SHANGHAI, Mar. 19 (SMM) –
LME copper prices started lower overnight and the SHFE 1306 copper contract price gapped RMB 320/mt lower at RMB 56,330/mt Monday due to report that Cyprus decided to collect a nearly 10% tax to depositors. The contract dropped to RMB 55,000/mt soon after opening due to selling pressures and hit a low of RMB 54,810/mt, resulting in the shift of the most active SHFE copper contract price, but allowing opportunities for arbitrage trading. SHFE copper prices then stopped falling and moved within a narrow range of RMB 50/mt at midday. LME copper prices fell below USD 7,600/mt in the afternoon while the A-share slumped 1.7%, driving the SHFE 1306 copper contract price to close at RMB 55,300/mt, down RMB 1,710/mt or 3%. The SHFE 1307 copper contract price began at RMB 56,310/mt and closed RMB 1,840/mt, or 3.23% lower at RMB 55,190/mt, with the lowest price at RMB 54,660/mt. Holdings of the SHFE 1307 copper contract were up 87,254 lots and trading volumes increased 237,000 lots, with total trading volumes up 393,000 lots and total positions up 84,758 lots. SHFE copper will still be under downward pressure given the panic caused by the tumbling prices.
Shanghai spot copper premiums were quoted between 0-100/mt in the morning business. Traded prices for standard-quality copper were between RMB 56,750-56,930/mt, and RMB 56,800-57,050/mt for high-quality copper. SHFE copper prices marched higher after starting up, so hedged copper was still locked out of spot copper markets. The price gap among forward SHFE copper contracts expanded to nearly RMB 300/mt, enticing some speculators to buy at lows. However, these speculators chose to sell after copper prices rose, causing spot copper premiums to shrink all the way. Standard-quality copper saw a rapid decline in premiums, down to around RMB 0/mt, increasing its price gap with high-quality copper. Most downstream producers and traders took a wait-and-see posture before delivery for SHFE 1303 copper contract, leading to quiet market activity.
SMM survey reveals that 50% market players believe copper prices will extend the declines this week, with LME copper falling below USD 7,500/mt and SHFE copper prices testing support at RMB 54.500/mt. The euro zone members and the IMF agreed to offer EUR 10 billion bailout aid to Cyprus on March 16, but on condition that Cyprus must collect up to 9.9% tax from depositors which triggered public discontent. In response, risk currencies, led by the euro, weakened noticeably, while the US dollar staged a strong upward trend, and global stock markets tumbled. Investors feared the Cyprus economy might further deteriorate, causing another round of bank runs and rekindling market concerns over a resurgence of the European debt crisis. Market players will focus on bond market, expecting any increase in bond yields in Spain or Italy will be another hit to the euro and thus drag down copper prices. Besides, technical indicators for both LME and SHFE copper pointed downward, posing great pressures on prices. On the market side, copper inventories both at home and abroad remained high, but copper demand was still depressed, weighing on copper prices. SHFE copper inventories have jumped above 200,000 mt, while LME copper inventories were also close to 550,000 mt. CFTC report indicated that net positions kept growing to 6,144 lots as of March 12, adding to wait-and-see sentiment in the market. In China, the NPC and CPPCC sessions came to an end March 17, China’s new Premier Li Keqiang held a press conference in the afternoon to express the new government’s ideas about the next five years, sending positive signals. However, Li also emphasized the importance to tighten control on three public consumptions and to curb property prices. Hence, market expects the government will unlikely ease property control next year, which will negatively affect base metals demand. Meanwhile, repos worth of RMB 30 billion and RMB 10 billion will mature on March 19 and March 21, and investors expect the People’s Bank of China (PBOC) should continue to issue repos to balance market liquidity. Meanwhile, market concerned IPO will be re-launched soon with Guo Shuqing, head of the China Securities Regulatory Commission leaving the office and with IPOs lined up. Zhou Xiaochuan, governor of the PBOC implied monetary policy will be relatively tight this year with the pace of draining liquidity accelerating. The RMB 3.05 billion worth of unlocked shares of 39 companies will also be a lasting liquidity pressure. The A-share is also under downward pressure, leaving little support to copper prices. In spot copper market, spot premiums over the most active SHFE copper contract price only remain at RMB 100/mt despite the slumping SHFE copper prices. Hedge traders and cargo holders should be willing to sell goods at higher prices to generate cash if copper prices continue to fall, and spot copper may be traded at discounts, curbing SHFE copper prices. Thus, these investors expect copper prices to drop further this week.
39% market players believe copper prices will keep vacillating this week, expecting LME copper to hover near USD 7,600/mt and SHFE copper prices to move around RMB 55,000/mt. Although the US economic data continued to improve, the US equities met technical resistance and will likely fluctuate narrowly at high levels in the short term, limiting moving range for LME copper prices. Besides, the Fed’s March policy meeting scheduled for this week is of great importance as the scale of the QE policies and US economic forecast will be unveiled. Although market players believe the Fed will not made significant change in monetary policies, the attitude towards QE is much concerned. Fed’s Chief Ben Bernanke noted in the minutes for February meeting the cost for asset purchasing program will be watched closely at the meeting this month. The upward room for the US dollar will be restricted if Bernanke wavers given improvement in the US economy, driving the US dollar index to fluctuate at the current levels. Meanwhile, copper prices were relatively resilient to declines against the strong US dollar considering the performance last week. Furthermore, Asian investors’ buying activity of LME copper enlivened following last week’s plunge. In this context, these investors believe copper prices to remain weak this week.
The remaining 11% investors believe copper prices will likely rebound, with LME copper returning to USD 7,750/mt and SHFE copper rising to RMB 56,500/mt. Although base metals slumped on Monday, market is optimistic to economic data to be released this week. Besides, technical rebound is expected after the plunge last week. In domestic spot copper markets, smelters were unwilling to move goods given the low prices, while downstream buyers started purchasing when copper prices fell. Therefore, these market players expect copper prices to rally this week.
SHFE 1306 aluminum contract prices gapped lower at RMB 14,780/mt on March 18. Cyprus will impose tax on current bank deposits, triggering market panic. As a result, the most active SHFE aluminum contract dived to RMB 14,595/mt in early morning session, down as much as 1.65%. Finally, SHFE aluminum for June delivery shed RMB 155/mt or 1.04% to close at RMB 14,685/mt. Positions decreased 884 lots to 99,342 lots. The European debt crisis has once again hampered global economic recovery and sluggish aluminum consumption in China has further aggravated oversupply. In this context, the most-traded SHFE aluminum contract should meet growing resistance at RMB 14,700/mt for the near term.
Spot aluminum was mainly traded at RMB 14,470-14,500/mt in Shanghai on Monday, a discount of RMB 70-100/mt over SHFE current-month aluminum contract prices. Low-iron aluminum was trade around RMB 14,650/mt. SHFE 1306 aluminum contract prices plunged along with other base metals. Some traders in spot markets held back goods at low prices, helping aluminum prices resist declines, with strong resistance felt at RMB 14,500/mt, though. Downstream producers purchased as needed, while middlemen similarly showed moderate buying interest, depressing overall trading. In the afternoon, prices of the most active SHFE aluminum contracts expanded losses, leaving traders anxious to move goods, with offers down to RMB 14,430/mt from RMB 14,460/mt. Downstream producers and middlemen refrained from buying out of bearishness over future prices.
SMM aluminum price averaged RMB 14,480/mt on Monday, down from last week’s RMB 14,530/mt. Aluminum prices fell back following the State Reserve Bureau (SRB)’s aluminum ingot purchase. A majority of the 38 domestic aluminum ingot traders and producers surveyed by SMM note no reason for optimism over aluminum prices. This is because news on SRB’s aluminum ingot buying has been digested and consumption remains sluggish. However, looking on the bright side, those aluminum smelters winning bids from the SRB will hold back some stocks for delivery, causing future inventories to increase at a slower pace. In addition, downstream consumption will begin to gradually recover, helping spot aluminum prices resist declines, as has been reflected in the smaller decline in spot aluminum prices when SHFE aluminum prices tumbled on Monday. As such, 53% of market players expect spot aluminum prices to hover around RMB 14,500/mt this week.
The remaining 47% of market players are bearish towards aluminum prices this week for the following reasons. First, worries over the European debt crisis have resurfaced. Second, economic indicators from China and the US were mixed. Third, slow economic recovery and limited consumption growth have caused aluminum prices to give back gains, with the low-end prices of both LME and SHFE aluminum down. In this context, spot aluminum prices are expected to slide to RMB 14,400/mt, with thin trading activity.
The renewed European debt issues triggered market panic, and SHFE 1306 zinc prices, the most actively traded one, opened down by RMB 160/mt at RMB 15,150/mt. Huge shorts pressures weighed down the price, down to RMB 14,520/mt, the lowest since last July. With bargain hunting, the contract briefly rebounded to RMB 14,910/mt, and finally closed at RMB 14,870/mt, down RMB 440/mt or 2.87%. Transactions were up 75,890 lots to 149,362 lots, while positions were up 12,330 lots to 141,618 lots.
In the spot market, discounts of #0 over SHFE 1306 zinc prices were between RMB 160-180/mt, with traded prices at RMB 14,720-14,750/mt. In the afternoon business, spot discounts were between RMB 180-190/mt as SHFE zinc market was gradually stabilizing, with traded prices around RMB 14,720/mt. #1 zinc traded at around RMB 14,720/mt. The tumbling zinc prices dampened smelters’ interest in sales, and spot discounts narrowed significantly, causing arbitrage goods to be locked out of the market. Downstream buying interest improved at lows, helping improve overall trading.
Last week, the positive US economic data allowed LME zinc prices to stop falling. Zinc prices plunged on Monday, affected by improving European debt crisis. Will zinc prices stop falling this week?
According to a recent SMM survey, 53% of market players surveyed believe LME zinc prices should test USD 1,900/mt level, and SHFE 1306 zinc contract prices will consolidate RMB 14,570/mt, with spot discounts between RMB 150-180/mt. At last week’s end the euro zone reached an agreement that Cyprus will receive bailout funds of EUR 17 billion. EUR 10 billion will be supplied by the US Federal Reserve, EU and European central bank, and the remainder will be collected from tax payment. This triggered investor concerns. That is favorable for the resolving of Cyprus’ debt problem, but Cyprus will vote for the decision on Tuesday. If the plan fails to pass the vote, massive deposits will flow out of Cyprus, and will harm its economy. Italian Parliament held the first meeting after the election last Friday to elect presidents of senate and House of Representatives. But the first round of vote failed, and the market anticipates the second round of vote will not reach any result, which will force them to vote for a third round. Besides, US will hold a meeting to decide March interest rates this Wednesday. US economy is now improving, and any signs that quantitative easing policies will be quitted from the meeting will affect the market significantly. Besides, the high LME inventories reaching 1.2 million mt will also weigh on zinc prices.
Expectations that downstream buyers will replenish stocks after the Chinese New YEAR Holiday and improving downstream market will boost zinc demand drove pre-holiday zinc prices. But downstream market has yet to improve, and will continue to pull down zinc prices. Smelters have been holding goods after the holiday due to continuously falling zinc prices. But by last Friday, zinc inventories in Shanghai, Guangdong and Tianjin only fell by 4,000 mt since the holiday. Both sluggish demand and high inventories will weigh down zinc prices.
The other 47% think LME zinc prices will move between USD 1,920-1,960/mt, and SHFE three-month zinc contract prices will fluctuate between RMB 14,850-15,150/mt, with spot discounts between RMB 180-190/mt. US will release February finished home sales and new home sales data this week, which is optimistic. The improving US property market will boost market confidence and help zinc prices stop falling.
In China, the tightening regulations to the property market have been absorbed. The NPC and CPPCC closed last week’s end, and statements by new government leaders are expected to positively affect the market. The plunging zinc prices today helped increase downstream buying interest, but depressed smelters. Smelters will reduced goods supply this week, and shrinking spot supply and growing demand will allow zinc prices to stop falling.
The most active SHFE lead contract price fell RMB 100/mt soon after opening lower at RMB 14,650/mt on Monday due to the unsteady political situation in the Europe. The contract then hovered near RMB 14,500/mt with LME lead falling below USD 2,200/mt and domestic stocks slipping 1.6%, to finally end at RMB 14,490/mt, down RMB 245/mt. Trading volumes increased 80 lots to 302 lots, while holdings were down 60 lots to 2,184 lots.
Spot lead prices fell below the cost line, so cargo holders were more reluctant to move goods, leaving quotations rare. Quotations for Chihong Zn & Ge and Nanfang were mainly at RMB 14,480/mt, with spot premiums of RMB 20/mt over the most active SHFE lead contract price. Shuangyan was quoted at RMB 14,400/mt. Downstream enterprises intended to purchase at low prices, but cargo holders were unwilling to sell, leaving transactions limited.
SMM survey revealed that most industry insiders are pessimistic to lead market this week following the continuous decline.
67% market players believe spot lead prices will continue to remain low at RMB 14,400-14,550/mt this week due to a lack of impetus, while LME lead prices are expected to hover around USD 2,200/mt. The Fed will determine the interest rate decision and scale of QE measures at its policy meeting for March scheduled to be held this week, and the latest US economic forecast will also be unveiled. This will be essential to the US dollar movement. Most investors booked profits before the meeting as the results are far from clear. In China’s spot lead market, smelters will be more reluctant to sell goods due to falling lead prices, while downstream enterprises will purchase cautiously, leaving prices vacillating.
The remaining 33% market players were even more pessimistic, noting that LME copper which is heading to the lower Bollinger band and tends to stage noticeable decline will drag down other base metals prices, and LME lead prices may possibly fall below USD 2,150/mt. Besides, the euro zone conditionally provides aids to Brussels, triggering market concerns over its exit from the euro zone. Plus the political issue in Italy, the decline in the euro may be accelerated, driving up the US dollar index and weighing down the base metals. Meanwhile, the weak demand in spot lead market may drive lead prices to fall further with the onset of the low-demand season for lead-acid batteries. Smelters which have been unwilling to move goods during the first half this month will be forced to sell goods due to increasing inventory and sales pressures. In this context, these investors expect spot lead prices to move between RMB 14,350-14,450/mt this week.
Mainstream traded prices in Shanghai tin market were between RMB 153,000-155,000/mt on Monday, and a few goods were traded at RMB 152,500/mt. Although LME tin prices slumped, spot tin prices in China remained relatively stable as spot prices started departing from the track of LME tin last week. However, trading remained quiet.
SMM survey shows that 70% market players expect tin prices to fall further this week. The condition for Cyprus to obtain bailout aid rekindled concerns over the European debt crisis, driving the euro and base metals to plunge. Technical indicators also pointed downward. In this context, 70% of the surveyed investors believe spot tin prices will continue to fall but decline will be limited, as selling interest at smelters will be low. Support at RMB 150,000/mt will be strong if smelters refuse to supply low-priced goods. However, prices may continue to weaken if smelters keep providing goods at low prices.
30% market players believe spot tin prices will stabilize, noting that LME tin prices may rose after sharp declines despite the negative news about Cyprus. That, combined with limited low-price resources available to the market, will help spot prices stabilize.
Jinchuan Group cut ex-works nickel prices by RMB 2,000/mt, to RMB 117,000/mt Monday. In response, transactions in spot market turned quiet. Following Jinchuan Group’ s price cut, mainstream traded prices of nickel from Jinchuan Group were in the RMB 116,200-116,500/mt range, and mainstream traded prices of nickel from Russia were in the RMB 117,200-117,500/mt range. Some cargo holders were reluctant to move goods during the afternoon trading hours, further reducing transactions in spot market.
Based on SMM survey result, 67% market players believe that LME nickel prices will to fall around USD 16,500/mt, which is largely due to concern over debt crisis in Cyprus and sluggish demand in spot market. The bailout plan for Cyprus has renewed market concern over the European debt crisis, which will not allow LME nickel prices to reverse weak momentum in the short ter. Besides, the US consumer confidence index was unexpectedly below market expectation, despite that possibility for the Fed to exit from the euro zone is low. Furthermore, players doubt that whether the US stock market will keep strong performance. If economic data are announced below market expectation, confidence may be further dampened. In China’s spot market, in contrast to steady rally in LME nickel prices, stainless steel prices fell amid oversupply pressure. According to market insiders, stainless steel was lower than previous month and clients all adopted a wait-and-see attitude on raw material purchasing.
The remaining 16% market players LME nickel will remain stable after Monday’s tumble. The neutral players believe that market may overact towards Cyprus incidents, and LME nickel prices will stabilize between USD 16,600-16,800/mt in the following week.