SHANGHAI, Jun. 25 (SMM) –
SHFE 1310 copper contract opened RMB 330/mt higher at RMB 49,470/mt on Monday. After its opening, the most active SHFE copper contract was dragged down by sell-off. China’s A-shares dived 5.4% to 1,958.4 points. Meanwhile, LME copper tumbled below USD 6,700/mt in the afternoon, driving SHFE copper for October delivery down to RMB 47,900/mt, a new 20-month low. Finally, SHFE 1310 copper contract ended the day down RMB 1,190/mt or 2.42% at RMB 47,950/mt, with trading volumes up 13.3 lots and positions up 57,570 lots. Total positions increased 65,566 lots to nearly 830,000 lots. SHFE copper is expected to fall further.
Spot copper in Shanghai was offered at a premium of RMB 80-200/mt over SHFE 1307 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 49,500-49,620/mt, and RMB 49,550-49,700/mt for high-quality copper. SHFE 1310 copper contract drifted lower after a high opening, driving cargo holders to move goods at highs. Ample supply caused spot premium to narrow. Middlemen and downstream producers purchased only on an as-needed basis against liquidity crunch at the end of mid-year. In the afternoon, premiums for spot copper remained at RMB 50-150/mt, with traded prices falling to RMB 49,050-49,450/mt.
The latest SMM survey shows that 64% of market players are bearish to copper prices this week, believing LME copper prices will fall to USD 6,500/mt or even lower, while SHFE copper prices will fall to RMB 47,000/mt. Most investors sought shelter in the US with commodities falling across the board, and once the US dollar index breaks through the 60-day moving average, it may possibly rally to 83.6, weighing down copper prices. Besides, crude oil and gold were also depressed, which will influence the copper price trends. In China, large companies are in urgent need for cash flow and withdrawing their funds from stock and futures markets, resulting in the plunge in A-shares, and the liquidity crunch will continue to affect equities and futures markets. In addition, some RMB 30.9 billion of stocks will be unlocked this week, up RMB 4 billion or 17.52% from the previous week, which will further drag down stocks. In this context, copper prices may seek support at lower levels.
31% of market players believe copper prices will remain stable with LME copper hovering around USD 6,800/mt and SHFE copper around RMB 49,000/mt. In the US, durable goods orders, housing data, and local PMI will be released this week, and market will be cautious before the releases, but most investors are optimistic given the recent recovery. This may help support the US equities and copper prices. In spot copper markets, the rising SHFE/LME copper price ratio encouraged copper imports, driving up copper supplies in domestic spot markets. Besides, copper smelters also resumed production to meet the mid-year output target, which will also push up copper supply. On the other hand, downstream consumption is expected to improve with buyers replenishing stocks after copper prices fell below RMB 50,000/mt. As a result, these investors expect copper prices to vacillate this week.
The remaining 5% investors were optimistic, noting that LME copper prices may still rise to USD 7,000/mt, and SHFE copper prices may return to RMB 50,000/mt, as copper prices may start correction following the sharp decline. In addition, despite increasing copper inventories, canceled warrant ratio surged to 50%, indicating that copper inventories may fall. Meanwhile, the falling refined copper prices and resilient scrap copper prices are persuading some downstream buyers to shift to refined copper market. The improving consumption will help boost copper prices. Thus, these investors expect copper prices to rally this month.
LME aluminum slipped into negative territory for an eleventh straight day last Friday, but losses were limited, allowing SHFE 1310 aluminum contract to open flat at RMB 14,325/mt on Monday. The struggle between longs and shorts left the most active SHFE aluminum contract hovering at RMB 14,300/mt in the morning session. SHFE aluminum for October delivery, however, tumbled to RMB 14,235/mt in the afternoon session as a nearly 5.5% plunge in China’s A-shares triggered panic sell-off. Finally, the most active SHFE aluminum contract closed down RMB 70/mt or 0.49% at RMB 14,255/mt. Trading volumes decreased 3,970 lots to 10,426 lots, but positions added 3,254 lots to 66,964 lots. Judging from the technical indicator, SHFE aluminum for October delivery will meet strong resistance at RMB 14,300/mt in the short term.
Mainstream traded prices for spot aluminum in Shanghai were RMB 14,410-14,430/mt on Monday, a discount of RMB 10-30/mt over SHFE 1307 aluminum contract prices. Low-iron aluminum was traded around RMB 14,570/mt. SHFE 1310 aluminum contract held stable, boosting market confidence. Cargo holders remained eager to sell against tightening liquidity, and downstream producers and middlemen stepped up purchases before liquidity tightens further, helping mainstream traded prices hold stable at RMB 14,420/mt. Overall trading was modest. In the afternoon, SHFE aluminum fell along with A-shares and SHFE copper, turning sentiment in spot market bearish. A few traders held offers at RMB 14,400/mt, but trading was subdued.
SMM aluminum price averaged RMB 14,410/mt on Monday, down from last week’s RMB 14,622/mt. A majority of the 40 aluminum ingot producers and traders surveyed by SMM believe weak global economic growth, faltering demand and tightening liquidity at the end of mid-year will drag aluminum prices down this week.
An overwhelming majority (80%) of market players express pessimism over this week’s aluminum prices. First, sustained growth in the US economy will allow the US Federal Reserve (Fed) to exit QE3 early. A firmer US dollar will put downward pressure on commodity prices. Second, depressed economy in China and Europe are dragging down the global economic growth. In China, manufacturing activity pointed to contraction and stock markets tumbled, souring market sentiment. Third, LME aluminum inventories hit a new record high of 5.44 million mt, and aluminum ingot output in China is rising. However, consumption from aluminum plate, sheet, strip and extrusion sectors has slipped in June, except for a slight growth in demand from wire & cable industry thanks to bid invitation from State Grid Corporation of China. The result is that domestic aluminum inventories are dropping at a slower pace. Fourth, buying interest will dwindle further with tightening liquidity at the end of mid-year. In this context, LME aluminum will fall to test support at USD 1,750/mt, with the most active SHFE aluminum contract expected to struggle at RMB 14,200/mt. Spot aluminum will follow SHFE aluminum down to below RMB 14,400/mt.
The remaining 20% anticipate little changes in aluminum prices this week. First, LME aluminum closed with losses for twelve straight days and is now in “overbought territory’, which means LME aluminum will head for a technical rally. Second, Chinese smelters are suffering losses from continuously falling aluminum prices. Should aluminum prices fall further, more smelters will resort to production cuts, which will lend some support to aluminum prices. As such, LME aluminum will regain USD 1,800/mt, with SHFE 1310 aluminum contract expected to hover near RMB 14,300/mt. Spot aluminum will hold stable at RMB 14,400/mt, but trading will remain depressed due to tightening liquidity.
SHFE 1309 lead contract price opened RMB 25/mt lower at RMB 13,935/mt on Monday. The A-shares fell below 2,000 with a decline of almost 5% due to reports about tightening liquidity, driving base metals to fall. However, as only a few investors entered the lead market, and SHFE lead prices were only RMB 20/mt higher than a yearly low, SHFE lead prices were relatively resilient than other metals, and moved at RMB 13,900-13,940/mt, to finally close at RMB 13,915/mt. Trading volumes increased 128 lots to 306 lots, and positions were up 124 lots to 1,784 lots. Shorts increased positions actively. Given the revival of European debt crisis, the strong US dollar and the tight liquidity in China, lead prices are expected to remain weak.
Spot lead prices fell RMB 50/mt along with futures prices on June 24. Prices for Chihong Zn & Ge were RMB 13,790-13,800/mt, with discounts of RMB 110/mt against the SHFE 1309 lead contract price. Prices for Nanfang were around RMB 13,750/mt, RMB 20/mt lower than SHFE 1307 lead contract price. Shuikoushan, Mengzi and Hanjiang were offered at RMB 13,760-13,780/mt. Downstream buyers purchased cautiously, while cargo holders were willing to sell goods due to tight cash flow. In the afternoon, consumption was further dampened as metals prices fell along with the slump in Shanghai Composite Index.
SMM conducted a survey of industry insiders’ attitude towards lead price trends this week after the Fed announced the result of its policy meeting.
According to SMM survey, 40% of industry insiders believe LME lead prices will fall below USD 2,000/mt to around USD 1,990/mt this week, while spot lead prices in China may drop RMB 50/mt to RMB 13,650-13,750/mt. With the Fed determining the schedule for scaling back the asset purchasing program, the US dollar rallied to 82.5, and major US equities fell back to the levels seen in early May. Greece’s Democratic Left Party pulled out of the ruling coalition government and the IMF threatened to stop offering rescue funds to Greek government before late July, hurting market confidence in European economy and rekindling concerns over the European debt crisis. HSBC China manufacturing PMI hit a 9-month low in June, while May’s CPI and PPI figures both dropped MoM. Tight liquidity caused the Shanghai Composite Index to fall below 2,000. These all indicated a weak Chinese economy, which will add to global economic recovery and drag down lead prices. In spot lead markets in China, bearishness strengthened in downstream market, preventing buyers from purchasing. That, combined with tight cash flow, consumption will remain unimproved this week. In addition, lead-acid battery producers still report poor orders and only purchase according to production needs. Cargo holders which also face financing pressure will be more willing to move goods, and lead prices will be negatively affected by oversupply.
The remaining 60% believes LME lead prices may start correction to move around USD 2,100/mt following the 5% decline last week, with resistance at USD 2,050/mt. Market players will be more rational following the strong response to a QE termination, and the Fed’s retreat from the QE actually reflects a turnaround in the US economy. This may in turn give a boost to China’s exports which is beneficial to recovery in both China and US. Meanwhile, the International Lead & Zinc Study Group revealed that global lead market was in surplus of 131,000 mt during the first four months, compared with the oversupply of 38,000 mt a year ago. LME lead inventories also continued falling to less than 200,000 mt from the 317,000 mt at the beginning of this year, which will help support lead prices. In China, Yuguang Gold & Lead suspended one production line for a 42-day maintenance, with the lead output expected to fall over 10,000 mt. Besides, lead concentrate supply was still in shortage which kept its prices high, forcing some medium and large smelters to cut production, and the curtailed lead output will help bolster lead prices. Furthermore, the China Association of Automobile Manufacturers reported that China’s automobile output and sales were 1.78 million and 1.76 million vehicles in May, both down from the previous month, but rising from last year’s levels. The stable development in automobile industry will benefit the recovery in ignition battery demand. In this context, many investors expect China’s spot lead prices to hold steady at RMB 13,700-13,800/mt with transactions modest this week.
SHFE 1310 zinc contract prices opened RMB 65/mt higher at RMB 14,435/mt, as LME zinc prices overnight closed the day up last Friday. The Shanghai Composite Index tumbled 5.3%, falling below 2,000, depressing market sentiment, and since short momentum mounted, SHFE zinc prices dipped to RMB 14,260/mt, finally closing at RMB 14,280/mt, down RMB 90/mt or 0.63%. Trading volumes decreased by 15,928 lots, to 72,218 lots, and total positions increased by 6,712 lots to 145,914 lots. SHFE copper prices plunged by 2.42%, while SHFE zinc prices should fall to test RMB 14,100-14,000/mt.
#0 zinc prices were between RMB 14,450-14,480/mt, with spot premiums between RMB 70-100/mt against SHFE 1310 zinc contract prices. #1 zinc prices were around RMB 14,440/mt. Smelters were still actively moving goods due to cash flow problem. As SHFE zinc prices moved lower, spot premiums expanded, causing arbitrage traders to move goods, keeping goods supply ample. But downstream buyers purchased as needed. Prices of the Shuangyan brand were between RMB 14,460-14,480/mt, and Yuguang and Shuikoushan prices averaged RMB 14,450/mt. SHFE zinc prices plummeted in the afternoon, and #0 zinc prices fell to RMB 14,420-14,440/mt, with spot premiums expanding to RMB 100-120/mt.
Will zinc prices stop falling this week? A recent SMM survey shows 60% of market participants believe LME zinc prices will fall to test USD 1,800/mt, and SHFE 1310 zinc contract prices will drop to RMB 14,100/mt, and point towards RMB 14,000/mt once falling below that level, with spot premiums expected to exceed RMB 100/mt. The US Federal Reserve's (Fed) statement that it will quit QE3 later this year pushed up the US dollar index, and optimistic new home sales and personal income figures will also give support to the US dollar index, unfavorable for zinc prices to stop falling. Markets turned their focus to Greek problem. A lawmaker of the small Democratic Left party said on Friday his party should leave the coalition government of Prime Minister Antonis Samaras. Bailout to Greek banks that went bankruptcy and measures to cope with crisis in the banking sector released at the EU summit this week will affect foreign exchange market. Besides, investors' expectations that the Bank of UK will loosen its monetary policy soon decreased due to improving economy.
A slowing Chinese economy and tight cash flows pushed up short-term interest rates, increasing the delivery of goods for long-term contracts before the month's end. SMM sources report that orders from galvanizers were down, so major Chinese steel plants cut galvanized ex-works prices for July and reined in raw material inventories, which will weigh on zinc prices.
40% believe LME zinc prices will move between USD 1,820-1,850/mt, and SHFE 1310 zinc contract prices will fluctuate between RMB 14,300-14,500/mt, with spot premiums between RMB 50-100/mt.
China's zinc output in May was 443,000 mt, down 3,000 mt from April. Smelters including Yuguang and Zijin cut output in June, and sluggish zinc prices also forced some smelters to conduct maintenance, so zinc output in June should fall further. SMM sources reported zinc inventories in Tianjin, Shanghai and Guangdong have been falling since mid and late February, with inventories in Shanghai falling below 300,000 mt for the first time since March 2009. As more smelters will cut output, zinc inventories should continue to slide, which will help zinc price stop falling.
Spot tin prices in Shanghai held steady at RMB 138,500-139,500/mt on Monday. LME tin prices fell back below USD 19,500/mt after returning to USD 20,000/mt last Friday, hurting market confidence. Spot tin prices in China remained relatively stable with trading still light.
SMM survey reveals that 80% of market players expect spot tin prices to fall this week considering the weakening LME tin. The strengthening US dollar index is weighing on base metals markets, while China’s cash crunch led domestic stock to fall below 2,000. Consequently, LME tin prices may not be able to stay above USD 19,000/mt. In domestic spot markets, the onset of traditional low-demand season further impair the already sluggish demand, combined with continuous falls in tin prices, market was dominated by strong wait-and-see sentiment. Despite the smelters hold back goods, supply still outstrips demand, and spot tin prices may continue the downtrend.
20% of market players believe spot tin prices will stabilize, expecting LME tin price to rebound after the plunges. In addition, some investors found that spot prices in China were not so correlated with LME tin prices, so domestic prices are less affected by LME tin. Thus, these investors believe domestic spot tin prices will stabilize if LME tin prices stop falling this week.
In Shanghai, Jinchuan nickel prices were between RMB 97,900-98,100/mt, and imported nickel prices were between RMB 96,900-97,100/mt. Transactions were muted in the afternoon, and prices of Jinchuan nickel and Russian nickel remained unchanged from the morning session. Downstream buying interest was low due to pessimism. Prices in Wuxi were close to LME nickel prices, lacking arbitrage opportunities. Spot prices in Shanghai have fallen below RMB 100,000/mt, so Jinchuan will unlikely lower nickel prices further.
A recent SMM survey shows that 50% of market players are neutral towards LME nickel prices, believing LME nickel prices will hover between USD 13,630-14,000/mt due to three reasons. First, Ben Bernanke's statement that the US Federal Reserve will scale back QE3 pushed up the US dollar index, pushing investment capital out of emerging countries and weighing down base metals prices. Second, China's June PMI and power generation volume figures pointed to a sluggish Chinese economy and weak demand. Third, Chinese leadership expressed they will put off liquidity injection, so China's cash flow tightness will not ease soon. In this context, nickel prices will continue to fluctuate weakly. SMM anticipates LME nickel prices should move between USD 13,630-14,000/mt.
20% believe LME nickel prices will rise to USD 14,200/mt. As nickel prices fall and since NPI prices rise, stainless steel plants are expected to shift to nickel, giving support to nickel prices. Russian nickel will remain popular due to low prices and tight supply this week. Chinese government will likely inject liquidity in the near term. The improving euro zone economy is expected to activate the market.
30% believe LME nickel prices will continue to fall below USD 13,630 /mt this week. They base their opinion on negative news worldwide. Layoffs in Morgan Stanley's commodity department, soaring overnight interbank offered rate of Bank of China and shadow banking problems show a potential financial crisis. Demand for nickel weakens in 2013 due to the price advantage of NPI over nickel. Although spot nickel prices have been falling since June, they are still higher than NPI. Rising NPI prices in late June also reflects a weakening demand for nickel.