SHANGHAI, Apr. 16 (SMM) –
Plunging LME copper overnight caused SHFE 1308 copper contract to open RMB 1,090/mt lower at RMB 54,000/mt on Monday. The Shanghai Composite Index declined as China’s GDP missed forecasts, and LME copper dived to USD 7,300/mt, sending SHFE copper down as well. Longs exited the market as a result, dragging the most active SHFE copper contract down to RMB 52,960/mt. Finally, SHFE copper for August delivery closed at RMB 53,380/mt, a loss of RMB 1,710/mt or 3.1%. Trading volumes and positions increased 354,000 lots and 44,878 lots, respectively. SHFE copper market was dominated by short selling.
Spot copper in Shanghai was quoted at a discount of RMB 50-200/mt over SHFE 1304 copper contract on Monday. Traded prices for standard-quality copper were between RMB 53,800-54,300/mt, and RMB 53,880-54,500/mt for high-quality copper. SHFE 1308 copper contract started the day more than RMB 1,000/mt lower, causing price gap among SHFE copper contracts to expand to RMB 200-300/mt on the last trading day of the SHFE 1304 current-month copper contract. Cargo holders continued to move goods at highs. More imported copper flowed in as the profit/loss ratio of imported goods further narrowed, keeping spot copper supply ample, and forcing suppliers to quote high-quality copper at discounts of RMB 30-50/mt and standard-quality copper at discounts of RMB 80/mt. Most transactions were concluded at RMB 54,300/mt in the morning, with some deals also completed higher at RMB 54,500/mt. SHFE copper for August delivery fell another RMB 500/mt during the second trading session compared with the first session, widening price gap among SHFE copper contracts to over RMB 500/mt. Cargo holders refused to sell at large discounts, holding offers at discount of RMB 100-200/mt. Market bearishness grew. Downstream producers intended to go bargain-hunting after SHFE 1305 copper contract becomes the new current-month contract, while traders would like to hold offers at premium after delivery of SHFE 1304 current-month copper contract. Spot copper traded prices slid to RMB 53,800-54,000/mt during the second trading session, a decrease of RMB 500/mt from the first session. Quotations were rarely reported in the afternoon with SHFE copper remaining weak. Prices for standard-quality copper were offered at discount of RMB 150-220/mt. However, the price gap among SHFE copper contracts narrowed to RMB 50/mt at the tail of trading, prompting cargo holders to raise quotations, with high-quality copper quoted at premiums of RMB 170-200/mt. Traded prices slipped to RMB 53,500-53,900/mt. A few traders started purchasing.
According to SMM survey, 63% market players believe copper prices will continue to fall this week, with LME copper testing USD 7,200/mt and SHFE copper falling to RMB 52,500/mt. Market was dominated by short selling pressure due to the negative economic figures for the US and China, and technical indicators also pointed downwards. Crude oil and gold staged a bearish outlook after falling sharply last Friday, which may be adverse to copper price movements. In addition, CFTC reported an increase in net positions as of the week ending April 9. Thus, many investors believe copper prices will keep falling this week, and LME copper may threaten to head towards USD 7,000/mt once falling below USD 7,200/mt.
24% industrial insiders are relatively cautious, expecting LME copper to hover near USD 7,300/mt and SHFE copper to move around RMB 53,500/mt. Despite the weak US economic data, US equities are showing surprise growth and hitting new highs. However, as equities are oversold, leaving uncertainty and high risk for future market, copper prices will be affected. In China, the A-shares fell below 2,200 on Monday, and resource sector was further weighed down by the lower-than-expected GDP growth and slumping gold. It will still take some time for Chinese stock markets to stabilize and rebounds are not expected in the short tern, but the central bank may conduct repos to keep a balance of market capital given the loose liquidity and increasing capital flowing into the market recently. Thus, the decline in A-shares will be capped. The RMB spot exchange rate appreciated to 6.1862 against the dollar on April 15, hitting a record high. The stronger RMB will keep narrowing losses for importing copper, and copper importers, including the finance-driven ones, are expected to enter the market, place oversupply pressure in copper markets. Besides, the SHFE/LME copper price ratio is on the rise with SHFE copper more resilient compared with LME copper, driving up premiums of imported copper. As a result, quotations for imported copper in domestic markets also increase. Meanwhile, the recovering downstream demand will allow buyers to purchase moderately at low prices, lending certain support to prices. In this context, copper prices are expected to hold steady.
The remaining 13% market players believe copper prices will stage a rally with LME copper rising to USD 7,400-7,450/mt, and SHFE copper standing above RMB 54,000/mt. Despite the rebound seen on Monday, the US dollar index may weaken this week which will help copper prices improve. Besides, market is still upbeat to the US housing data to be released this week, which will buoy copper prices. Moreover, shorts booked profits under the influence of negative news including the disappointing China GDP growth, which may allow higher chance for a rebound in copper market.
Plunging LME aluminum last Friday caused SHFE 1306 aluminum contract to open lower at RMB 14,620/mt on Monday. In the afternoon, the most active SHFE aluminum contract shed more than 1%, with the low-end price dropping to RMB 14,490/mt as China’s Q1 GDP grew less than expected. Finally, SHFE aluminum for June delivery closed down RMB 210/mt or 1.43% at RMB 14,505/mt. Positions shrank 2,168 lots to 78,764 lots. Concerns over global economic growth triggered sell-off in commodities. The most-traded SHFE aluminum contract was more resilient compared with other base metals, but its support at RMB 14,500/mt is weak.
Spot aluminum was traded at RMB 14,460-14,480/mt in Shanghai on Monday, a discount of RMB 40-70/mt over SHFE 1304 aluminum contract prices. Low-iron aluminum was trade around RMB 14,650/mt. SHFE 1306 aluminum contract tumbled, hurting sentiment. Traders rushed to sell out of growing bearishness, but downstream producers and middlemen held to the sidelines, sending mainstream traded prices below RMB 14,500/mt. Prices for some brand deliverable aluminum ingot were stagnant at this mark. In the afternoon, the most active SHFE aluminum contract dropped further, stimulating some traders to sell for cash at lower prices of RMB 14,430-14,450/mt. Overall trading was subdued.
SMM aluminum price averaged RMB 14,490/mt on Monday, down from last week’s RMB 14,524/mt. A majority of the 38 aluminum ingot traders and producers surveyed by SMM expect aluminum prices to fall back to RMB 14,400/mt this week due to plunging commodity prices on Monday.
An overwhelming majority (71%) of market players are bearish toward this week’s aluminum prices for three reasons. First, most of the global economic indicators for March missed forecasts, rekindling concerns over gloomy economic outlook. Second, slack demand also exacerbated worries over overcapacity. Third, LME aluminum fell for a fourth straight trading day to USD 1,800/mt, while SHFE 1306 aluminum contract is vulnerable at RMB 14,500/mt, with spot aluminum also dropping to RMB 14,430/mt on Monday. Limited demand will leave spot aluminum hovering around RMB 14,400/mt this week, though resilient due to cost support.
The remaining 29% of market players expect aluminum prices to struggle near RMB 14,500/mt this week for two reasons. First, although market sentiment is bearish, the US dollar index rebounded only slightly. Second, cost support will attract dip-buying. In this context, LME aluminum will struggle at USD 1,850/mt, while prices for the most active SHFE aluminum contracts are expected to hover at RMB 14,500/mt. Spot aluminum will bounce back to RMB 14,500/mt on falling inventories.
SHFE 1306 lead contract price opened nearly RMB 200/mt lower at RMB 14,230/mt on Monday due to the 2% slump in LME lead last Friday. Later, as China’s 1Q GDP growth was reported at 7.7%, lower than expectation, SHFE lead fell further to close at RMB 14,020/mt, down RMB 390/mt or 2.71% from the previous trading day. Traded volumes were up 80 lots to 156 lots, while positions were down 6 lots to 2,156 lots.
The slumping SHFE lead prices further undermined selling interest of cargo holders in spot lead markets. Quotations were rare, with Chihong Zn & Ge and Nanfang quoted at RMB 14,050/mt, RMB 150/mt lower than the SHFE 1306 lead contract price. Tongguan was offered at RMB 14,030/mt, down RMB 200/mt from spot lead prices last Friday. Downstream buyers were bearish and unwilling to purchase.
Several investment banks lowered gold prices as Cyprus reportedly planned to raise the funds by gold sales to deal with the financial woes, weighing down base metals. In this context, a majority of investors believe lead prices may be corrected this week according to SMM survey.
67% market players surveyed by SMM believe lead prices will start correction this week after the slump on Monday with technical indicators pointing upward and LME lead inventories still falling last week. Three major EU financial regulators jointly announced that the financial crisis in Cyprus would unlikely deteriorate. Besides, although the economic data in China and the US missed forecasts, the US dollar index is still under resistance and hovers around 82, while the US equities are on the rise with quarterly reports of the US companies show satisfactory performance. These may all lend support to lead prices, with LME lead expected to move above USD 2,000/mt this week. In China’s domestic spot markets, cargo holders will be more reluctant to sell goods, while downstream buyers will likely increase their purchases with declines in lead prices arrested, and spot lead prices are expected to move between RMB 14,050-14,200/mt, with rebound limited.
The remaining 33% market players expect lead prices to drop this week due to plunges in LME base metals last Friday and continued falls in Shanghai Composite Index, noting that LME lead may fall below USD 2,000/mt and spot lead prices will move near RMB 14,000/mt, hitting new lows for the year. The University of Michigan Consumer Confidence Index hit a low last seen in July 2012, and retail sales slipped unexpectedly in March, while gasoline consumption was down sharply. China’s GDP growth for 1Q was 7.7%, lower than expectation, signifying moderated recovery. In China’s spot lead markets, low lead prices caused lead-acid battery producers to limit purchase for fear of further falls in prices. Besides, price war in motive battery segment was reignited as producers were under great inventory pressure, also constraining spot lead demand. Despite low selling interest, smelters will continue produce to fulfill long-term contracts, and lead supplies in the market are ample with the approach of delivery date. Thus, these investors believe lead prices will be dragged down by oversupply.
LME zinc prices plunged last Friday as US major economic data fell short of expectations. SHFE 1307 zinc contracts prices opened low at RMB 14,570/mt, and then moved around RMB 14,600/mt. China's GDP growth and March industry value added were both lower than forecasts. Disappointing data from China and US triggered concerns that global economic growth will slow, and caused commodity and global stocks markets to plummet. In this context, LME zinc prices plunged and dipped to a record low last seen in July 2012, and closing at RMB 14,455/mt, down RMB 350/mt or 2.36%. Trading volumes increased by 68,790 lots, to 114,576 lots, and total positions increased by 10,792 lots to 153,590 lots.
SHFE 1307 zinc contract prices opened low and moved lower, hitting a record low last seen in July 2012, down RMB 320/mt by the end of the morning trading, or a drop of 2.16%. Discounts of #0 zinc against SHFE 1306 zinc contract prices were initially RMB 40/mt, and then narrowed to RMB 0/mt as SHFE zinc prices fell, with traded prices between RMB 14,440-14,510/mt. #1 zinc prices were between RMB 14,420-14,480/mt. Smelter unwillingness to sell goods enhanced, while traders took a wait-and-see attitude. Arbitrage traders released goods moderately due to narrowing spot discounts, and downstream buyers purchased modestly at lower prices, with overall transactions muted.
SHFE zinc prices continued to fall in the afternoon, with spot discounts of #0 zinc against SHFE 1306 zinc contract prices around RMB 10/mt, and with mainstream traded prices between RMB 14,380-14,400/mt.
Zinc prices surged initially last week but then fell, and were dragged down by poor major economic data from China and US on Monday. Will zinc prices stop falling this week?
According to a recent SMM survey, 57% of market players believe zinc prices will fall further. LME zinc prices will fall to test USD 1,812.5/mt, moving between USD 1,800-1,850/mt. SHFE zinc prices will find support at RMB 14,140/mt, with spot discounts against SHFE 1307 zinc contract prices narrowing to RMB 10-50/mt. US economic data released last Friday fell short of forecasts, while China's GDP growth in Q1 was 7.7%, also below the previous month and expectations, and scale-efficiency industry value added in March was lower than the previous month and forecast. This increased concerns that global economic growth will slow. In this context, commodities and global stocks markets plunged, dragging down zinc prices. The sluggish market sentiment will not fade this week, which will weigh down zinc prices. The US Federal Reserve officials will state this week since they have not reached an agreement on precise timing to end easing policies, which will affect the market. The market will focus its attention on Obama's budget bill for 2014, with the G20 finance minister meeting and central bank presidents meeting held during this Thursday and Friday focuses of markets, with the topic that what actions other countries will take after Japan release radical easing policies. Cyprus crisis is now growing, as it will need EUR 6 billion more than expected, with risk aversion increasing, which will continue to weigh down zinc prices.
In China, power consumption in March was 424.1 billion KWH, up 2% YoY, but down sharply from a 5.5% growth during January-February, showing China's economic is modestly improving. Besides, the H7N9 avian influenza spread, and will affect investor sentiment and weigh down domestic stocks markets, which will drag down commodity markets.
43% believe zinc prices should fluctuate weakly. LME zinc prices should fluctuate around USD 1,850/mt, and SHFE 1307 zinc contract prices will find support at RMB 14,400/mt, with spot discounts of RMB 50-70/mt. Earnings of Alcoa grew by 10% YoY in Q1, so the market is expecting fiscal earning reports from US. Besides, LME zinc inventories continued to fall, to 1,136,050 mt by last Friday, down in excess of 70,000 mt MoM, which will give support to zinc prices.
According to SMM statistic, due to the release of downstream demand and smelters slowing operations and holding back goods, zinc inventories in Shanghai, Tianjin and Guangdong have been falling since mid March. Smelters were more unwilling to sell goods due to high costs, causing tightness of some brands. As spot supplies continue to decrease, zinc prices will gain support.
Spot tin prices in Shanghai dived to RMB 146,000-147,500/mt on Monday as the slumping LME tin last Friday triggered market fears, fueling wait-and-see sentiment in the market and leaving trading modest. Yunnan Tin Group reported no quotations, and producers for non-leading brands were not willing to move goods. However, the limited supply gave no support to prices.
According to the latest SMM survey, 75% market players believe spot tin prices will fall further this week. The LME tin prices continued slipping on Monday and have room for further decline. Spot tin prices fell along with LME tin, while downstream buyers showed no strong demand and only stayed on the sideline. Although many tin smelters were reluctant to sell goods, supply in the market was ample, which failed to prevent prices from falling. In this context, most investors expect spot tin prices to extend decline this week, with the falls depending on performance of LME tin.
25% market players believe spot prices will stabilize, noting that LME tin prices are expected to stop falling, and the brief panic will unlikely result in a new round of falls. Besides, the low selling interest of smelters, including Yunnan Tin Group will help prices stabilize.
In Shanghai, Jinchuan nickel prices were initially between RMB 111,500/mt on Monday, and Russian nickel prices were between RMB 110,500/mt. But as LME nickel prices continued to fall, Jinchuan nickel prices once dropped to RMB 109,700/mt, while Russian nickel prices also plummeted to RMB 108,700/mt. The market took a wait-and-see attitude, keeping transactions muted.
According to an SMM survey, 70% of market players believe nickel prices will fall below USD 15,400/mt. The sharp declines over the past two trading days hit market confidence significantly. They based their pessimistic opinion on severe oversupply and sluggishness in China's economy. SMM understands that the second phase of Jiangsu Yongjin Machine Manufacturing's 60,000 sqm, 250,000 mt/yr project is expected to enter operation in H2. Southwest Stainless Steel (Yunnan) will similarly bring 600,000 mt/yr of stainless steel production online this year. Guangxu Jinhai has another 300,000 mt/yr in cold rolled thin plate production scheduled to enter operation in June. Beihai Chengde plans to add 1 million mt/yr this year. Fuxin Specialty Steel will contribute another 750,000 mt/yr in added capacity, and Henan Jinhui a final 200,000 mt/yr. In total, the new capacity listed above amounts to 3.10 million mt for this year, a strong indication that no relief is in sight from the chronic oversupply problem in stainless steel. Besides, most of these projects use NPI as raw materials, with the utilization rate of refined nickel down sharply. The stainless steel market will not turn around, so demand for nickel will be low. Besides, China's GDP in Q1 only grew slowly. The release of new regulations to the property market and tightening fiscal policies increased market concerns.
The remaining 30% believe LME nickel prices will stop falling and hover between USD 15,400-15,600/mt. They think some bargain hunters will enter the market as nickel prices fell to their lowest since 2010. SMM sources report that nickel inventories at two important nickel importers have reached 7,000 mt. It was also reported some plant plans to buy hundreds of nickel. Although the rumors are of low reliability, some market players did believe nickel prices have bottomed out. In general, they believe nickel prices will not drop further this week.