mt. Market players began to leave the market in the last trading week before the Chinese New Year holiday, while downstream buying interest was low due to rising zinc prices, keeping transactions muted.
Last week, LME zinc prices broke through USD 2,100/mt as the US dollar index weakened, fluctuating above all moving averages during the week. According to a recent SMM survey of 30 domestic market players, most of them are optimistic towards zinc price trends this week.
60% market players surveyed believe LME zinc prices will challenge USD 2,200/mt, and SHFE 1305 zinc contract prices will move between RMB 16,200-16,500/mt. Spot goods availability will be low, with spot discounts against SHFE 1305 zinc contract prices expected between RMB 400-430/mt. The US Federal Reserve decided to maintain interest rates unchanged and easing monetary policies in order to push economic growth, which will positively affected LME zinc prices this week. Besides, both European central bank and Bank of UK will announce interest rates this week, and the market expects European central bank will maintain current interest rates due to positive economic data in euro zone. New PMI and trade data in Europe and US which is to be released this week is also positive.
In China, official PMI released last Friday was lower than expectations, but has remained above 50% for four consecutive months. Besides, the improving PMI from HSBC shows China's economy moved steadily. Increasing profits at scale-efficiency industrial enterprises in December also indicate China's economy improved. The Shanghai Composite broke through 2,400 last week, and is expected to extend increases this week, which will also support SHFE zinc prices. If China's January PPI and CPI which is due this Friday turns out to be positive, zinc prices should gain support to rise further. Transactions will mute due to the upcoming Chinese New Year holiday, while smelters are still unwilling to sell goods due to optimism, which will lead to resource shortfalls in the market. As such, spot discounts against SHFE three-month zinc contract prices should remain between RMB 400-430/mt.
The remaining 40% believe zinc prices should limit increases. Despite the fact major economic data indicates economies in Europe and US are improving, the disappointing US employment data released last Friday triggered investor concerns. Besides, LME zinc inventories stood at a high 1.21 million mt, which will also weigh down LME zinc prices. LME zinc prices are expected to fluctuate between USD 2,140-2,200/mt. as investors began to leave the market ahead of holiday, transactions muted. SHFE 1305 zinc contract prices are expected to move between RMB 16,000-16,300/mt. As spot zinc prices rose to a high since April 2012, downstream did not plan to build stocks ahead of the holiday. Meanwhile, some cargo holders are moving goods to generate cash. In this context, spot discounts are expected to expand to RMB 450/mt, and transactions will mute as investors exit the market.
In Shanghai tin market, spot prices were mainly between RMB 161,000-162,500/mt on Monday with trading lighter. Most traders stopped supplying goods, and smelters, except Chengfeng and Yunnan Tin Group, stopped making quotations. Downstream enterprises also closed for holiday, leaving transactions few.
With respect to tin prices this week, 60% market players believe spot prices should continue to rise. LME tin prices rallied again and are expected to touch previous high. In domestic market, most sellers have stopped supplies, and several traders still selling goods held quotations firm with bullish outlook. As such, these investors expect spot tin prices to rise this week.
40% market players expect spot tin prices to remain flat. Although LME tin prices increased, resistance at the high level previously seen is strong, so prices may hover at high levels. Besides, trading in domestic spot tin market will be sparse. In this context, upward room for tin prices will be limited if LME tin prices fail to break through the previous high, leaving spot prices flat.
On Monday, Jinchuan Group raised ex-works prices for refined nickel to RMB 130,000/mt (plate), and RMB 131,200/mt (small in barrel), up RMB 2,000/mt. In the Shanghai nickel market, mainstream traded prices of Jinchuan nickel were in the RMB 130,900-131,100/mt, and RMB 129,900-130,100/mt for Russian nickel. The arbitrage opportunity in domestic electronic markets briefly helped improve trading among traders. After Jinchuan Group increased prices, traders lowered quotations slightly, and prices of Jinchuan nickel were down between RMB 130,800-131,000/mt, and RMB 129,800-130,000/mt for Russian nickel. Transactions dropped significantly with little arbitrage opportunity in electronic markets.
According to a recent SMM survey of price movements this week, 60% market players expect LME nickel prices to lurch higher, and may reach USD 18,700-18,900/mt. Although the US January non-farm payrolls were slightly lower than market expectations, and the jobless data came in at higher than expected, those optimists believe that the data for November and December was revised up. Meanwhile, the monthly average non-farm payrolls in 2012 were also revised up from the preliminary data, suggesting that the US labor market is recovering. Besides, the upbeat economic news from the eurozone and China also helped boost the market. A series of economic data to be released this week is also expected to be positive. In this context, these market players expect nickel prices to extend gains amid the favorable economic news this week.
Approximately 20% of market players understand that LME nickel prices will hover in the USD 18,300-18,700/mt range after recent rallies, to gain more rising momentum. The neutralists note that no major changes will come out this week from interest rate meetings in Australia, Britain and Europe. The lack of news will leave nickel prices unchanged in the existing price band.
The rest of market players are pessimistic towards the outlook, believing that LME nickel prices may slid to USD 18,300/mt. The latest figures show that inventories of #300 stainless steel were 136,119 mt in Wuxi, up 3.71% MoM, a reflection of weak downstream demand. In overseas markets, stainless steel demand in the eurozone is not expected to recover significantly in 1Q 2013 along with heavy debt burdens and the pessimistic economic outlook towards the 2013 in the region. Demand from construction, automobile and home appliance industries sector will remain soft, and only consumption from energy and processing sectors will improve slightly. In the US, downstream demand is also sluggish, and local stainless steel dealers said stainless steel demand was tepid in January, with trading volumes lower than the normal level. Weak consumption has brought LME nickel inventories up to 150,900 mt, with no signs of declines in growth. Hence, they believe that nickel prices will fall from earlier gains.