SHANGHAI, Feb. 5 (SMM) –
As the Shanghai Composite Index surged by 5.6% to a high of 2,421, SHFE copper prices rose 5.6% to RMB 59,740/mt. Total copper trading volumes on the SHFE grew by 340,000 lots and positions increased by nearly 30,000 lots.
In spot markets last week, with copper futures prices rebounding sharply, the SHFE/LME copper price ratio rose to around 7.3, which compelled imported copper cargo-holders to actively sell goods to generate cash. In response, spot copper discounts grew as copper supply remained plentiful. Downstream producers refrained from buying at prices above RMB 58,000/mt. Downstream purchases, however, improved slightly last Friday when copper prices fell marginally. Most downstream consumers chose to suspend production for the Chinese New Year holiday, while traders turned cautious towards purchasing. Market activity thus remained quiet.
In the coming week, SHFE copper prices are likely to challenge RMB 59,800-60,000/mt.
SHFE 1304 aluminum contracts became the most active contract last Tuesday and reversed downward trend later in the week as the rebound in Chinese economy has helped the Shanghai Composite Index extend gains for four straight days. Prices of the most active SHFE aluminum contracts flowed LME aluminum prices down last Monday, but did find support at RMB 15,200/mt later as market confidence grew. However, weak fundamentals promoted longs to take profits ahead of the upcoming Chinese New Year, so SHFE aluminum prices only toughed a high of RMB 15,265/mt, with resistance at the 20-day moving average.
Downstream aluminum processors are closing earlier this year for Chinese New Year than in years against past due to poor orders and as train tickets can be booked 20 days in advance. With most downstream processors on holiday, trading in the spot aluminum market was muted last week. Although many cargo holders refrained from selling to help support prices once spot aluminum dropped to RMB 14,900/mt, the rebound in SHFE aluminum prices did prompt some traders to aggressively destock. Only a small number of traders were buying, however, capping spot aluminum prices. No deals were completed after prices rose above RMB 14,940/mt.
In the coming week, LME aluminum prices will find support at USD 2,050/mt and test resistance at USD 2,100/mt. Investors will exit markets to avoid financial risks before the Chinese New Year holiday. Demand in spot markets will also be soft, so inventories will continue to grow. Pessimism over post-holiday prices will weigh down aluminum prices, so prices for the most active SHFE aluminum contract will struggle at RMB 15,200/mt. Spot aluminum offers will be around RMB 14,900/mt, but little trading activity is expected.
In China, the SHFE 1305 zinc contract became the most actively traded contract last Tuesday, with prices tracking LME zinc prices and moving above all moving averages, and with the SHFE/LME zinc price ratio stabilizing around 7.4. SHFE1305 zinc contract prices fluctuated between RMB 15,650-15,700/mt early in the week, then broke through RMB 15,890/mt and RMB 16,000/mt, following gains by LME zinc. Trading volumes of SHFE 1305 zinc contracts increased to 192,320 lots by Thursday, up 213% from Monday, and with total positions increasing by 129%, to 169,930 lots.
In China's domestic spot markets, although SHFE zinc prices rose, discounts for #0 zinc against SHFE 1304 zinc contract prices remained around RMB 300/mt due to tight supply. Traded prices for #0 zinc rose from RMB 15,150/mt early in the week, to RMB 15,580/mt on Thursday, their highest level since April 2012. Supply was low, however, since smelter willingness to move goods grew as zinc prices surged, while most cargo holders were still holding goods since their inventories were low after delivery to the SRB and since they had sufficient cash flows. Market players were leaving the market in increasing numbers as the Chinese New Year holiday neared, with many traders also beginning to suspend business. Downstream buyers purchased only modestly due to high prices, keeping the market extremely quiet.
Smelters completed delivery to the SRB at the end of January, so spot inventories in major domestic warehouses grew last week. Inventories in east China remained steady at 385,400 mt, but inventories in south China grew by 3,500 mt, to hit a six-month high of 113,400 mt. Inventories in north China were unchanged at 8,000 mt. Downstream processors began to suspend production last week, which caused zinc ingot consumption to fall. However, since smelters will continue production during the holiday, SMM expects zinc inventories to grow slightly in the coming week.
Given recent rallies in LME lead prices and a 5.5% rise in the Shanghai Composite Index last week, the 1303 SHFE lead contract prices rose from RMB 15,250/mt to RMB 15,400/mt and stood above all moving averages. Last Thursday, 1304 SHFE lead contracts became the most active contract. With investors booking profits before the Chinese New Year holiday, the 1304 SHFE lead contract price may move between RMB 15,400-15,600/mt this week.
Spot lead prices in China early last week were between RMB 14,700-14,850/mt, and with spot discounts over the most active SHFE lead contract price at RMB 400/mt. Later, spot prices rose along with SHFE lead prices to RMB 14,800-14,950/mt, but trading was light as most downstream buyers were already closed for the holiday, which caused spot discounts to grow to RMB 440/mt. Cargo holders were bullish and held back goods since they had no financial or sales pressure, leaving supply of branded lead limited. During the last trading week before the holiday, China's spot lead market should remain quiet with most suppliers and buyers halting operations for the holiday. Transactions will be sparse with traded prices expected below RMB 15,000/mt.
Spot tin prices stabilized to move up with mainstream traded prices between RMB 157,500-159,000/mt early last week. During the latter half of the week, only Yunnan Tin Group and Chengfeng continued to made quotations, while most other sellers stopped moving goods, cutting goods available to the market. Besides, transactions increased early in the week as downstream replenished goods ahead of the holiday, giving support to spot tin prices, combined with the strong trend in LME tin prices, spot tin prices were up to RMB 159,500-161,000/mt. However, trading turned quiet as most market players started holidays.
Jinchuan Group raised ex-works nickel prices last week by a total of RMB 5,000/mt, raising prices on Tuesday, Wednesday and Thursday by RMB 500/mt, RMB 2,000/mt and RMB 2,500/mt, leaving ex-works nickel prices on Thursday at RMB 128,000/mt. In the Shanghai nickel spot market, #1 nickel averaged RMB 124,850/mt, up RMB 1,250/mt from a week earlier. Downstream demand was extremely quiet since many small stainless steel mills were already on holiday. However, demand from traders improved slightly on Monday and Wednesday when arbitrage opportunities emerged between prices in spot markets and on domestic electronic exchanges. Most traders will be off on holiday beginning this week, so demand will be extremely weak.