SHANGHAI, Apr. 23 (SMM) –
With LME copper being weak overnight, SHFE 1308 copper contract opened RMB 30/mt lower at RMB 50,440/mt on Monday. After its opening, the most active SHFE copper contract hit a high of RMB 50,750/mt before immediately falling back. Later, shorts entered the market again, and the Shanghai Composite Index dropped, sending SHFE copper for August delivery below RMB 50,000/mt again before mid-day. SHFE copper for delivery in four months sank to RMB 48,970/mt in the afternoon, and finally ended the day down RMB 1,430/mt or 2.83% at RMB 49,040/mt. Trading volumes of SHFE 1308 copper contract decreased 110,000 lots, while its positions increased 62,384 lots. Total trading volumes contracted 176,000 lots, while total positions were up 107,644 lots. No clear signs of stopping falling have been seen.
Spot copper in Shanghai was quoted at a premium of RMB 120-220/mt over SHFE 1305 copper contract on Monday. Traded prices for standard-quality copper were between RMB 50,500-50,650/mt, and RMB 50,560-50,780/mt for high-quality copper. SHFE 1308 copper contract slid all the way down, sparking strong bearishness. Cargo holders rushed to sell for cash at highs, leading to abundant supply and narrowing premium. Middlemen entered the market in the morning. Inquiries increased after the most active SHFE copper contract continued to fall near mid-day, but trading volumes remained thin. There was no room for arbitrage. Downstream producers purchased as needed at low prices and their pessimism over future prices is growing. In the afternoon, bearish mood was stronger as SHFE copper fell below RMB 50,000/mt. Cargo holders were eager to sell goods with premiums for spot copper at RMB 140-270/mt. However, few transactions were made and traded prices fell to RMB 50,050-50,350/mt.
According to SMM survey, no industry insider was optimistic to copper price trends this week. 81% market players believe copper prices will continue to fall with LME copper testing USD 6,600/mt and SHFE copper falling to RMB 48,000/mt. The numerous negative reports, including tragic end of the Cyprus crisis, the political standoff in Italy, and dangerous signal of Slovenia banking system, all led the EU and OECD to be pessimistic to euro zone economy. The meeting of G20 finance ministers and bank governors concluded in Washington DC April 19. The finance ministers appeared to soften on the austerity measures in affluent nations, and denied the opinion for setting targets for government debt reduction, indicating worries on slowing global recovery. Besides, Asmussen, Member of the Executive Board of the ECB stated April 20 that the bank may further cut interest rate should economic data for the euro zone remain weak, and once the interest rate cut is taken into consideration by more members, the euro may be weighed on. In addition, with the US dollar index standing above several moving averages, copper prices will come under greater downward pressure. Meanwhile, the positions of SHFE copper surged to 900,000 lots, with shorts dominating the market, indicating further decline in copper prices. Speculators also conducted arbitrage by selling copper and buying zinc, leaving selling pressure for copper prices. In China’s spot copper markets, cargo holders will be urgent to move goods with the month coming to an end, combined with no signal for copper prices to stop falling, premiums for spot copper will keep narrowing, leaving little support to SHFE copper. In this context, most investors expect copper prices to fall noticeably this week.
The remaining 19% market players are cautious, expecting LME copper to move between USD 6,800-7,070/mt and SHFE copper to hover around RMB 50,000/mt. PMI data for China, US and Euro zone will be released this week, and market expects the data will continue to recover, which may constrain the decline in copper prices. The latest data of CFTC showed a decline net position for copper to 24,127 lots as of the week ending on April 16, putting an end to the growth in net position and indicating the caution around the supporting level for copper prices. With RMB 152 billion expected to mature in domestic open market, the highest in 12 months, China’s central bank will likely step up the efforts to drain liquidity, leaving limited funds for investors to sell against falling prices. In China, the earthquake hitting Ya’an city of Sichuan province may influence listed companies in Sichuan with 11 industries affected. Market expectations are that the stock market will be negatively affected in the short term, but influence will be limited in the long run. Building material, medicine, and relief material manufacturers may see increase in the short term, but the A-shares are expected to continue vacillating on the whole, limiting any rise in copper prices. In spot copper markets, traded prices fell to nearly RMB 50,000/mt due to the slumping SHFE copper on Monday, but downstream buyers may be more willing to purchase once spot prices fall below RMB 50,000/mt, the consumption will give certain support to low-end prices. Thus, these investors believe copper prices will hold steady this week.
SHFE 1306 aluminum contract was mired in the morning session after opening higher at RMB 14,575/mt on Monday. In the afternoon, SHFE copper plummeted, sending the low-end prices of the most active SHFE aluminum contract down slightly. Finally, SHFE aluminum for June delivery closed at an intraday low of RMB 14,515/mt, down RMB 45/mt or 0.31%. Positions contracted 1,698 lots to 66,750 lots. The most-traded SHFE aluminum contract found support at RMB 14,500/mt as bearish sentiment has abated, and should move in tight ranges in the near term.
Spot aluminum was traded at RMB 14,400-14,430/mt in Shanghai, a discount of RMB 80-110/mt over SHFE 1305 aluminum contract. Low-iron aluminum was traded around RMB 14,580/mt. SHFE 1306 aluminum contract moved in tight ranges. Spot aluminum temporarily stabilized, but bearishness over future prices remains. Cargo holders were eager to sell, but downstream producers and middlemen held to the sidelines, leaving mainstream traded prices at the lower-end of the price range. Prices in Hangzhou, in contrast, edged up due to tight supplies. In the afternoon, plunging copper prices dampened market sentiment, but limited declines in SHFE aluminum allowed cargo holders to watch from the sidelines. Sparse quotes were reported at RMB 14,400/mt, but trading was muted.
SMM aluminum price averaged RMB 14,420/mt on Monday, down from last week’s RMB 14,442/mt. A majority of the 38 aluminum ingot traders and producers surveyed by SMM expect aluminum prices to stabilize at RMB 14,400-14,450/mt this week. This is because limited short selling will help aluminum prices resist declines, despite plunging copper prices.
78% of market players expect spot aluminum prices to find support 14,400/mt this week. Slowing global economic growth depressed base metal consumption and copper prices plummeted, undermining market sentiment. On the other hand, the US dollar had limited upward momentum, which will offer some support to aluminum prices. Besides, cost support and short-covering will also help aluminum prices resist declines. As such, LME aluminum should hold stable at USD 1,850/mt, SHFE 1306 aluminum contract will hover near RMB 14,500/mt. Stock replenishment before the upcoming Labor Day in China will help spot aluminum prices move within RMB14,400-14,450/mt.
11% of market players believe spot aluminum prices will break through RMB 14,450/mt for three reasons. First, spot aluminum prices proved resilient to declines on Monday. Second. Downstream producers will build up stocks for the upcoming Chinese Labor Day. Third, short-covering will also help lift aluminum prices briefly. In this context, LME aluminum will likely climb to USD 1,900/mt again, while the most active SHFE aluminum contract will test resistance at RMB 14,600/mt, with spot aluminum expected to bounce back above RMB 14,450/mt.
The remaining 11% hold the view that spot aluminum prices will be dragged by tumbling copper prices to below RMB 14,400/mt. LME copper retreated from USD 7,000/mt and SHFE copper also fell below RMB 50,000/mt. With bearish sentiment dominating the market, aluminum prices will edge down. LME aluminum is expected to find weak support at USD 1,850/mt, while SHFE 1306 aluminum contract may slip to RMB 14,400/mt. Spot aluminum will meet growing resistance at RMB 14,400/mt.
SHFE 1306 lead contract price was weighed on at the 5-day moving average after opening at RMB 13,830/mt on Monday. Prices held firm between RMB 13,780-13,800/mt in the morning trading session but fell to RMB 13,670/mt in the afternoon as spot lead demand remained weak and as SHFE copper fell below RMB 50,000/mt. The contract for June delivery finally closed at 13,700/mt, down RMB 165/mt or 1.19%. Traded volumes increased 214 lots to 426 lots, and positions dropped 86 lots to 2,036 lots.
SHFE lead prices followed a weak trend on Monday, and transactions in China’s spot lead markets were mainly for warehouse warrants. Chihong Zn & Ge was mainly quoted at RMB13,782/mt, while Nanfang was traded at RMB 13,730/mt. Warrants of Yubei and Shuangyan were quoted at RMB 13,730-13,740/mt, with premiums of RMB 10-20/mt against the SHFE 1305 lead contract price. As copper prices continued to fall, some market players believe SHFE lead may still fall. Downstream buyers were thus unwilling to purchase, and some smelters under financial pressures began selling goods. Trading remained light on the whole. Transactions were even quieter in the afternoon as SHFE lead fell further along with SHFE copper.
SHFE lead prices, unlikely copper prices, showed some resilient this Monday following the nearly 6% plunge last week However, most investors were still not optimistic according to SMM’s latest survey.
47% of the surveyed market players believe SHFE lead may stabilize after hitting a record low last week as market confidence was restored with declines in precious metals arrested. Meanwhile, despite the twists and turns, Giorgio Napolitano was re-elected as Italian president, raising expectations for the country’s political stability. Zhou Xiaochuan, governor of the People's Bank of China, said at the IMF’s Spring Meeting that the 7.7% YoY growth for China’s 1Q economy is in a reasonable range, and China will continue its pro-growth policies. In addition, the US dollar index met strong resistance at 83. These may all offer certain support to base metals. Thus, LME lead prices are expected to test USD 2,000/mt. In China’s spot lead markets, lead-acid battery producers, though in low-demand season, may increase purchases slightly given the approaching May Day holiday, while SHFE lead inventories fell 2,323 mt last week, which is beneficial to lead market. Moreover, lead smelters will cut production or hold prices firm due to losses, leaving spot lead quoted at premiums against futures prices. However, the upward trend will be limited, with spot lead prices expected at RMB 13,650-13,800/mt.
53% of them are pessimistic given the weak global economy and numerous negative reports, including lowered global growth forecast announced by IMF, negative economic data in the US, lingering European debt crisis, the worse-than-expected China 1Q GDP growth, and the earthquake hitting Ya’an, Sichuan province, which may affect China’s GDP. Furthermore, copper prices, bellwether of base metals, fell by the daily limit last week influenced by the slumping precious metals, adding to bearishness. SHFE copper prices have fallen below RMB 50,000/mt, further dampening market sentiment. Thus, these investors expect LME lead prices to fall below USD 2,000/mt to touch USD 1,980/mt. In China, the long-term depression in spot lead markets caused a surge in smelter inventories, and tight financing may force smelters to cut prices. In this context, spot lead prices are expected at RMB 13,500/mt this week.
SHFE 1307 zinc contracts prices opened at RMB 14,575/mt on Monday, meeting resistance at the 10-day moving average after touching RMB 14,620/mt, and then falling to RMB 14,570/mt, pushed down by shorts. As LME zinc prices dropped steeply in the afternoon, SHFE zinc prices were pushed up, dipping to a daily low of RMB 14,460/mt, and finally closing at RMB 14,480/mt, up RMB 5/mt. Total positions decreased by 3,792 lots to 127,974 lots.
SHFE 1307 zinc contract prices fluctuated high. Spot discounts of #0 zinc against SHFE 1307 zinc contract prices were between RMB 60-70/mt, with traded prices between RMB 14,490-14,510/mt. #1 zinc prices were between RMB 14,460-14,470/mt. Smelters were still holding back goods, while traders barely had arbitrage opportunity due to firm spot prices and steady discounts, and downstream buying interest was still low, keeping overall transactions muted. As SHFE zinc fell in the afternoon, prices for #0 zinc also inched down to RMB 14,450-14,470/mt.
Copper prices had been falling due to negative news, while zinc prices were more resistant to declines. Will zinc prices stand firm this week?
With regard to zinc price trends, 70% market players surveyed by SMM believe zinc prices will continue to struggle around the 5-day moving average, moving between RMB 1,870-1,900/mt. US March property data and CCI will be released this week. Despite US manufacturing and consumption data has been upbeat since 2H 2012, the negative effects from the automatic spending cuts policy effective in March shook investor confidence toward US economic recovery, so base metals prices will find no direction.
In China, HSBC's April PMI for China coming this week is optimistic. Inventories in the three major domestic regions fell below 500,000 mt, with end-user demand continuing to improve. Meanwhile, arbitrage traders buying zinc while selling copper also lend a support to zinc prices. Nevertheless, the Shanghai Composite Index will not extend increases due to the earthquake in Ya'an. As such, zinc prices' dynamic to rise will not persist beyond the immediate term, with prices expected to move between RMB 14,500-14,700/mt.
In domestic spot markets, most smelters have rare profits or have been suffering from losses as zinc prices have been moving close to the cost line, so were unwilling to sell goods. Spot prices are firm, with spot discounts against SHFE three-month zinc contract prices remaining between RMB 60-90/mt.
The remaining 30% market players are pessimistic toward zinc prices, believing LME zinc prices will sink to RMB 1,850-1,870/mt. Economic data from many euro zone countries will be released this week, with economies in Germany, France and euro zone expected to deteriorate, which will continue to push down zinc prices. Besides, the rising US dollar index will weigh on base metal prices.
Due to lingering downstream pessimism, the need to replenish stocks before the Labor Day holiday is weak, so spot transactions will remain sluggish. SHFE 1307 zinc contract prices will fall below RMB 14,500/mt, with spot discounts narrowing to RMB 60/mt.
Mainstream quotes for spot tin in Shanghai were between RMB 140,500-142,500/mt on Monday as LME tin held steady last Friday. However, as supply for non-leading brands declined and downstream buyers increased purchases, traders were unwilling to sell goods, with prices for non-leading brands up to RMB 141,000-141,500/mt.
SMM survey showed that 60% of market players expect spot tin prices will continue to fall this week. LME tin prices fell to a low of USD 20,240/mt on Monday, and will likely test lower at USD 20,200/mt. Bearish investors believe the negative influence of slumping LME tin will not be offset by the slight improvement in consumption. Besides, economic reports in the US and Europe remained negative, and market was still under the influence of plunging gold. That, combined with concerns triggered by the possible interest rate cut by the ECB and lower credit rating for the UK announced by the Moody’s and Fitch, pessimism is prevailing in the market.
30% market players believe spot tin prices may stabilize this week, noting that the LME tin will stop falling this week as prices have not yet fallen below USD 20,200/mt and the support at USD 20,000/mt is strong. In this context, some investors expect LME tin to hover around USD 20,500/mt, and spot tin prices will unlikely drop further but to remain flat.
The remaining 10% investors are optimistic, expecting tin prices to edge up. These investors believe LME tin prices may start technical corrections to test USD 20,700/mt. In domestic markets, Yunnan Tin Group still held prices firm at RMB 154,000/mt, and quotations for other leading brands also showed a sign to inch up. Besides, supply for non-leading brands reduced, leaving cargo holders reluctant to move goods. As such, some market players believe mainstream prices for spot tin may move up slightly.
In Shanghai, Jinchuan Nickel prices were initially between RMB 106,300-106,500/mt, while Russian nickel prices were around RMB 105,500/mt. As LME nickel prices rose at a time, traders were unwilling to discount goods, and pushed up Jinchuan nickel prices to RMB 106,500-106,600/mt. Transactions improved from last Friday, with downstream buyers purchasing modestly.
According to a recent SMM survey, 60% of market players believe LME nickel prices will fall below USD 15,000/mt. The WBMS announced last Wednesday, global nickel market is in surplus of 2,800 mt during January-February 2013 (global nickel surplus had reached 130,400 mt in 2012); the INSG released its monthly report showing global nickel surplus was 21,500 mt during January-February 2013; Macquarie Bank raised its forecast for global nickel surplus this year by 52% last week, to 82,000 mt (the estimated surplus was 54,000 mt a month earlier), and stated that was a result of weak demand outside China, and growing output as new capacities came online. Meanwhile, LME nickel inventories have been surging, up by 10,000 mt. By Monday, LME nickel inventories reached a new high of 173,976 mt, which weighed on nickel prices.
40% market players believe LME nickel prices should stop falling and fluctuate between RMB 15,000-15,400/mt for some time. According to SMM sources, prices around USD 15,000/mt are close to nickel cost lines, which is a strong support level for nickel prices, so some market players think nickel prices will hover around this level if there absent any significant negative news. But with existing negative news and climbing LME nickel inventories, the market was still weighed down, and will not gain ground in the near term. Those market players believe LME nickel prices will fluctuate at current levels, and will likely rebound briefly, but will fall once touching USD 15,400/mt.