SHANGHAI, May 13 (SMM) – Last week, manufacturing PMI data for major economies were reported weak, reflecting slow global recovery. Several central banks cut their interest rates to record lows, and the US dollar index fell below 82 due to numerous easing measures. European and US equities thus rallied and prices for oil and gold rebounded. SMMI increased 3.19% with SMMI.Cu up 4.65% and SMMI.Ni up 2.54%. SMMI.Sn and SMMI. Zn also grew 1.39% and 1.18%. However, lead prices were slow to rise with SMMI.Pb only edging up 0.36%. Most domestic smelters reported difficulty sourcing raw materials and planned to cut production. Meanwhile, operating rates at downstream producers maintained modest recovery, which may help support base metals prices. 

 

LME copper prices continued to climb from a near-term low of USD 6,800/mt, to USD 7,480/mt, and with daily gains of as much as 10% and outperforming other base metals. LME copper inventories began to fall after rising for nearly five consecutive months, and total positions exceeded 290,000 lots. 

 

China reported a global trade surplus in April, pushing up the Shanghai Composite by 1.3% and SHFE copper prices to RMB 53,000/mt, a gain of 3.73%. Trading volumes surged by 3.81 million, to 6.21 million lots, and total positions fell sharply by 104,000 lots, to 676, 000 lots, with the turnover rate remaining high. As speculators were unwilling to bear risks overnight, rebounds in SHFE copper prices were weaker than LME copper price gains.

 

In domestic spot markets, delivery will be made in the coming week. The price spread between SHFE 1305 and SHFE 1306 copper contracts remains around RMB 300/mt, but if the spread does not narrow noticeably ahead of the delivery, spot premiums will reverse, especially as SHFE copper prices continues to rebound. Expectations that some smelters will cut output due to scrap copper shortages will continue, which will allow cargo holders to hold back domestic copper and maintain prices. Improving downstream operating rates will also constrain spot copper discounts. 

 

On the first day of trading following the May Day holiday, prices for the most active SHFE aluminum contracts opened lower at RMB 14,300/mt before bouncing back to RMB 14,600-14,700/mt on cost support, short-covering and dip-buying by longs.    

 

SHFE 1308 aluminum contract moved less violently than LME aluminum due to inactive trading activity. SHFE three-month aluminum contract failed to break through the 30-day moving average and felt strong resistance at RMB 14,700/mt.

 

Relatively few shipments arrived over the three-day May Day holiday as consumption downstream picked up in Q2, especially in aluminum producing regions. Some smelters shipped goods to State Reserve Bureau (SRB) warehouses as well. When combined with restocking downstream before and after the holiday, east China inventories fell sharply. Falling inventories allowed cargo holders to hold back goods even when prices tumbled following the holiday, sending spot aluminum up to 14,530/mt from RMB 14,360/mt. Downstream producers resisted the price rises, though middlemen showed modest interest, but cargo holders refused to lower offers, leaving markets quiet.   

 

In the coming week, LME aluminum prices will struggle at USD 1,900/mt, while prices for the most active SHFE aluminum contracts will stabilize at RMB 14,600/mt. Limited spot aluminum supply will help spot aluminum prices remain near RMB 14,500/mt. Small premiums are expected over SHFE 1305 aluminum contract prices ahead of delivery of SHFE current-month contracts. 

 

SHFE 1306 lead contract prices gained support at the 10-day moving average and moved mainly between RMB 13,760-13,900/mt last week. This week, despite falling warrants for SHFE lead, prices will be unable to rise due to a lack of buying support and should hover between RMB 13,720-13,940/mt. 

 

Buying interest in China’s spot lead markets improved slightly last Monday due to a flash price rally. Spot prices then moved narrowly between RMB 13,800-13,850/mt and without clear direction. Cargo holders were unwilling to move goods due to cost pressures, while downstream buyers purchased based on production needs, leaving trading muted. In China’s domestic spot lead markets, trading will remain light given the weak demand for lead-acid batteries. Spot lead prices will remain stable between RMB 13,750-13,900/mt. 

 

Last week, commodity and financial markets were generally bullish due to the easing monetary policies worldwide, boosting LME base metals prices. LME zinc prices found resistance at USD 1,900/mt level, then generally fluctuated between USD 1,870-1,900/mt during the week and were more resistant to declines compared to other base metals. China’s April trade surplus was above market expectations at USD 18.16 billion, increasing market confidence toward China’s metal consumption. US corporate quarterly earnings reports were also optimistic, allowing zinc prices to fluctuate at highs, but an unexpectedly high Chinese CPI quashed speculation that China will lower interest rates anytime soon, so LME zinc prices weakened again under selling pressure.

 

In China, SHFE 1308 zinc contract prices moved between RMB 14,500-14,750/mt last week. With direction from the LME market, SHFE zinc prices opened high at the 20-day moving average early in the week, but China’s service sector PMI for April fell to a record low from  August 2011, increasing concerns over China’s economic recovery and weighing down zinc price to the 5-day moving average. Several major central banks cut interest rates, but higher-than-expected growth in China’s April CPI lowered speculation that China would cut rates. This news dragged down SHFE zinc prices below all moving averages. Total positions of SHFE zinc contracts increased by 11,634 lots. 

 

In domestic spot markets, SHFE zinc contract prices rose by RMB 200/mt from the previous week’s level. Smelters were unwilling to sell goods, causing spot supply to decrease. Traders were also unwilling to discount goods, allowing spot prices to rise along with SHFE zinc prices, and with spot discounts to flip from RMB 40-50/mt early in the week to premiums of RMB 10-20/mt. Downstream buying interest remained low, with transactions muted. The price spread between Tianjin, Shanghai and Guangdong expanded significantly. Prices in Tianjin for mainstream brands such as Chifeng Hongye and Zijin were RMB 200/mt higher than Shanghai prices due to tight supply and high operating rates at galvanized plate and sheet producers. The price spread between Guangdong and Shanghai also expanded from RMB 50/mt to RMB 100/mt due to the impact from imported zinc and sluggish downstream demand.

 

Domestic spot tin prices, boosted by rebound in LME tin prices and low selling interest of tin smelters, closed at RMB 145,000-146,000/mt last Friday. With fewer low-priced goods available to the market, spot tin prices increased steadily early last week, but high-end prices were deprived of impetus to grow. Thus, spot prices stabilized in the latter half of the week.

 

In the Shanghai nickel spot market, #1 nickel averaged RMB 106,620/mt, down RMB 1,980/mt from pre-holiday levels. Last week, rebounding LME nickel prices helped improve market sentiment, allowing downstream producers and traders to increase purchases. Meanwhile, arbitrage opportunities in domestic electronic trading markets also resulted in a more brisk trading sentiment. However, these conditions may not be sustainable if LME nickel prices lose momentum given current high stocks of both nickel and stainless steel.