SHANGHAI, Feb. 26 (SMM) –
As LME copper reversed increases last Friday, SHFE 1305 copper contract, opened RMB 340/mt down at RMB 57,280/mt Monday. The contract hovered cautiously around the daily moving average following the opening and suffered resistance at RMB 57,420/mt. Later, the HSBC China PMI came in softer than expected and caused the Shanghai Composite Index to fall from previous highs. SHFE copper prices were thus depressed and slid to a low of RMB 57,050/mt, but rallied above the daily moving average at the tail of trading. SHFE 1305 copper contract settled RMB 340/mt or 0.59% lower at RMB 57,280/mt. SHFE 1306 copper contract ended RMB 380/mt or 0.66% down at RMB 57,320/mt, with a high at RMB 57,520/mt and low at RMB 57,090/mt. Trading volumes and positions for SHFE 1305 copper contract decreased by 5,020 lots and 20,000 lots, respectively, but those for SHFE 1306 copper contract increased by 37,048 lots and 31,746 lots, respectively. The most active copper contract was shifted to SHFE 1306 copper contract during the day. SHFE copper prices had no noticeable signs of stop falling and still face downside pressure over the short term.
SHFE copper prices extended losses, but spot copper cargo-holders expressed strong willingness in moving goods for cash at the month's end. Spot copper supply was thus diversified. Shanghai spot copper discounts were RMB 80-200/mt in the morning business. Traded prices for standard-quality copper were between RMB 56,850-56,950/mt, and RMB 56,950-57,070/mt for high-quality copper. Speculators entered markets and favored high-quality copper which held firm. Hence, the price differential between standard and high-quality copper widened. However, market pessimism was growing as SHFE copper continued falling, so downstream producers were not seen to replenish stocks at prices below RMB 57,000/mt. Market transactions were modest as a result. In the afternoon, with SHFE copper holding flat, copper discounts and traded prices were virtually unchanged from morning levels, as some downstream producers made purchases.
SMM conducted a survey with regard to copper price trend this week.
Based on the survey, 40% of market insiders are conservative about the outlook, believing LME and SHFE copper will fluctuate between USD 7,800-7,900/mt and around RMB 57,300/mt, respectively. First, recent US economic data was mixed and markets are also cautious towards the upcoming housing starts data, 4Q GDP, PMI and ISM manufacturing index in the world's biggest economy. If these US figures also come in mixed, both upside and downside room in commodity markets will be capped. Second, according to the latest CFTC reports, net long positions on February 19 dropped to 9,317 lots from 15,862 lots a week ago, but total positions increased to 178,372 lots. This indicates that the struggle between long and short investors will become more severe over the short term. Third, the RSI indicator is approaching overbought territory, but downside trend in KDJ indicator tends to narrow.
Around 45% of market insiders expect that copper prices will extend declines. LME copper prices will retreat below USD 7,800/mt, and SHFE copper prices will test support at RMB 56,500/mt. The US dollar index remains strong and has no signs of falling, which will impose great pressure to copper prices. The general election in Italy was held on February 24, and the result will be released on Tuesday, attracting investors' attention. Furthermore, the European Union recently lowered the euro zone economic growth forecast, unfavorable for the financial market. Meanwhile, LME copper stocks have surpasses 430,000 mt, and SHFE copper stocks also increased by over 10,000 mt last week. Weak fundamentals side will continue exert pressures to copper prices. In China's spot markets, tight cash flows at the month's end will force cargo-holders to move goods aggressively and keep market supply plentiful. Hence, large copper discounts will continue, also negative for copper price movement.
The remaining 15% of market insiders hold the view that LME copper will rally above USD 7,900/mt and SHFE copper will increase to around RMB 58,000/mt. The Dow Jones Industrial Average has recouped 14,000, so US equity markets will definitely rebound and help drive copper prices higher. The NPC and National Committee of the CPPCC will be held on February 26-28, and markets hold high expectations over the meeting, favorable for both stock and futures markets. In external markets, the borrowing cost has fallen, which will also enliven trading on stock and commodity markets. In China's spot markets, downstream consumption is likely to pick up following the Lantern Festival and lend support to copper prices.
SHFE 1305 aluminum contract opened lower at RMB 14,910/mt on February 25. Longs liquidated positions, capping the most active aluminum contract under the daily moving average. Finally, SHFE aluminum for May delivery shed RMB 110/mt or 0.74% at RMB 14,840/mt. Positions were down 2,074 lots to 89,060 lots. The Shanghai Composite Index stopped falling, but markets remained bearish. Consumption growth should be limited for the near term, and this will keep aluminum prices in check. Resistance level for the most-traded SHFE aluminum contract has fallen to RMB 14,900/mt.
Spot aluminum was mainly traded at RMB 14,500-14,520/mt in Shanghai on Monday, with discounts at RMB 150-170/mt. Low-iron aluminum was traded around RMB 14,610/mt. SHFE 1305 aluminum contract prices slid, sending spot aluminum prices down to RMB 14,500/mt. Although some traders watched from the sidelines, most remained active in moving goods against liquidity crunch at the month’s end. No clear signs of improvement in downstream demand were seen on the first day following the Lantern Festival. Some middlemen went bargain-hunting after prices in Wuxi slipped below RMB 14,500/mt, but overall trading remained light. In the afternoon, spot aluminum market was quiet, with sparse offers at RMB 14,500/mt, but trading volumes were quite thin.
SMM aluminum price averaged RMB 14,690/mt last week, down RMB 172/mt on a weekly basis, and averaged RMB 14,520/mt on Monday. According to SMM’s survey of 32 domestic aluminum ingot traders and producers, most market players believe aluminum prices will continue to drop or move at low levels. Markets are awaiting demand to recover.
50% of market players understand that although economic indicators in China and overseas were less satisfying, the US dollar index stagnated near 81.5, which should limit the downside space of commodity prices. Besides, LME aluminum extended losses and has now sank to the BOLL indicator DN line, and this will likely entice longs to go bargain hunting. An expected rally in LME aluminum prices will help SHFE aluminum rebound. Still, SHFE 1305 aluminum contract prices will meet strong resistance at RMB 15,000/mt, curbing upward momentum of domestic spot aluminum prices. In this context, these market players expect spot aluminum prices to rebound to RMB 14,600/mt this week.
The remaining 50% believe SMM aluminum prices will extend losses this week. First, a firm US dollar, depressing European economy and sluggish consumption in China will continue to keep investors bearish. Second, falling LME aluminum prices will weigh down domestic aluminum prices. Third, spot aluminum inventories are growing steadily after the Chinese New Year and time is still needed before downstream producers can operate at full capacity. Coupled with tightening liquidity at the month’s end, spot aluminum prices will be vulnerable at RMB 14,500/mt this week.
Market concerns over future demand and sharp decline in base metal prices last Friday resulted in significant decrease in positions for the most active SHFE lead contract, with price opening lower on Monday and hovered t RMB 14,970-15,050/mt. SHFE lead prices ended RMB 60/mt higher at RMB 15,175/mt due to the increase in domestic stocks, with resistance at the 5-day moving average. Trading volumes were down 204 lots to 196 lots, while positions were down 78 lots to 2,254 lots.
SHFE lead prices moved lower with spot lead prices in China also falling. Quotations for Chihong Zn & Ge were around RMB 14,860/mt, with spot discounts over the most active SHFE lead price narrowing to RMB 140/mt, driving some arbitrage traders to book profits. Dongling and Hanjiang were quoted at RMB 14,740/mt. Quotations for Shenqian were at RMB 14,700/mt. Downstream buying interest remained unimproved, leaving trading muted.
According to SMM’s survey of 30 industry insiders, most of them believe lead prices should continue to fluctuate or move down this week.
60% market players expect lead prices to start correction this week considering the 4% slump in LME lead prices last week. News from Europe will unlikely exert great influence on LME lead as no important policies are expected this week. In the US, economy still presents a mild recovery despite the upcoming automatic spending cuts. In China, although the February HSBC PMI was below expectation and at a 4-month low, the figure remained above 50 which signified the expansion in manufacturing sectors and the modest economic recovery. Besides, the forthcoming NPC and CPPCC sessions will also give a boost to domestic stock markets. Technical indicators pointed to an upward trend, combined with the strong support at USD 2,300/mt and limited upward room for the US dollar index following the strong rebound, LME lead prices are expected to move between USD 2,300-2,340/mt. In domestic spot lead market, most cargo holders without great financing pressure plan to hold prices high, while downstream enterprises will resume production after the Lantern Festival. Thus, downstream consumption may pick up slightly but demand will not fully recover, with spot prices expected to hover between RMB 14,700-14,850/mt.
The remaining 40% market players are relatively pessimistic, believing LME lead prices may fall below USD 2,300/mt this week and spot lead will possibly be traded at as low as RMB 14,650-14,800/mt. Automatic spending cuts which will come in effect on March 1 and the reports about a premature termination of the easing policies in the US caused the US dollar index to keep climbing and to probably hit as high as 82 this week. The euro zone manufacturing and service PMI data fell unexpectedly in February, combined with the uncertainty surrounding the Italian election, risk aversion is on the rise. In addition, poor sales at domestic lead-acid battery producers will undermine producers’ interest in purchasing raw materials after the holiday although many of them will restart operation after the Lantern Festival, so some downstream enterprises are expected to put off replenishing schedule to March.
SHFE 1305 zinc contract price opened RMB 145/mt lower at RMB 15,550/mt on Monday, and fell briefly before gaining support at RMB 15,500/mt. Later, prices rose to move between RMB 15,550-15,570/mt due to buying support and finally ended at RMB 15,550/mt, a decline of RMB 145/mt or 0.92% from the previous trading day. Trading volumes were up 11,656 lots to 77,986 lots, and positions were down 8,168 lots to 126,870 lots. Inventories at SHFE approved warehouses for zinc contract delivery remained flat with last Friday at 243,246 mt.
Traded prices for #0 zinc in spot market were largely between RMB 15,270-15,290/mt, with spot discounts over the 1305 SHFE zinc contract narrowing to RMB 280-290/mt. Traded prices for #1 zinc averaged RMB 15,230-15,350/mt. As zinc prices fell steadily, a few smelters hold back goods and were reluctant to move goods at low prices. Some arbitrage zinc flowed out, and supply of spot zinc was sufficient. More traders and downstream producers entered market, and overall transactions slightly improved.
Renewed concerns over the firm US dollar index and economic recovery in the euro zone sent zinc prices down. How will zinc prices move this week?
47% of market players surveyed by SMM anticipate that zinc prices will continue to fall this week, but will fall less sharply compared with last week. LME zinc should test support at USD 2,045/mt, and SHFE zinc may find support at RMB 15,450/mt. Spot zinc supplies will be ample, with spot discounts over the most active SHFE zinc contracts expected at RMB 280/mt. In macro news, markets are eyeing the Italian general election. The Italian economy has been shrinking for a sixth straight quarter, pushing the country’s government debt up. In this context, Italy’s Prime Minister Mario Monti introduced reform measures, easing the Italian debt crisis some. However, it is uncertain whether these measures will be sustained after new leaders take office. The minutes of the policy meeting released by the US Federal Reserve (Fed) last week sparked fears that the Fed may halt its asset repurchase program sooner than expected. Investors are awaiting Fed Chairman Bernanke’s speech due Tuesday for further clues. If Bernanke gives hints that QE will be ended early, the US dollar index will rise further, which will weigh down zinc prices. Besides, this week will be the last week before automatic spending cuts take place. If spending cuts are effective, zinc prices will drop further. LME zinc inventories are now around 1.18 million mt, slightly down from last week. Cancelled warrants also displayed downward trend, so high inventories will continue to put downward pressure on zinc prices. In domestic markets, futures warrants at SHFE delivery warehouses grew steadily to 243,246 mt last Friday, an increase of 12,644 mt from pre-holiday levels.
The remaining 53% believe zinc prices will be in correction following sharp declines earlier. LME zinc should find support at USD 2,070/mt, with price range at USD 2,070-2,120/mt. SHFE 1305 zinc contract prices are expected to fluctuate in the band of RMB 15,500-15,800/mt. Spot discounts over the most active SHFE zinc contracts will narrow slightly to RMB 250-270/mt thanks to an expected rally in spot zinc demand. On macro news, the US will announce the revised GDP for 4Q annualized, January existing home sales, February ISM Manufacturing Index, all scheduled in this week. Most expect these economic indicators to be positive, giving support to zinc prices. In domestic markets, almost all traders have returned to markets now that the Lantern Festival is over. Downstream producers are beginning to resume production. Sharp zinc price declines should stoke strong buying interest from producers, which will likely help zinc prices stabilize.
Trading in Shanghai spot tin market remained light on Monday with traded prices mainly between RMB 155,500-157,000/mt. Transactions were mainly made for Yunxi, Yunheng, and Yunshan, and non-leading brands were rarely seen in the market. Spot tin prices lacked support as LME tin prices moved at low levels. Besides, some smelters lowered ex-works prices, depressing market sentiment. However, spot tin prices found support at RMB 155,500/mt, narrowing moving range for tin prices.
The latest SMM survey shows that 55% market players believe spot tin prices will hold steady this week considering the major risky events including the Italian election, the releases of 4Q GDP data for the US, UK and Italy, as well as the US durable goods orders and ISM manufacturing index. Election in Italy remained uncertain, and whether the new leaders will form a stable coalition and promote economic reform is vital to the stability of European financial market. LME tin prices gained support at USD 23,160/mt, so these market players believe LME tin will unlikely fall below the level. In domestic spot market, despite the depressed consumption, market is expected to stabilize following the sharp decline seen last week, so domestic spot tin prices should hold steady if LME tin prices do not fall further.
35% investors expect spot tin prices were still under downward pressure given the weak LME tin and soft consumption. Although LME tin prices are stable at present, the anemic consumption in spot tin market and increase in tin supply after the Chinese New Year holiday as smelters resumed normal production may add to risk of decline in spot tin prices should LME tin prices remain low this week. However, the decline in spot prices should not be large.
The remaining 10% investors believe spot tin prices will rise this week. The US dollar index should meet resistance after the significant growth, which is likely to buoy base metals. Besides, downstream enterprises will gradually restart operation this week, which may help improve tin demand and offer support to spot tin prices.
Nevertheless, most investors were not bullish to tin prices in the short term.
During the morning trading hours in the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 120,200-120,400/mt, and mainstream traded prices of nickel from Russia were between RMB 119,200-119,400/mt. However, as LME nickel prices fluctuated lower during the afternoon trading hours, Jinchuan Group nickel prices fell to RMB 120,000/mt and Russia nickel prices fell to RMB 119,000/mt. As downstream producers have not fully resumed production, and since arbitrage opportunities were limited, transactions were still quiet in the market.
Based on result of an SMM survey on market sentiment, 60% market players believe that LME nickel prices will stabilize between RMB 16,000-17,000/mt range in the coming week, and their reasons are as follows. First, this week is the last week before the US automatic spending takes effect, which will trigger fluctuation in the market. In addition, the exit of QE measures in advance will also arouse market attention. On the macroeconomic news front, the GDP from the US, CPI and PMI from major economies will be released soon, which will affect base metal price movement. It is expected cautious sentiment will prevail before data release. Based on previous experience, nickel prices are likely to fluctuate in narrow price range after steep decline.
20% market players believe that LME nickel prices will resume downward pressure and may fall below USD 16,600/mt in the following week. Currently, LME nickel prices have almost fallen below all moving averages, and meet strong resistance to advance further. Furthermore, conditions in the euro zone were not optimistic. Last Friday, the European Commission cut economic forecast for the euro zone from 0.1% to negative 0.3%. Meanwhile, 356 banks in the euro zone paid back 61.1 euro for second round LTRO, far below EUR 122.5 billion expected. Moreover, risk aversion sentiment grew amid weak condition in the euro zone and unimproved demand from China, which sent the US dollar index to 81.5, exerting downward pressure on LME nickel prices.
The remaining 20% market players are optimistic towards market outlook, believing LME nickel prices will return above USD 17,000/mt or USD 17,200/mt. The bullish players were optimistic towards downstream demands, as downstream producers will resume production after Chinese Lantern Festival. In addition, orders from the European stainless steel have improved slightly compared to Q4 2012. Furthermore, the US will announce a slew of economic data, including new housing starts and ISM manufacturing index, which may push up the US equity market and LME nickel prices.