SHANGHAI, Jul. 2 (SMM) –

Copper:
The Shanghai Composite Index fell sharply last week, dragging down SHFE copper prices to RMB 47,560/mt, a drop of almost 4% and with a daily fluctuation range of over RMB 1,000/mt. Trading volumes exceeded 1 million lots for three consecutive trading days and grew by over  3 million lots, with total positions increasing by over 20,000 lots. In this context, SHFE copper prices struggled around the 5-day moving average.

The People's Bank of China suspended open market operations last week. However RMB 25 billion in repurchases coming due still flowed into the market, but was down RMB 3 billion from the previous week. This latest injection, when combined with previous capital, yielded RMB 305 billion in capital injections. As a result, capital prices fell sharply from the previous week's  record highs. The overnight Shanghai Interbank Offered Rate (Shibor) rose slightly by 0.8 basis point, to 5.5610, while other rates fell across the board. Due to a large amount of deposit reserve withdrawals at the beginning of July, the market will likely fall short of capital again in the coming week, but China's central bank stated last Tuesday that it will use open market operations, re-lending, re-discounting, SLO and SLF to adjust liquidity in the banking sector and stabilize money markets. In this context, the Shanghai Composite should continue to fluctuate significantly in the coming week. SHFE copper prices will track LME copper prices, rising to RMB 49,000/mt after stabilizing at RMB 48,000/mt level.
 
Aluminum:
SHFE 1310 aluminum contract prices were more resilient than LME aluminum last week, moving within a RMB 14,200-14,350/mt price range. China's A-shares had little upward momentum, preventing the most active SHFE aluminum contract from climbing above RMB 14,300/mt. SHFE 1310 aluminum contract sank to RMB 14,160/mt, close to the lowest in nearly four years. SHFE aluminum will remain weak in the absence of positive news.

LME aluminum inventories surged to 5.45 million mt last Wednesday, up 34,000 mt on a weekly basis. Mounting inventories kept LME aluminum prices in check. Spot aluminum stocks in China, however, fell below 920,000 mt due to fewer deliveries from smelters, which helped keep domestic aluminum prices relatively stable. The SHFE/LME aluminum price ratio has now broken through 8.0, but premiums of spot aluminum prices overseas (CIF) over LME aluminum prices remain high, unfavorable for imports.

Despite fewer goods arriving, traders were anxious to sell due to tight liquidity at the mid-year point. Downstream producers purchased in modest amounts early last week, holding traded prices RMB 0-20/mt above SHFE 1307 aluminum contract prices. Traders rushed to liquidate stocks later in the week as SHFE aluminum fell, dragging spot aluminum prices down below RMB 14,400/mt. Markets turned quiet in the second half of the week as liquidity tightened.   

In the coming week, aluminum prices will move within tight ranges as economic reports will be mixed, with LME aluminum prices testing resistance at USD 1,800/mt, and prices for the most active SHFE aluminum contracts struggling at RMB 14,300/mt. Despite low buying interest, limited supply will help cargo holders hold quotations flat with or even higher than SHFE current-month aluminum contract prices, with spot aluminum prices testing resistance at RMB 14,400/mt.
 
Zinc:
In China's domestic spot market, spot premiums for #0 zinc against SHFE 1310 zinc contract prices were initially between RMB 80-110/mt, but turned to discounts later in the week as cargo holders of copper, aluminum and lead all sold goods due to tight cash flows. The availability of zinc ingot was low, however, and when combined with some investors buying spot zinc while also selling SHFE zinc contracts, helped push up spot premiums while stocks in Shanghai, Guangdong and Tianjin all continued to fall. Although some smelters were actively moving goods to generate cash, supply did not grow noticeably as more smelters suspended production. Downstream enterprises produced according to orders and purchased raw materials on an as-needed basis due to low orders, tight cash flows and market pessimism. Supply pressure did not increase significantly, however, so transactions were still muted.

Many countries will release June PMIs in the coming week. Euro zone June PPI, US ADP June employment figures, the US employment report for June, and interest rate decisions by the Bank of UK and European central bank will also be announced. Zinc price fluctuations will widen, but any room to fall will be limited due to cost support and falling inventories. LME zinc prices will test USD 1,810-1,800/mt, but with resistance at USD 1,850/mt. Investors were not too bearish, however, given current cost support. SHFE 1310 zinc contract prices will continue to test RMB 14,300/mt, but may fall as far as RMB 14,000/mt if support is lost. Downstream demand for zinc will weaken as the low demand season sets in, but low goods availability will support spot premiums for #0 zinc at RMB 100/mt, but may fluctuate widely with SHFE zinc prices.

Lead:
SHFE 1310 aluminum contract prices were more resilient than LME aluminum last week, moving within a RMB 14,200-14,350/mt price range. China's A-shares had little upward momentum, preventing the most active SHFE aluminum contract from climbing above RMB 14,300/mt. SHFE 1310 aluminum contract sank to RMB 14,160/mt, close to the lowest in nearly four years. SHFE aluminum will remain weak in the absence of positive news.

LME aluminum inventories surged to 5.45 million mt last Wednesday, up 34,000 mt on a weekly basis. Mounting inventories kept LME aluminum prices in check. Spot aluminum stocks in China, however, fell below 920,000 mt due to fewer deliveries from smelters, which helped keep domestic aluminum prices relatively stable. The SHFE/LME aluminum price ratio has now broken through 8.0, but premiums of spot aluminum prices overseas (CIF) over LME aluminum prices remain high, unfavorable for imports.

Despite fewer goods arriving, traders were anxious to sell due to tight liquidity at the mid-year point. Downstream producers purchased in modest amounts early last week, holding traded prices RMB 0-20/mt above SHFE 1307 aluminum contract prices. Traders rushed to liquidate stocks later in the week as SHFE aluminum fell, dragging spot aluminum prices down below RMB 14,400/mt. Markets turned quiet in the second half of the week as liquidity tightened.   

In the coming week, aluminum prices will move within tight ranges as economic reports will be mixed, with LME aluminum prices testing resistance at USD 1,800/mt, and prices for the most active SHFE aluminum contracts struggling at RMB 14,300/mt. Despite low buying interest, limited supply will help cargo holders hold quotations flat with or even higher than SHFE current-month aluminum contract prices, with spot aluminum prices testing resistance at RMB 14,400/mt.

Tin:
Spot tin prices fell further due to a lack of buying support and finally ended at RMB 138,000-139,000/mt last Friday. Cargo holders in spot tin market were unwilling to move goods Thursday afternoon due to rallies in LME tin, leaving few goods quoted below RMB 138,000/mt. Downstream consumers were more reluctant to purchase after entering low-demand season and due to the falling tin prices. Although smelters limited supplies, tin market was still in surplus, which may continue to drag down tin prices.

Nickel:
In the Shanghai nickel spot market, #1 nickel averaged RMB 96,870/mt, down RMB 2,610/mt from a week earlier. The price gap between imported and Jinchuan nickel was RMB 1,000/mt, a sign of an easing in the current tight supply of Russian nickel. After LME nickel prices tumbled on Monday, domestic spot nickel prices also lost RMB 1,100/mt, but later gained back RMB 600/mt after market fears eased. Weak demand and tight liquidity negatively affected spot trading. Despite signs of a technical rebound, any price gains in the coming week will be limited.