SHANGHAI, Jun. 4 (SMM) –
SHFE 1309 copper contract started Monday RMB 570/mt higher at RMB 53,000/mt, bolstered by surging LME copper in the morning. The most active SHFE copper contract found its high at RMB 53,220/mt, but then sank to RMB 52,800/mt as worse-than-expected HSBC’s final China manufacturing PMI for May triggered sell-off. SHFE copper for September delivery, however, bounced back to the daily moving average at the tail of the session before closing at RMB 53,010/mt, up RMB 250/mt or 0.47%. Trading volumes and positions were down 97,698 lots and 8,246 lots, respectively. SHFE 1309 copper contract stabilized at several moving averages, and will likely rise further.
Spot copper in Shanghai was offered at a premium of RMB 100-260/mt over SHFE 1306 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 53,550-53,650/mt, and RMB 53,670-53,830/mt for high-quality copper. SHFE 1309 copper contract prices lacked upward momentum. Some traders aggressively sold off goods to generate cash in the morning, while others held offers firm. Spot copper came in many varieties and supply was plentiful, causing premium to narrow. Some middlemen bought spot copper while selling SHFE copper. Trading in spot market was muted after SHFE copper fell back, but some downstream producers purchased to need after SHFE copper stopped falling. In the afternoon, premiums for spot copper continued to narrow to RMB 70-230/mt, with traded prices down slightly to RMB 53,500-53,750/mt.
The latest SMM showed that 19% industry insiders are optimistic, expecting copper prices will rise further this week, with LME copper standing above the 60-day moving average to test USD 7,380-7,420/mt and SHFE lead challenging RMB 53,500/mt. A slew of US economic data will be released this week. The consumption and hosing data are expected to be bright, particularly non-farm payrolls which may help boost copper prices. Canceled warehouse warrant ratio for LME copper remained high at 38% and LME copper inventories began falling, which will also lend support to prices. Technical indicators also showed upward trends for copper prices. In China, injection of new capital in June will help enliven futures markets and increase volatility of copper prices. Reuters data showed that RMB 351 billion of bills and repos issued by China’s central bank will mature in June, including RMB 128 billion of bills and RMB 223 billion of repos. Bank bills worth RMB 110 billion and repos worth RMB 92 billion will mature this week (RMB 202 billion in total). In China’s spot copper markets, downstream buyers will begin replenishing goods for the Chinese Dragon Boat Festival, helping lift consumption. As such, some investors believe copper prices will continue the upward trend this week.
19% market players believe copper prices will stage a pullback this week, with LME lead down to USD 7,200/mt and SHFE lead to RMB 52,000/mt. Although the European debt crisis was not the market focus lately, the deteriorating employment placed mounting pressure on governments. Euro zone saw the highest unemployment rate of 12.2% in April. In response, some south European countries, including France, were granted a 2-year extension for achieving their 3% deficit reduction goal. This may help alleviate the pains suffered by these countries, but the economic downside was not reversed. Meanwhile, both IMF and OECD cut China’s GDP growth forecasts for 2013 and 2014, indicating unpromising prospect for China’s economy, which may depress market confidence. The increase in US equity markets was arrested by the noticeable decline last Friday. Despite the positive economic figures for US and UK released last week, both trading volumes and prices staged declines, reflecting investors’ caution and negatively affecting the US equities. Furthermore, the weak crude oil prices will also add to drags on copper prices. In spot copper markets, the large amount of copper imports arriving at China’s ports may lead to oversupply pressure in the market, combined with high selling interest among domestic cargo holders, premiums for spot copper are expected to slip further. As a result, copper prices are expected to fall back this week.
62% market players are cautious, noting that LME copper prices may still hover around USD 7,300/mt, and SHFE copper will hold steady around RMB 52,500/mt. Any economic recovery or growth at present is the result of massive easing policies, meaning that any report on tapering QE will be a blow to the markets. Although US Fed’s retreat from the QE is not confirmed, beneficiaries of the stimulus policy will start booking profits. Besides, the US dollar index shows no cleat direction, which may also limit any large swings in copper prices. In China, the amount of unlocked shares in June will see marked decrease and the present no sharp weekly changes. A-shares will experience less pressure but may test 2,300 repeatedly. In this context, most industry insiders believe copper prices will still move narrowly this week.
SHFE 1309 aluminum contract became the most active one on Monday, which opened higher at RMB 14,845/mt, but then dipped to RMB 14,815/mt as investors were cautious. In the afternoon, SHFE three-month aluminum contract surged above RMB 14,900/mt on long buying. Finally, the most active SHFE aluminum contract closed at an intraday high of RMB 14,915/mt, up RMB 135/m or 0.91%, the best performer among base metals. Positions increased 2,230 lots to 49,376 lots. China’s May manufacturing PMI released by the National Bureau of Statistics and HSBC was in striking contrast, keeping investors wary. On the other hand, market fundamentals were positive, helping SHFE aluminum for August delivery extend gains, which should challenge RMB 15,000/mt in the short term.
Spot aluminum was traded at RMB 14,780-14,800/mt in Shanghai on Monday, a discount of RMB 20-40/mt over SHFE 1306 aluminum contract prices. Low-iron aluminum was traded around RMB 14,930/mt. Traders believe aluminum prices will rise this week as downstream producers build up stocks ahead of the upcoming Chinese Drag Boat Festival. SHFE 1308 aluminum contract prices stabilized at RMB 14,800/mt, sending spot aluminum up to near 14,800/mt as well. Downstream producers held to the sidelines at the beginning of the week, while middlemen were active purchasing, allowing traders to hold offers firm. Low-priced goods were quickly sold out, but buying interest waned at higher prices.
SMM aluminum price averaged RMB 14,770/mt on Monday, up from last week’s RMB 14,654/mt. A majority of the 44 aluminum ingot producers and traders surveyed by SMM are bullish over this week’s aluminum prices due to improving market fundamentals.
An overwhelming majority (68%) of market players believe aluminum prices will rise this week. First, aluminum inventories in trading markets dropped sharply by nearly 200,000 mt in May and will fall further to 1 million mt, tightening supply. Second, downstream producers will build up stocks before the upcoming Chinese Drag Boat Festival, also supporting aluminum prices. Third, the Chinese government has been working on measures to address aluminum overcapacity and protect the environment, which will force smaller aluminum smelters and those with outdated equipment to close. This will help improve market fundamentals, through only marginally. As such, LME aluminum will find support at USD 1,900/mt, while the most active SHFE aluminum contract will challenge RMB 15,000/mt. Spot aluminum is expected to climb to RMB 14,900/mt.
The remaining 32% of market players are neutral toward aluminum prices this week. First, China’s May manufacturing PMI released by the National Bureau of Statistics and HSBC was inconsistent, indicating stable production at medium and large enterprises against poor orders at smaller enterprise, which will drag China’s economic growth. Second, the European economy improves some, but remains in recession. Mixed US economic data sent the US dollar index down only slightly. Longs will take profits at highs. On the other hand, improving market fundamentals will help the light metal resist price declines. In this context, LME aluminum will struggle at USD 1,900/mt, while the most active SHFE aluminum contract will hover at RMB 14,900/mt. Spot aluminum prices will break through RMB 14,800/mt, but will retreat from this price level after pre-holiday restocking is completed. Cargo holders will be more willing to sell at highs, but middlemen will shy away from high-priced goods, which will stall any substantial uptick in aluminum prices.
SHFE 1307 lead contract price started higher at RMB 14,060/mt boosted by the rising LME lead prices last Friday, and moved between RMB 14,030-14,060/mt. Prices gained buying support at RMB 14,050/mt and rose before closing at RMB 14,090/mt, up RMB 85/mt. Trading volumes fell 88 lots to 120 lots, and positions increased 12 lots to 2,104 lots.
Spot lead prices in China increased RMB 50/mt on Monday, as some downstream buyers began replenishing goods for the Chinese Dragon Boat Festival. Chihong Zn & Ge was quoted at RMB 13,950/mt, with spot discounts of RMB 100/mt over the most active SHFE lead contract price. Tongguan was quoted at RMB 13,920/mt, and Hanjiang was offered at RMB 13,900/mt, with traded prices RMB 20/mt lower than quotes. Cargo holders moved goods normally. Trading improved from last week.
According to the latest SMM survey concerning lead price trends this week, industry insiders believe lead prices will keep vacillating or stage a slight rebound this week.
Of the market players contacted by SMM, 60% believe LME lead prices will unlikely maintain the strong trend this week following last week’s 6% surge, and may hover around USD 2,200/mt. SHFE 1307 lead contract price will test RMB 14,000/mt and spot lead prices may remain below RMB 14,000/mt. The US economic figures were reported mixed, and direction of US dollar index remains unclear. Besides, EU economy is experiencing a mild recession with unemployment rate in Spain and Italy still high, adding to uncertainty to European debt crisis. China’s recovery is also weak. Meanwhile, LME copper met strong resistance at USD 7,400/mt, which may add to drags on other base metals. In China’s spot lead markets, most market players believe the pre-holiday replenishments by downstream buyers ahead of the Chinese Dragon Boat Festival may not reverse the depressed consumption. Thus, lead prices will obtain little support.
The remaining 40% industry insiders are relatively upbeat, noting that LME lead inventories have fallen about 30,000 mt since May to the 219,000 mt at present, with canceled warrant ratio soaring to 77%, while the USD 8/mt spot discount for LME lead also turned to a premium of USD 6/mt. These may help bolster further increase in LME lead prices. Technically, LME lead prices have crossed above the middle Bollinger band, which allows the prices greater chance to stand above USD 2,200/mt this week. In China, spot lead prices are only RMB 50/mt below the RMB 14,000/mt mark. Bullish smelters will be reluctant to move goods at prices lower than RMB 14,000/mt, leaving supplies limited. Downstream buying interest may improve prior to the Chinese Dragon Boat Festival. In this context, spot lead prices may be driven to rise above RMB 14,000/mt.
SHFE 1309 zinc contract prices opened RMB 115/mt, higher at RMB 14,890/mt. China's official PMI in May fell short of expectations with 54.3, and HSBC announced China's May PMI was revised downward from 49.6, to 49.2. SHFE zinc prices touched an intraday high of RMB 14,915/mt immediately following opening, but fell back to RMB 14,830-14,850/mt as longs left the market with profit-taking. But since shorts exited the market at the end of trading, SHFE zinc prices closed at RMB 14,880/mt, up RMB 105/mt or 0.71%. Trading volumes decreased by 13,144 lots, to 75,282 lots, and total positions decreased by 2,126 lots to 168,202 lots.
SHFE zinc prices opened higher but later fell back below the 60-day moving average. #0 zinc prices ranged from RMB 30/mt below to RMB 10/mt above SHFE 1309 zinc contract prices, with traded prices between RMB 14,810-14,850/mt. #1 zinc prices were between RMB 14,800-14,810/mt. Prices of the Shuangyan brand were between RMB 14,830-14,850/mt, with price of Yuguang around RMB 14,830/mt, and prices of Baohui, Qinxin and Shuikoushan around RMB 14,820/mt. Cargo holders moved goods actively due to rising zinc prices, but downstream buying interest was low, keeping overall transactions muted. Spot discounts of #0 zinc against SHFE 1309 zinc contract prices were between RMB 40-0/mt, with traded prices between RMB 14,810-14,850/mt.
Last week, LME zinc prices led increases of base metals, rising above the 60-day moving average. Will zinc prices extend increases this week?
A most recent SMM survey shows 47% market players believe zinc prices will hover at high levels this week. LME zinc prices will move between USD 1,900-1,950/mt, and SHFE 1309 zinc contract prices should struggle around the 60-day moving average, with spot prices close to SHFE 1309 zinc contract prices. Major economies will release their PMI this week, and the Reserve Bank of Australia, Bank of UK and European central bank will hold their interest rate meeting for June, while US will announce its non-farm data this Friday. US Chicago PMI released last Friday was 58.7, much better than forecasts, and US CCI also topped expectations. But the growth of initial jobless claims last week depressed job expectations. US Federal Reserve Chairman Bernanke expressed the Fed will trim Quantitative Easing if economic data continues to improve. Data released this week will be guidance for US QE policy in mid-June, which will increase market fluctuations.
China's official and HSBC's PMI was mixed, adding to market uncertainties towards economic outlook.
27% see zinc prices rising, believing LME zinc prices will rise to test USD 1,970-2,000/mt, and SHFE 1309 zinc contract prices will test RMB 15,000/mt, with spot discounts expanding to RMB 50-80/mt. European central bank will announce its interest rate on Thursday, and President Draghi will hold a press conference after the policy meeting. European central bank lowered its benchmark rate in May to a record low of 0.50%, so the market believes the meeting will result in no change in the rate. Draghi stated recently the central bank will use negative interest rate when necessary, but even if the rate remains unchanged, the euro will gain ground, and will boost commodity prices. SHFE and LME zinc inventories have been falling for over a week, with canceled warrants surging to 65%, backing zinc prices to strengthen. Besides, those investors who bought copper and sold zinc closing positions will drive up LME zinc prices. But increases of SHFE and spot zinc prices will be limited due to sluggish demand, and will refrain LME zinc price gains.
26% are bearish towards zinc price trends, believing LME zinc prices and SHFE 1309 zinc contract prices will fall to test moving averages, with spot premiums against SHFE 1309 zinc contract prices widening to RMB 20-50/mt.
The galvanizing market has been anemic after the Chinese New Year holiday, so, when combined with the onset of the low demand season, inventories across China stand high. Steel plants continued to lower ex-works prices of galvanized plate, sheet and strip, with pessimism prevailing in the market, and traders all depleting inventories. The end of the subsidy policy to home appliance in June will also distress market confidence.
On June 3, traded prices in Shanghai spot tin market were mainly at RMB 143,000-144,500/mt. Prices for brands from Jiangxi were RMB 143,000/mt, while deals for Yunheng and Yunshan were mainly traded at RMB 143,500-144,000/mt. Yunxi was traded at RMB 144,000-144,500/mt. Trading was still thin with bearishness prevalent in the market.
SMM survey on tin price trends this week shows that 50% market players expect tin prices to fall this week. LME tin prices remained low with strong resistance, and failed to make a breakthrough on Monday despite the general increases in other base metals. Moving range for LME tin prices is also narrowing. As such, some believe LME tin will test lower level at USD 20,800/mt and may fall further to USD 19,500/mt if prices fall below this level. On the other hand, domestic tin consumption remained soft. Despite the upcoming Chinese Dragon Boat, the replenishing demand will be limited given depressed economic conditions.
40% investors believe stop tin prices will remain stable this week. The fallback of US dollar index will certain support to base metals. The China official PMI and PMI data for euro zone nationals were reported positive, lifting market sentiment. Although LME tin prices followed a weak track, the support at USD 20,800/mt will be relatively firm. In this context, the pre-holiday replenishments will help keep spot tin prices stable if LME tin prices manage to hold steady.
The remaining 10% investors believe tin prices may rise this week, noting that although LME tin failed to rally on Monday, the strong trends of other base metals and falling US dollar, as well the rumors that the government will purchase base metals for state reserve, will help boost LME tin prices. This may in turn drive up spot tin prices in China.
In Shanghai, Jinchuan nickel prices were between RMB 105,200-105,300/mt in the morning session, while Russian nickel prices were between RMB 104,200-104,300/mt. The market remained cautious, and traders began to hold back goods in the afternoon as LME nickel prices soared, keeping transactions extremely muted.
It was reported recently that the SRB will purchase 30,000 mt of nickel reserves. But SMM confirmed that traders and nickel importers have not heard about that, and most traders believe spot market will be rarely affected even if the SRB purchases nickel reserves, because the purchase will be made from a few enterprises or overseas. Upstream enterprises understand that the SRB intends to purchase nickel reserves, but details are under discussion. They believe the reserves purchases will unlikely reach 30,000 mt, but much more than the volume purchased last year's end.
A most recent SMM survey shows 60% market players believe LME zinc prices will close this week at USD 15,000/mt, and are expected to reach USD 15,200/mt if economic data to be released soon come in positive. The US Labor Department announced last Thursday that the number initial jobless claims for the week ending May 25 increased by 10,000, to 354,000, compared to the 340,000 expected, and the number for the week ending May 18 was revised from 340,000, to 344,000, meaning the US job market deteriorated. The annualized US Q1 GDP rose 2.4%, which is revised downward from the initial data. Worse-than-expected US data pushed down the US dollar index, paring pressure for LME nickel prices. Besides, nickel prices will remain firm as large amount of capital was injected to the market. The nickel reserves purchase by the SRB will also caused some buyers to push up nickel prices.
40% market players believe despite LME nickel prices soared on Monday, they will roll back early gains soon due to the weak fundamentals, falling back to USD 14,700-15,000/mt. They based their opinion on the continuously climbing global nickel supply. Nickel output in Brazil in April was 6,839 mt, up 43.2% MoM, and up 32.8% YoY. The nickel project in Madagascar, jointly invested by Sherritt International, SNC Lavalin, Japan's Sumitomo and Korea Resources, will be put into production soon. The nickel project has a designed capacity of 60,000 mt/yr, and will produce 8,000-13,000 mt of nickel this year. Besides, domestic nickel expansions include the RMB 11 billion of nickel project by Yinyi Group in Zhanjiang, 5,000 mt/yr of nickel project by Xinjiang Nonferrous Metals. By May 30, LME nickel prices hit a new high of 180,492 mt. In this context, Xstrata closed its nickel mine in Austrlia; Norilsk also cut nickel ore output in Australia. But oversupply will continue to exacerbate given fierce market competition and sluggish downstream enterprises, so they believe nickel prices will hardly extend their increases.