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SMM Base Metals Weekly Price Review and Forecast (15-18 Jul. 2013)
Jul 16,2013 09:06CST
price review forecast
SMMI rose 0.93% during last week, with SMMI.Cu and SMMI.Zn up 1.44% and 1.3%, respectively.

SHANGHAI, Jul. 15 (SMM) – The above-expected US nonfarm payrolls sent the US dollar to a 3-year high last week. China’s economic data were reported weak, with inflationary pressure strengthening and PPI still contracting. China’s foreign trade figures dropped unexpectedly, indicating a lack of impetus for economic growth. As such, commodity prices fell sharply early last week, which, however, was reversed by Ben Bernanke’s remark on backing the easing measures. US dollar thus plunged over 2% due to selloffs. In Europe, Portugal resolved its political crisis, and the ECB decided to maintain the easing policies, driving up the euro, crude oil and gold, as well other commodities. Chinese stock markets also staged a strong rally due to Premier Li Keqiang’s comments about keep stable growth. In response, SMMI rose 0.93% during last week, with SMMI.Cu and SMMI.Zn up 1.44% and 1.3%, respectively. However, SMMI.Sn dropped 1.26% and SMMI.Ni edged down 0.31% given weak LME tin and nickel prices.

SHFE copper prices dipped as low as RMB 48,000/mt last Monday due to the influenced of LME copper trends. However, Chinese A-shares stage a strong rally, rising by 3.5%, after Chinese Premier Li Keqiang stressed the use of bottom-line thinking in the promotion of economic reforms. On Thursday, shorts liquidated positions, driving SHFE copper up to RMB 51,000/mt and with all SHFE copper contracts rising by daily limits. Total trading volumes increased by 1.3 million lots last week, while positions fell by 35,000 lots and with market turnover remaining high. SHFE 1311 became the most actively traded contract. SMM expects copper prices to experience even more volatility this coming week.  

In the spot market, premiums fell back after initially rising. Trader unwillingness to move goods early in the week helped support spot premiums, but sales were still depressed since large amounts of goods were locked in after SHFE copper prices advanced. Traders preferred to buy high-quality copper before the delivery date, while speculators bought spot and sold futures. Downstream producers entered the market when prices were below RMB 50,000/mt, and later exited when prices rose above RMB 50,000/mt. In general, deals last week were mainly made among traders.

SHFE 1310 aluminum contract prices hovered near RMB 14,200/mt early last week and rose on Thursday, but still failed to break through RMB 14,400/mt, with the biggest gain at a mere 1% during last week. Prices for the most active SHFE aluminum contracts are still downward pressure for the near future. 

Traders were anxious to sell, but downstream producers showed low buying interest due to higher temperatures, leaving spot aluminum prices stagnant at RMB 14,320-14,370/mt early last week and with the low-end price hitting the lowest level in more than three years. Later in the week, spot aluminum prices followed rising SHFE aluminum prices, but only rose as high as RMB 14,400/mt. Trading was light.

In the coming week, LME aluminum prices will be soft at USD 1,800/mt, with prices for the most active SHFE aluminum contracts also struggling at RMB 14,300/mt. Spot aluminum prices will meet growing resistance at RMB 14,400/mt, with spot discounts of RMB 30/mt expected over SHFE 1308 aluminum contract prices once SHFE 1308 aluminum contracts become the new current-month contract. 

The most active SHFE 1309 lead contract price also opened higher last Thursday near the 10-day moving average, after hovering between RMB 13,820-13,900/mt earlier in the week. SHFE lead prices will unlikely change significantly this week, but will instead move around RMB 13,850-14,000/mt.

Spot lead prices in China remained between RMB 13,650-13,730/mt for the first three days of last week, with discounts of RMB 150/mt against the most active SHFE lead contract prices. Spot prices later rose by RMB 30-50/mt, to RMB 13,690-13,760/mt, as futures prices moved higher. Lead smelters reported limited finished product inventories, but downstream consumers bought goods only as needed. With the approach of the delivery date, price gap between futures and spot prices should narrow to RMB 100/mt this week, with spot lead prices in China expected at RMB 13,700-13,850/mt. Smelters will continue to hold prices firm and focus on delivering goods for long-term contracts. Downstream purchases may begin to increase with the onset of the high demand season.

Prices for SHFE 1310 zinc, the most actively traded contract, halted declines and rebounded last week. The contract moved below the 10-day moving averages early last week, but disappointing CPI, PPI and trade data from China had a limited impact since zinc prices later rebounded above the 10-day moving average. Rising LME zinc and stock prices also pushed up SHFE zinc briefly to RMB 14,880/mt.

In China’s spot markets, premiums for #0 zinc held stable between RMB 100-120/mt, but narrowed to RMB 60-80/mt as prices advanced. Smelters were not aggressively selling goods, which limited market supply. Some middlemen sold goods at highs as zinc prices rose, but trading sentiment was soft due to a lack of arbitrage opportunities. Downstream producers were also wary of purchasing, with only limited replenishments made earlier in the week. Premiums for goods in Guangdong province over Shanghai fell slightly last week. Production cuts at Zijin continued to affect the Tianjin market, but the arrival of other branded products was normal, with prices higher than those in Shanghai

Spot tin prices in Shanghai continued to slip influenced by LME tin, but stopped falling last Thursday, with Friday’s traded prices at RMB 136,500-137,500/mt. Trading remained quiet in the first three days last week, but was slightly enlivened by rebounding LME tin and Chinese stocks last Thursday which caused some to turn bullish. Smelters were still reluctant to sell goods against cost pressure.

Domestic nickel spot prices appeared resistant to price declines even after LME nickel prices fell, but still lacked upward momentum. Losses for imports narrowed last week, and market players say that large amounts of nickel from South Africa arrived in the Shanghai market. Supply of Russian nickel was also sufficient. In the Shanghai nickel spot market, #1 nickel averaged RMB 96,120/mt, down RMB 1,350/mt from a week earlier. The average price of Jinchuan nickel was RMB 96,980/mt and RMB 95,260/mt for Russian nickel, a difference of RMB 1,720/mt. 

In this coming week, LME nickel prices are expected to be between USD 13,200-14,000/mt.



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