SMM Base Metals Weekly Price Review and Forecast (17-21 Jun. 2013)

SHANGHAI, Jun. 17 (SMM) – Most of the US employment and retail sales data released since early June beat forecasts, rekindling worries that the US Federal Reserve will taper off QE3. As a result, the US dollar index and US stocks both plunged due to sell-off. Chinese and European economic indicators announced before the three-day Chinese holiday were depressed and Nikkei suffered losses, dampening market sentiment. Base metals in China fell along with LME base metals following the holiday, with SMMI down 1.83%. Prices of copper, aluminum, zinc and nickel all lost more than 1%, except for lead and tin, which fell only slightly. LME nickel led losses among base metals, plunging 7.6% to a four-year low. Nickel in China also underperformed other base metals, with SMMI.Ni tumbling 4.44%. Jinchuan Group has not yet announced plans to cut nickel prices, though. Latest China Customs data show that China’s imports of copper and copper semis fell steeply, sparking worries over copper demand in China. Spot copper was sold at discount due to abundant supply. As such, SMMI.Cu trimmed 2.15%. Base metals are still under downward pressure.    

Copper
Overseas markets were dominated by short momentum during the Dragon Boat Festival in China. US May non-farm employment figures was better than forecasts, while May unemployment rate rose to 7.6%, causing concerns over US economic growth and that the US Federal Reserve will scale back debt purchasing. China Customs reported China’s YTD unwrought copper and copper semis imports through May decreased significantly YoY, and the NBS released May PPI slid YoY and fell short of expectations. The World Bank lowered its outlook for global economic growth, down from 2.4% expectations in January, weighing down the market. US stocks fell before rising, and the US dollar index tumbled below 81, but failed to boost commodity markets. Meanwhile, slumping Asian stocks also distress market sentiment. LME copper prices continued to fall, dipping to USD 7,011/mt at the end of the week, or a drop of 1.5%. Total positions increased by 8,000 lots.

SHFE copper prices continued to drop along with China’s stocks markets, dipping to RMB 51,250/mt, with weekly declines in excess of 3%. Total positions increased by nearly 60,000 lots.

In the spot market, the price spread between SHFE 1306 and SHFE 1307 copper contract expanded to RMB 400/mt. As the SHFE/LME copper price ratio jumped, cargo holders lowered premiums to move goods, leading to ample supply in the market. Speculators entered the market later in the week as spot premiums continued to fall, shifting to discounts, while downstream buyers purchased at lower prices, causing transactions to improve.

Aluminum
SHFE 1309 aluminum contract opened lower at RMB 14,680/mt on the first trading day following the Chinese Dragon Boat Festival, a 1.7% plunge, due to falling LME aluminum. The most active SHFE aluminum contract, however, did regain RMB 14,700/mt positive market fundamentals enticed short-covering and long-buying. That being said, any rising impetus was seen quite limited due to anemic trading activity.

Spot aluminum inventories continued to drop after the three-day holiday due to fewer shipments arriving over the holiday and growing demand for restocking, albeit at a slower pace. Production cuts at smelters also helped aluminum prices resist declines. Traders held offers firm, and some downstream producers purchased in modest amounts following the holiday break, keeping mainstream traded prices at a premium of more than RMB 20/mt over SHFE 1306 aluminum contract prices. However, tumbling SHFE aluminum dragged spot aluminum below RMB 14,800/mt, leaving market players cautious about future prices.    
 
Lead
There were only two trading days in China last week, and SHFE lead prices started the first trading day below the 30-day moving average due to falling LME lead prices during the Chinese Dragon Boat Festival and the 3% plunge in domestic stock markets, and only moved around RMB 13,800/mt last Friday. Positions for the most active SHFE lead contract were down 36 lots to 1,782 lots, and traded volumes fell 664 lots to 132 lots. Investors opted to watch on sidelines. Warehouse warrants for SHFE lead, though changing quickly, still showed downward trend, and domestic lead supply was tightening, so the most active SHFE lead contract price will unlikely extend the declines and may move between RMB 13,800-13,950/mt this week.

Trading in China’s spot lead markets was quiet, with cargo holders supplying goods normally and downstream buyers staying out of the market. Traded prices for spot lead were mainly between RMB 13,800-13,900/mt, with premiums of RMB 70-100/mt against the most active SHFE lead contract price. With the approach of the delivery date, increasing warrants may help ease the tightness in lead market this week, but lead-acid battery producers will still purchase as needed due to inventory pressure and limited orders. However, traders will be aggressively moving goods, and spot lead prices are expected to be RMB 13,800-13,950/mt this week.

Zinc
The market was dominated by short momentum due to expectations that the US Federal Reserve will scale back monetary policies, pushing down LME zinc prices to USD 1,840-1,890/mt. The market was absorbing sluggish economic data during the Chinese holiday, and stocks markets slumped upon reopening, triggering concerns over China’s base metals demand.

SHFE zinc prices plunged with LME zinc prices during the two trading days, but were more resistant to declines than LME zinc prices, with the SHFE/LME zinc prices jumping to 8. SHFE 1309 zinc contract prices opened low after reopening, falling below all moving averages, testing RMB 14,500/mt and once dipping to RMB 14,480/mt, rolling back early gains. Trading volumes decreased by 195,000 lots, and total positions increased by 1,994 lots.

In the spot market, #0 zinc prices rose from close to SHFE 1309 zinc contract prices levels to premiums in excess of RMB 100/mt. Prices in Guangdong were flat at SHFE 1309 zinc contract prices before delivery, while spot prices in Shanghai were firm due to limited supply, causing premiums to expand. SMM sources report zinc ingot inventories in Guangdong grew by 2,000 mt, while inventories in Shanghai fell slightly, with the price spread between the two regions widening from RMB 90-100/mt two weeks ago, to RMB 140/mt. Traders stood on the sidelines due to the lack of arbitrage opportunities, and downstream buying interest was low, keeping transactions muted.

Tin
Spot tin prices in China fell RMB 750/mt on the first trading day after the Chinese Dragon Boat Festival due to the falling LME tin prices during the break, and fell another RMB 250/mt last Friday to RMB 140,500-142,000/mt. The fallback of LME tin prices and sluggish consumption in spot markets as well as lower prices offered for Jiangxi’s brands drove spot tin prices to drop quickly. Trading was rather quiet last Thursday and improved slightly Friday. Most downstream buyers replenished goods ahead of the holiday, leaving strong wait-and-see mood in the market.

Nickel
The average price of #1 nickel during the week ending June 14 was RMB 101,850/mt, down RMB 4,050/mt. As LME nickel market tumbled during the Chinese Dragon Boat Festival, spot prices in the Shanghai nickel market dropped after resuming trading. There were only two trading weeks last week, and some downstream producers made some purchasing after the holiday, but falling LME nickel prices depressed downstream buying interest. Hence, overall trading was thin.