SHANGHAI, Apr. 28 (SMM) – Base metals prices staged big swings this week. The manufacturing PMI data for China, US, and euro zone were reported disappointing, and unemployment rate in Spain and France rose sharply. Meanwhile, Germany – the core euro zone member – was also burdened by the European debt crisis, fueling concerns over the slowing global recovery. Coupled with the continued pressure of shorts selling, base metals prices, represented by copper prices, dipped to new lows. However, the stronger expectation for interest rate cuts by the European Central Bank and caused the euro to rise above 1.30, while the US dollar fell after meeting resistance at 83. The profit-taking by shorts pushed metals to rally. SMMI.Cu increased 3.24% for the week, while SMMI.Ni gained 1.6% after dramatic shifts. Jinchuan Group raised its ex-works prices twice by a total of RMB 2,000/mt in accordance with the rebound. SMMI.Sn and SMMI.Zn increased 2.11% and 2.01%, respectively, and SMMI grew 2.3% this week.
Copper price fluctuations will increase in the coming week. The latest US job data was upbeat, but manufacturing activity is still sluggish. US Federal Reserve Chairman Bernanke commented on supervision of the financial sector during his speech to the FSOC, but did not expressed any viewpoint regarding US economic conditions or monetary policy outlook. US April ISM manufacturing, April Chicago PMI, US Conference Board CCI, US April ADP employment data, April’s unemployment and non-farm employment rates will all be released in the coming week, which many analysts expect to be mixed. US stocks are expected to rise and the US dollar index will fluctuate widely looking for direction. Crude oil and gold prices will continue to rebound, helping boost LME copper prices, but struggles between shorts and longs will cause price ranges to widen.
Uncertainties surround the German and French economies are growing as Germany’s economic situation worsens. Combined with ongoing Cyprus crisis and Italy’s political impasse, the likelihood of the ECB lowering interest rates is increasing. The March CPI for the euro zone and EU was 1.7% and 1.9%, respectively, down 0.1% from February levels. These indices mirrored the current low inflation rate in Europe, and when combined with continuously falling crude oil and gasoline prices, short-term inflationary pressure will be low. In this context, the ECB is expected to lower interest rates by 25 basis points in this coming week in order to stimulate sluggish credit loans and ease debt pressure in peripheral countries. The euro will remain near the current 1.30 level, with shorts capitalizing on risk aversion capital to push down commodity prices.
LME copper prices should edge up to USD 7,000/mt, moving between USD 7,000-7,300/mt.
The SHFE/LME copper price ratio fluctuated sharply during in April, especially in the latter half of April when it fell from 7.30, to 7.15. The lower ratio was a result of a large number of shorts rushing into the market, and as copper prices fell, total positions in the SHFE continued to hit record highs, climbing to over 950,000 lots, or up 48.4%, from the 623,000 lots level last June and July when copper prices were also low. Shorts will now likely leave the market ahead of the holiday and cause significant price fluctuations. SHFE copper prices will be subject to LME copper prices during the coming week due to the three-day Labor Day holiday in China, with prices fluctuating between RMB 50,000 -52,000/mt. In addition, the People’s Bank of China recently implemented a RMB 18 billion 28-day repurchasing operation on April 25th through the use of interest rate bidding, with the bidding rate stabilizing at 2.75%, down RMB 25 billion from the same period a week earlier. A total of RMB 152 billion of capital came due last week to supplement cash flows, including RMB 62 billion repurchasing and RMB 90 billion in central bank notes, allowing a net injection of RMB 124 billion in capital. However, due to the large amounts of asset repurchasing and central bank bills coming due, the People’s Bank realized a net capital injection for the first time after withdrawing capital for nine previous weeks. The Standing Committee of the Political Bureau of the Central Committee’s recent meeting emphasized the commitment to stable macroeconomic policies, but to allow for flexibility when implementing microeconomic policies. The meeting also emphasized the use of reliable social policies, as well as positive fiscal policies and prudent monetary policies, controlling inflation, as well as the sustainable and healthy development of economy.
SHFE 1306 aluminum contract prices moved within a RMB 14,510-14,590/mt price range early this week. SHFE 1307 aluminum contract became the most active one on Thursday, with its the low-end price rising to RMB 14,600/mt but failing to break through RMB 14,700/mt as longs and shorts exited the market before the May Day holiday.
Spot aluminum in Shanghai climbed from RMB 14,400/mt to RMB 14,450/mt this past week, thanks to slowing inventory growth in east China and modest restocking downstream ahead of the three-day May Day holiday. Downstream producers, however, lost interest when prices rose further, leaving spot discounts at RMB 100/mt. Overall trading picked up some.
There will only be two trading days in China next week due to the three-day May Day holiday, with selling at highs and short-covering likely to keep aluminum prices within a tight price range in the coming week. LME aluminum prices will struggle at USD 1,900/mt, and prices for the most active SHFE aluminum contracts will hover around RMB 14,600/mt. Spot discounts of RMB 70-110/mt are expected over SHFE 1305 aluminum contract prices since more goods will arrive after the holiday and since downstream restocking will be limited.
SHFE 1306 lead contract price opened higher at RMB 13,945/mt as expected on Friday and soon rallied to RMB 13,990/mt, but resistance at RMB 14,000/mt was evident. Later, as the Shanghai Composite Index fluctuated down and as spot lead demand was weak, SHFE lead fell to move around RMB 13,850/mt and closed the day at RMB 13,875/mt. Traded volumes increased 94 lots to 188 lots, while positions increased 38 lots to 2,146 lots.
SHFE lead prices fell after opening higher on Friday, and cargo holders in China’s spot lead markets were reluctant to sell goods. Trading for spot lead was quiet and quotations were rare with many market players exiting the market ahead of the May Day holiday. Jinli, Wanyang, and Jinsha were quoted at RMB 13,780-13,800/mt in Wuxi, level with the SHFE 1305 lead contract price. Downstream buyers have completed pre-holiday replenishments and only watched on the sidelines.
A number of economic reports from Europe and the US will be released in the coming week, along with growing expectations that the ECB will loosen monetary policies. The market will lack Chinese investors due to the three-day Labor Day holiday in China. LME zinc prices will lack upward momentum and remain largely between USD 1,890-1,950/mt. SHFE 1308 zinc contract will become the most actively traded contract, but with prices meeting resistance at RMB 14,955/mt, leaving prices between RMB 14,700-14,950/mt and with spot discounts of RMB 120-140/mt.
Spot tin prices in China, influenced by LME tin prices, also rose this week, with mainstream traded prices at RMB 144,000-145,000/mt on Friday. Smelters were not willing to sell goods and held quotations firm. Quotes from Yunnan Tin Group were raised to RMB 149,000/mt on Friday. Downstream buyers started purchasing on rising prices, leaving trading improved early this week. Goods available to the market reduced due to low selling interest, further driving up spot prices. Hence, trading turned light on Thursday as buyers considered prices unacceptable. On April 26, spot prices failed to continue the upward trend due to soft consumption and LME tin meeting resistance.
On Friday, Jinchuan Group raised ex-works prices for refined nickel to RMB 108,000/mt (large panel), and RMB 109,200/mt (small in barrel), up RMB 2,000/mt. In the Shanghai nickel spot market, #1 nickel averaged RMB 108,600/mt, down RMB 1,100/mt from a week earlier. With signs of prices rebounding, traders and producers held quotations firm. Downstream producers, however, showed little acceptance of the higher prices. LME nickel prices continued to rising during the last two trading days of last week. Market trading sentiment also improved as a small number of traders entered the market after price rallies. There will be only two trading days this coming week for the May Day holiday. Trading is expected to be quiet in China’s domestic nickel markets.