SHANGHAI, Mar. 5 (SMM) - The lack of a clear winner in last week’s Italian general election sparked worries over the European economic recovery. Although US Federal Reserve (Fed) Chairman Bernanke reiterated that the Fed will not end QE3 for the immediate term, automatic spending cuts in the US budget helped the US dollar index stabilize at 81.5 and challenge resistance at 82. Base metals prices continued to fall into correction last week. SMMI declined 1.14%, with SMMI.Al and SMMI.Ni leading the losses, down 1.44% and 1.3%, respectively. SMMI.Cu lost 1.21%, while SMMI.Zn shed 1.04%. SMMI.Sn and SMMI.Pb were comparatively resilient, down 0.16% and 0.51%, respectively.
The HSBC PMI for China hit a four-month low, but remained above 50, and was interpreted as a sign of stabilization for the Chinese economy. Markets were upbeat that the upcoming NPC and CPPCC meetings will introduce favorable policies, and this optimism allowed the Shanghai Composite Index to rebound by 2% after initially falling. SHFE copper prices also rose to around RMB 57,800/mt, up from RMB 57,000/mt, so the SHFE/LME copper price ratio rose to 7.28-7.30. Both trading volumes and positions experienced considerable increases as long and short investors tried to influence the market.
In spot markets last week, even though pre-holiday domestic copper stocks had not yet been consumed, imported copper supply increased since the SHFE/LME copper price ratio moved higher. Therefore, overall spot copper supply remained plentiful, causing copper discounts to expand gradually, especially at the month’s end as cargo-holders sold aggressively to generate cash. Downstream producers gradually returned to markets and bought at lows following the Lantern Festival on February 24th. Speculators, however, were wary of purchasing before copper prices stabilized.
SMM believes SHFE copper prices will look for support at RMB 56,500/mt in the coming week and challenge resistance at RMB 58,000/mt.
Price declines in SHFE 1305 aluminum contracts slowed down last week, but any upward momentum was limited. Prices for the most active SHFE aluminum contracts met resistance at the upper end RMB 14,900/mt, while the lower end price fell to RMB 14,700/mt and with trading volumes decreasing by nearly half. SHFE aluminum for May delivery should continue to hover at current low levels as longs and shorts were cautious about entering markets.
Spot aluminum prices were stagnant at RMB 14,500/mt even as traders held back goods to support prices early last week. Downstream demand was extremely soft following the Lantern Festival, however, with only middlemen purchasing modestly at low prices. Growing oversupply pressure kept aluminum prices in check. Later in the week, SHFE aluminum prices losses grew, driving spot aluminum prices below RMB 14,500/mt. Consumption was sluggish as liquidity crunch bit in at the month’s end.
In the coming week, LME aluminum prices will not likely hold the USD 2,000/mt mark, while SHFE 1305 aluminum contract prices will meet growing resistance at RMB 14,700/mt. Spot aluminum prices should struggle at RMB 14,400/mt, with spot discounts expected to narrow to RMB 80/mt. Trading activity will remain light as oversupply pressure grows.
SHFE lead prices hovered within a narrow range and with resistance felt at the 5-day moving average as demand in spot markets was depressed, with investors unwilling to enter the market. SHFE lead prices should be RMB 14,900-15,150/mt, with influence from LME lead prices and Chinese stocks.
In China’s spot lead markets, large raw material stock replenishments did not materialize, with downstream buyers purchasing on an as needed basis. Cargo holders with bullish toward the future outlook, however, and held prices firm, with traded prices mainly between RMB 14,650-14,830/mt, with spot discounts over the most active SHFE lead contract price narrowing to RMB 150-200/mt. Supplies were ample in spot markets, but trading was light. Downstream enterprises are expected to purchase based on production this week, but with demand improving slightly. Spot lead prices are expected at RMB 14,700-14,850/mt, with spot discounts over the most active SHFE lead contract price expanding to RMB 200-300/mt. Cargo holders will continue to keep prices high early in the week, but trading will be modest.
In China, SHFE 1305 zinc contract prices surged initially, but then fell back to between RMB 15,450-15,700/mt. SHFE 1305 zinc contract prices found support at RMB 15,500/mt early in the week as large numbers of buyers rushed into the market and due to a strong Shanghai Composite Index and LME zinc prices, helping SHFE zinc prices rebound. However, sluggish domestic demand created resistance at the 10-day and 30-day moving averages. China’s February PMI also fell to 50.1, weighing down LME zinc prices. As a result, SHFE zinc prices opened down and moved lower, losing weekly gains to close at RMB 15,450/mt.
In domestic spot markets, spot discounts early last week remained between RMB 280-310/mt, but narrowed to RMB 250-280/mt on Friday as SHFE zinc prices plunged. Some smelters began to hold goods as prices fell, but since traders had sold off a large volume of goods, spot goods supply was ample. Downstream producers restarted operations, but kept zinc inventories low due to a lack of orders, helping keep overall transactions muted.
As domestic plants resume operations following the Lantern Festival, spot market prices began to rise as smelters replenished stocks. However, due to a lack of orders and labor shortages, production has not returned to normal, helping keep demand for zinc sluggish. Inventories at major warehouses continued to climb, but inventories in east China fell by 2,000 mt, to 388,400 mt. Inventories in south China grew by 4,300 mt, and stocks in north China also grew by 2,000 mt, to 12,000 mt. According to a recent SMM survey, trading inventories in the three regions grew by 4,300 mt, to 539,000 mt, but inventories in these regions should level off next week as downstream demand grows and as bargain hunters enter the market at lower prices.
Spot tin market stabilized last week. With LME tin prices holding steady at USD 23,160/mt and edging up, domestic spot tin prices stopped falling with traded prices at RMB 156,000-158,000/mt last Friday. Although a few goods were quoted as low as RMB 155,500/mt, low-priced goods were fewer than a week ago, and cargoes traded in the market were mainly from Yunxi, Yunxiang, and Yunheng. Despite the slight increase in LME tin prices, ample supplies and depressed demand left little impetus for prices to rise.
Weighed down by concerns over the recent Italian parliamentary election and possible changes in current US monetary policy, LME nickel prices remained below the 5-day moving average from Monday to Wednesday. On Wednesday night, a strong defense of the Fed’s quantitative easing policy by US Fed Chairman Ben Bernanke helped LME nickel prices rebound slightly and rise above the 5-day moving average. However, as China’s central bank showed signs of tightening credit and since the global economic environment has not improved much, upward momentum of LME nickel prices was quickly dampened, keeping LME nickel prices between USD 16,600-16,700/mt, with no signs of a rally in the short term.
Jinchuan Group cut ex-works nickel prices by RMB 8,000/mt on Monday, to RMB 118,000/mt. In the Shanghai nickel spot market, #1 nickel averaged RMB 118,510/mt, down RMB 6,540/mt from a week earlier. Downstream demand has not improved much from a week ago, and according SMM sources, many stainless steel mills were now feeling increased cash flow pressure, so some producers lowered prices in order to generate cash, but tight cash flows also depressed interest by stainless steel mills in purchasing raw materials.
In general, news was mixed and markets did not send any clear upward signs for the short term. However, a series of economic reports to be released on Friday, especially PMI from major economies and nonfarm employment payrolls from the US, will influence markets. Technically, LME nickel prices have hit bottom and may rebound if Friday’s economic data is positive.
In the Shanghai nickel spot market, stainless steel mills were under cash flow pressure, so purchase demand for nickel was weak. Tight cash flows may ease in the coming week as a new month begins, with transactions increasing as well.