SHANGHAI, Apr. 2 (SMM) –
COMEX copper dived this morning, causing SHFE 1307 copper contract to open RMB 550/mt lower at RMB 54,480/mt on Monday. After its opening, the most active SHFE copper contract retreated from RMB 54,000/mt to a low of RMB 53,800/mt due to short selling. Later, the struggle between longs and shorts left SHFE copper hovering around RMB 54,000/mt. In the afternoon, SHFE copper for July delivery slipped further to an intraday low of RMB 53,600/mt, and finally ended the day down RMB 1,290/mt or 2.34% at RMB 53,740/mt. Trading volumes increased 47,082 lots, while positions were also up 17,358 lots. SHFE copper will continue to come under downward pressure since shorts are dominating the market.
Spot copper premiums RMB 100-220/mt in Shanghai. Traded prices for standard-quality copper were between RMB 54,380-54,480/mt, and RMB 54,460-54,570/mt for high-quality copper. The most active SHFE copper contract tumbled by RMB 1,000/mt, leading to a sharp increase in spot copper premiums. Downstream producers and middlemen were active in bargain hunting, allowing cargo holders to hold offers firm. The price spread between standard-quality copper and high-quality copper narrowed and trading was brisk. SHFE copper fell in the afternoon, and some traders in spot market purchased at low prices. Premiums increased further to RMB 120-220/mt, and premiums for standard quality copper was offered at RMB 150/mt, but traded prices fell to RMB 54,150-54,450/mt.
With regards to copper price trends this week, SMM survey shows that 55% industry insiders believe copper prices will keep falling, with LME copper heading to USD 7,350/mt and SHFE copper testing support at RMB 53,500/mt. Official of Cyprus central bank announced March 30 that losses of depositors with savings exceeding EUR 100,000 at Cyprus banks may hit as much as 60%, which is far beyond market expectation. It was reported that Cyprus finally decided to obtain bailout at the expense of its big depositors after failing to get aids from Russia – its largest investor. Market notes this will exacerbate the country’s crisis and will be adverse to liquidity at SMEs, hurting confidence of its people. Cyprus became the first to conduct capital controls in the euro zone, adding to concerns over capital flight. The uncertainty to political situation in Italy also poses downward pressure on base metals. Meanwhile, the US dollar has been rising recently given worries on the Cyprus crisis and Italy’s political instability. In contrast, the euro kept falling and commodity market was weighed on. Latest data of CFTC revealed that net position continued to increase to 20,187 lots as of March 26, still negative to copper prices. The strong selling pressure for both SHFE and LME will place downward pressure on copper prices. Besides, technical indicators also reflected potential downside. These all fueled bearishness in the market, leading many investors to believe copper prices will seek support at lower level this week.
45% industry insiders expect copper prices to keep vacillating, with LME copper prices expected at USD 7,400-7,450/mt and SHFE copper prices around RMB 54,000/mt. Aside from the Italian political condition, the interest rate meeting of the central bank of Australia, Japan, the Europe and the UK will also greatly affect copper market this week. The decision of Japan’s central bank is especially important. Market expectations are that the new governor of Japan’s central bank will expand stimulus program in April, which will benefit the country’s stock markets. In addition, the US non-farm payrolls will be released April 5, with the data expected to increase 200,000. Given the mixed US economic data and persistently high US equities will both limit decline in copper prices. As of March 29, natural gas, the Dow Jones Industrial Average Index, and crude oil topped as overbought in 14 days on the RSI, with copper, euro, wheat, and equities of Spain and Italy at last position. Meanwhile, net positions according to CFTC rose above 20,000 lots. Similar situation was also seen in February 2007 and January 2009, which had helped gave support to copper prices. With shorts booking profits after copper market was oversold, leaving less pressure for low-end prices. LME copper will gain certain support from bargains after LME resumes trading. In China, a total of RMB 5 billion of 28-day repos will mature on April 4. With the approach of the Qingming Festival, capital demand will increase, but interest rate remains stable, indicating sufficient liquidity. Meanwhile, HSBC manufacturing PMI was 51.7 in February, but China’s electricity consumption growth in early and mid-March slowed, reflecting that a relatively mild recovery in China’s economy. The narrow fluctuations in the A-shares also limit the moving range of SHFE copper prices. The well-matched longs and shorts will leave copper prices in correction. In spot copper market, prices fell sharply in on Monday, driving up transactions made by middlemen, and cargo holders held prices firm. Thus, premiums for spot copper expanded, giving certain support to SHFE copper prices. Thus, these market players believe copper prices should remain stable this week.
SHFE 1306 aluminum contract started the day lower at RMB 14,590/mt on Monday. Discouraging manufacturing PMI from China drove longs to exit the market, sending the most active aluminum contract down to RMB 14,550/mt. Finally, SHFE aluminum for June delivery finished RMB 55/mt or 0.38% lower at RMB 14,545/mt. Positions decreased 1,214 lots to 92,184 lots. SHFE aluminum was more resilient than other base metals as shorts did not increase positions. Absent market confidence, the most-traded SHFE aluminum should be vulnerable at RMB 14,500/mt.
Spot aluminum was mainly traded at RMB 14,390-14,420/mt in Shanghai on Monday, a discount of RMB 50-80/mt over SHFE 1304 aluminum contract prices. Low-iron aluminum was trade around RMB 14,600/mt. China’s manufacturing PMI for March rose less than expected, dragging down SHFE aluminum and fanning bearish sentiment. Traders were in a hurry to sell, but downstream producers stayed out of the market, despite increasing liquidity at the start of the new month. This drove spot aluminum down to RMB 14,400/mt, with a few transactions even concluded at RMB 14,390/mt. Further price declines are expected. In the afternoon, some traders remained eager to move goods at RMB 14,390-14,400/mt, but few deals were completed.
SMM aluminum price averaged RMB 14,520/mt on Monday, slightly up from last week’s RMB 14,514/mt. A majority of the 44 aluminum ingot traders and producers surveyed by SMM are bearish toward this week’s aluminum prices.
60% of market players believe aluminum prices will fall below RMB 14,400/mt this week for three reasons. First, Cyprus obtained bailout fund at the expense of its large bank depositors, and Italy is facing an imminent renewed general election, triggering market worries. Second, China’s manufacturing activity points to expansion, but growth was limited, dampening confidence over a rebound in market demand. Third, investors will be cautious before the release of manufacturing PMI and employment data from the US and upcoming Chinese Qingming holiday. In this context, LME aluminum may lose support at USD 1,900/mt, SHFE 1306 aluminum contract should also be vulnerable at RMB 14,500/mt. Growing oversupply pressure will drag spot aluminum prices down below RMB 14,400/mt.
The remaining 34% of market players expect aluminum prices to hover between RMB 14,400-14,450/mt this week for two reasons. First, China’s manufacturing PMI has stayed above 50 over the past sixth months, a sign the Chinese economy has bottomed out. Second, optimism over manufacturing activity and labor market in the US will offset worries over the European debt crisis. This will drive the US dollar index down to struggle at 83, helping aluminum prices resist declines. As such, LME aluminum will hold steady at USD 1,900/mt, while prices for the most active SHFE aluminum contracts are expected to struggle at RMB 14,600/mt. Stock replenishment before the Chinese Qingming holiday will help spot aluminum find support at RMB 14,400/mt.
SHFE 1305 lead contract price gapped lower at RMB 14,300/mt on Monday without guide from the LME lead and fell along with SHFE copper to RMB 14,215/mt. Although China’s official manufacturing PMI for March was reported above forecast and previous level, depressed demand for spot lead caused left little impetus for futures price to rise. Thus, SHFE 1305 lead contract price moved between RMB 14,260-14,300/mt before ending at RMB 14,290/mt, down RMB 60/mt from the previous trading day. Traded volumes fell 248 lots to 130 lots, positions fell 22 lots to 1,934 lots.
SHFE lead prices gapped lower on Monday, and spot lead prices fell. Most smelters reflected spot prices were lower than their cost lines and were not willing to sell goods. Some traders cut prices to sell goods given bearish outlook. Chihong Zn & Ge was quoted at RMB 14,240-14,250/mt, with spot discounts of RMB 50/mt against the most active SHFE lead contract price. Nanfang was traded at RMB 14,220/mt, and price for Yubei was flat with SHFE 1304 lead contract price. Quotations for other brands were rarely heard. Market remained quiet in the afternoon, and downstream buyers were not will to purchase due to limited orders.
LME is closed at the beginning of this week for the Easter holiday, and SHFE will also be closed for the last two trading days due to the Qingming holiday, which may prompt investors to stay out of the market.
SMM survey reveals that 60% industry insiders expected trading in base metal market to remain quiet before the policy meetings of major central banks and release of economic data in the latter half of this week given the closure of LME and SHFE. LME lead prices are expected to hover narrowly between USD 2,100-2,150/mt. In China’s spot markets, the persistently low lead prices and onset of low-demand season for downstream producers will leave consumption soft. Despite the approaching Qingming holiday, most downstream buyers may not replenish stocks in large amount for avoiding risk. Lead smelters will hold prices firm at the beginning of the month. Thus, many market players believe spot lead pries will move between RMB 14,250-14,350/mt this week.
The remaining 40% industry insiders are pessimistic. LME copper prices have fallen below USD 7,550/mt and will likely fall further, while the US dollar stands above 83. Besides, leaders of Italy failed to form a new government, and issues still exist for Cyprus bailout plan. In China, the introduction of specific rules for property market control by local governments will dampen base metal demand from housing sector. In this context, LME lead prices may possibly fall below USD 2,100/mt this week. Spot lead prices in China are expected to be RMB 14,150-14,250/mt as downstream buying interest will be undermined given falling lead prices.
Major domestic cities released detailed regulations to the property market, weighing down zinc prices somewhat. SHFE 1306 zinc contract prices opened at RMB 14,705/mt today. As both official and HSBC’s PMI for China fell short of expectations, the Shanghai Composite Index closed down 0.1%.SHFE zinc prices dipped to RMB 14,600/mt after opening, and then fluctuated between RMB 14,640-14,660/mt during the day, and finally closed at RMB 14,610/mt, down RMB 160/mt or 1.08%. Trading volumes increased by 2,470 lots, to 27,450 lots, and total positions decreased by 3,572 lots to 115,222 lots. Trading volumes of SHFE 1307 zinc contracts increased by 22,340 lots, to 64,440 lots, and total positions increased by 10,720 lots, to 107,706 lots, the contract may become the most actively traded contract tomorrow.
SHFE 1306 zinc contract prices opened low and then fluctuated weakly as China's March PMI fell short of expectations. Discounts of #0 zinc against SHFE 1306 zinc contract prices were RMB 80-100/mt, with traded prices between RMB 14,540-14,570/mt. #1 zinc prices were RMB 14,520-14,530/mt. traders were cautious as SHFE zinc prices lacked directions from the LME market due to its closure. Downstream buying interest improved due to sufficient cash flows, but most purchased modestly, so overall transactions did not improve.
Zinc prices plunged due to growing Cyprus debt crisis as well as Italy’s political turmoil.
With regard to zinc price trends this week, 60% of market players surveyed by SMM believe zinc price should fluctuate weakly, with declines narrowing. LME zinc prices should move between USD 1,850-1,910/mt, and SHFE 1306 zinc contract prices should move between RMB 14,550-14,700/mt, with spot discounts between RMB 70-120/mt. The Reserve Bank of Australia, Bank of Japan, European central bank and Bank of UK will hold interest rate meeting for April this week. Currency is expected to rebound slightly, and European central bank President Mario Draghi’s statement will be a focus of markets. Situations in Cyprus stabilized after its banking sector reopened last week, and market concerns also eased. In the US, major economic data released last week was much better than forecasts, but the market was rarely affected due to the closure of LME. US will release its March non-farm and ISM manufacturing data this week, which are optimistic, and this will given strong supports to US stocks and zinc prices. By last Thursday, LME zinc inventories had fallen for eight consecutive days by nearly 30,000 mt, which will boost market confidence.
Downstream buyers will replenish stocks ahead of the Qingming Festival in China, and will give support to zinc prices, with spot discounts expected to narrow to RMB 70-120/mt.
40% market players believe zinc prices should extend declines due to ongoing European debt crisis. LME zinc prices should test RMB 1,812.5/mt, and SHFE 1306 zinc contract prices will point towards RMB 14,450/mt, with spot discounts against SHFE 1306 zinc contract prices narrowing to RMB 50-70/mt. March PMI from China, Europe and US will be released this week. China’s PMI released Monday morning fell short of forecasts, pushing down SHFE zinc prices. PMI from euro zone will be released on Tuesday morning, and if the data turns out to be negative, zinc prices should be weighed down further. Besides, Italy’s failure in forming a cabinet will continue to dominate the market. Due to political uncertainty, Moody’s plans to downgrade Italy’s sovereign rating, and political deadlock in Italy will also depress investor sentiment, which will weigh down zinc prices. Mixed attitude of US Federal Reserve officials towards QE3 policies will also enlarge zinc price fluctuation ranges.
Major domestic cities released detailed regulations to the property markets last weekend, which maintains major contents of national regulations. Transactions of second-hand houses soared after the 20% personal taxing was release, and once local regulations take effect, local second-hand house transactions will cool down, and the new home market will also rationalize. The LME market has been closed over the past two days, but positions on the SHFE market did not decrease sharply despite a lack of directions from the LME market. In domestic spot markets, downstream buying interest is low due to sluggish orders, so transactions will not improve.
Despite the lack of guide from LME tin prices, spot tin prices in China was dragged down on Monday by falling SHFE copper and depressed demand. Mainstream traded prices for spot tin were between RMB 149,500-152,000/mt, with a few deals done at RMB 149,000/mt. Trading was light due to falling prices, and market was bearish to tin prices in the short term.
There are only three trading days this week in China’s spot market given the Qingming Festival. SMM survey shows that 60% of surveyed market players believe tin prices will extend decline this week. The plunging SHFE copper on Monday left many investors bearish to market outlook. Although the US economic data were relatively positive, the influence of the European debt crisis and tightening monetary policy in China was stronger. Besides, the slight rebound in LME tin prices last week will unlikely give great support to domestic tin prices given the oversupply and waning demand in domestic market, leaving downward space for tin prices.
40% market players believe spot tin price should hold steady, noting that LME tin prices may rise marginally to USD 23,600/mt after LME restarts on Tuesday, lending support to domestic spot tin. Moreover, spot market saw fewer low-priced goods on Monday, and most tin smelters were reluctant to move goods, which will also help tin prices stabilize.
Jinchuan Group cut ex-works nickel prices by RMB 2,000/mt, to RMB 115,000/mt on Monday. In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were in the RMB 115,800-116,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 114,800-115,000/mt range. Without guidance from LME nickel market, Jinchuan Group’s price cut weighed down Jinchuan Group nickel prices to RMB 115,700/mt and Russian nickel prices to RMB 114,700/mt. With the coming of Qingming Day, dip-buying was reported and transactions were relatively brisk.
Based on SMM survey on market sentiment, 60% market players believe that LME nickel prices will fluctuate between USD 16,600-16,900/mt in following week. The Cypriot banking crisis and Italian political chaos still dominated market concern. In addition, central banks of Australia, Japan, UK and Europe will hold interest rate meeting. Besides, the US will announce non-farm employment data. SMM expects that market players will largely adopted a wait-and-see attitude and LME nickel prices will fluctuate around existing level before outcome of these risk events.
The remaining 40% market players believe that LME nickel prices will resume downward momentum to fall below RMB 116,600/mt in the following week. The pessimistic players were concern about conditions in China. First, China’s central banks has been conducting repos operation since the Chinese New Year holiday, sending signals of tightening liquidity. In late March, Chinese government issued strengthened regulation to rein in housing market, which triggered sell-off in China’s stock market. In addition, domestic steel mills demand for nickel was still sluggish. Some nickel suppliers cut offers, but still failing to boost transactions. Furthermore, LME nickel inventories surged from 140,000 in early 2013 to 165,000. These factors will all weigh down nickel prices.