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SMM Base Metals Daily Review (2013-7-15)
Jul 16,2013 11:00CST
price review forecast
According to SMM survey, 46% of industry insiders expect LME copper to move around USD 6,900/mt and SHFE copper to be RMB 49,500-50,300/mt.
SHANGHAI, Jul. 16 (SMM) – 
SHFE 1311 copper contract started RMB 500/mt lower at RMB 49,730/mt on Monday. China’s 2Q GDP was in line with market forecasts, pushing Chinese A-shares up by 1.5%. Meanwhile, LME copper stabilized and physical buying increased, driving the most active SHFE copper contract up to RMB 50,290/mt. However, LME copper retreated in the afternoon, pulling SHFE copper for November delivery down to near its opening price. Finally, SHFE 1311 copper contract ended the day down RMB 340/mt or 0.68% at RMB 49,890/mt. Trading volumes and positions added 64,710 lots and 11,026 lots, respectively. The most active SHFE copper contract has met strong resistance at the 30-day moving average, but did find support at the daily moving average.  
Spot copper in Shanghai was quoted at a discount of RMB 0-120/mt and premium of RMB 0-20/mt over SHFE 1307 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 50,350-50,550/mt, and RMB 50,430-50,650/mt for high-quality copper. The price gap between SHFE 1307 and 1308 copper contract was around RMB 200/mt, forcing cargo holders to sell at discount. Price cuts of imported standard-quality copper were sharper. The most active SHFE copper contract rebounded during the second trading session, narrowing price gap between SHFE 1307 and 1308 copper contract. Speculators entered the market to buy high-quality copper, allowing suppliers to sell at premium. However, the price spread resurfaced towards the end of the morning session, driving holders of high-quality copper to the sidelines. Spot copper suppliers will quote at premium once SHFE 1308 copper contracts become the new current-month contract tomorrow. Downstream producers were buying to need, and speculators contributed most to today’s trading. In the afternoon, cargo holders held prices firm and refused to sell goods at low prices, with spot copper quoted at premiums of RMB 0-80/mt. Traded prices were between RMB 50,400-50,480/mt. 
According to SMM survey, 46% of industry insiders hold a cautious attitude towards the copper price trends this week, expecting LME copper to move around USD 6,900/mt and SHFE copper to be RMB 49,500-50,300/mt. The uncertainty in euro zone economy remains a major constraint to copper prices. Meanwhile, the US dollar starts a correction following previous slump and tends to remain strong, weighing on copper prices. The consolidation of gold and crude oil prices may also offer guides for LME copper. The latest CFTC report showed both longs and shorts increased their positions, which presages a directionless copper price in the near term. In China, a total of 260.8 billion non-tradable shares in 34 listed companies on the Shanghai and Shenzhen stock exchanges will be released to the capital market after their lock-up agreements expire this week, meaning China's stock market will see RMB 673.7 billion in locked-up shares become eligible for trade, 70 times of last week’s level and its highest this year. This will put great pressure on China’s stock markets, but as liquidity in stock markets returned relatively loose following the cash crunch in late June, Chinese stocks may gain certain support. In addition, the rising credit demand after tight control in June may also help drive a rebound in domestic stocks and enliven trading in stocks and futures markets. In this context, these investors believe copper prices should hold steady this week. 
37% of market players expect LME copper prices to slip to USD 6,850/mt and SHFE copper to fall to RMB 48,600-49,500/mt considering strong selling pressure in copper market. SHFE copper positions grew over 10,000 lots on Monday, with shorts still waiting in the wings. In spot copper markets, downstream buying interest will remain weak in the low-demand season during July and August. As such, some investors expect copper prices to fall this week to find support at lower prices.
The remaining 17% industry insiders are more upbeat, believing LME copper prices will stand above USD 7,000/mt and SHFE copper will regain the ground at RMB 50,000/mt. Market was optimistic to the US housing starts the Beige Book to be released this week, expecting the figures will help send the US dollar to new historic highs. In China, the continued pro-growth policies may help boost market sentiment. In addition, canceled warrant ratio for LME copper remains high above 50%. With the delivery date for LME copper falling this Wednesday, the delay in deliveries from the LME warehouses will limit supply in spot copper markets, helping bolster copper prices. Besides, the stalemate between suppliers and buyers in China’s spot markets and premiums for spot copper will also push copper prices to challenge higher levels.
SHFE 1310 aluminum contract opened flat at RMB 14,350/mt on Monday, and was mired at its opening price most of the session. SHFE three-month aluminum contract dived to RMB 14,305/mt at the tail of the session before closing at RMB 14,345/mt, down RMB 5/mt or 0.03%. Weak Chinese economic data drove investors out of the market. Trading volumes added 8,802 lots to 22,644 lots, but positions fell 4,122 lots to 197,418 lots. SHFE aluminum for October delivery is expected to test support at RMB 14,300/mt today.
Mainstream traded prices for spot aluminum in Shanghai were RMB 14,340-14,350/mt on Monday, RMB 20-30/mt lower than SHFE 1307 aluminum contract prices. Low-iron aluminum was traded around RMB 14,510/mt. Traders were in a hurry to liquidate stocks out of growing bearishness over future prices, but downstream producers largely stayed out of the market, driving spot aluminum prices down sharply, with spot discount expanding to RMB 30/mt. Although lower prices enticed some middlemen to go bargain hunting, overall trading was light. In the afternoon, spot market turned quiet, with sparse offers reported at RMB 14,350/mt.  
SMM aluminum price averaged RMB 14,370/mt on Monday, down from last week’s RMB 14,378/mt. SMM surveyed 38 aluminum ingot producers and traders on their forecasts for this week’s aluminum prices.
53% of the market players anticipate little changes in aluminum prices. The US dollar index fell following the US Federal Reserve’s announcement that QE will remain in place, but then rebounded due to downbeat Chinese economic data and worsening debt crisis in Europe. This will keep the light metal moving within tight ranges. LME aluminum will consolidate at USD 1,800/mt, and the most active SHFE aluminum contract will hover above RMB 14,300/mt. Spot aluminum will struggle at RMB 14,350/mt.
42% of market players expect a drop in aluminum prices this week. First, China registered a decline in both imports and exports in June, a reflection of weakening demand in both domestic and overseas markets. Second, high LME aluminum inventories and ample spot aluminum supply in China will weigh aluminum prices down. Third, negative economic indicators will also put downward pressure on aluminum prices. In this context, LME aluminum will meet strong resistance at the 30-day moving average and will likely retreat from USD 1,800/mt. SHFE 1310 aluminum contract will dip to RMB 14,200/mt. Spot aluminum may lose support at RMB 14,300/mt.   
The remaining 5% are optimism over this week’s aluminum prices. First, sustainable recovery in the US economy and continuation of bond-buying program are boosting market confidence. Second, weak economic indicators will likely drive the Chinese government to introduce economic stimulus. Third, falling aluminum inventories will also lend some support to aluminum prices. As such, LME aluminum will climb above the 30-day moving average to USD 1,850/mt. The most active SHFE aluminum contract will challenge resistance at RMB 14,400/mt. Spot aluminum will rebound to RMB 14,400/mt.     
On Monday, SHFE lead price trends were little affected by the release of China’s Q2 GDP growth as the figure was basically in line with expectation. The SHFE 1309 lead contract price started at RMB 13,900/mt and moved around RMB 13,800/mt before 11:00 with moving range narrowing compared with last Friday. At midday, prices presented a sudden rally of RMB 20/mt but only fluctuated between RMB 13,870-13,900/mt later, ending the day at RMB 13,890/mt, up RMB 15/mt from the previous trading day. Trading volumes were down 18 lots to 66 lots, and positions increased 22 lots to 2,500 lots. The strong resistance at several moving averages may still be major hurdles for any increase in lead prices.
Spot lead prices in Shanghai remained little changed from last Friday. Goods of Chihong Zn & Ge was quoted at RMB 13,780/mt with transactions scarce. Lead from Nanfang was offered at RMB 13,730/mt, while that of Hanjiang was quoted at RMB 13,720/mt, with discounts against the most active SHFE lead contract price at RMB 150/mt. The limited output at smelters curtailed supplies to spot lead market, and upbeat market outlook with the arrival of high-demand season also left smelters unwilling to move goods.
SMM’s latest survey of 30 industry insiders shows that a majority, or 73%, of them are cautious to lead price trends this week, noting that despite the satisfactory US economic data, the US dollar may start consolidating given uncertainty to the timing of scaling back the asset purchasing asset. In Europe, the unending negative reports, albeit their little influence on major economies, left equities directionless. Besides, China’s Q2 GDP growth was reported slower than Q1 but within market expectation. However, complicated economic conditions left market player difficult to predict policy tendency for H2, and other economic figures released later also showed no significant changes. The latter half of this week will see a pile of risky events, including Ben Bernanke’s testimony, release of US Beige Book, and announcements of policy decision by the Bank of England, the Bank of Japan, as well the Bank of Canada. In this context, most investors expect LME lead to hover at USD 2,060/mt this week. In spot lead markets, smelters will still supply goods for long term contracts, and downstream buyers may purchase to order, with spot prices expected at RMB 13,650-13,800/mt. 
The remaining 27% investors are more optimistic most of recent declines in LME lead inventories were contributed by Asian warehouses, which was seen as an uptick in lead consumption in China – a traditional large lead consumer. Besides, given the easing inventory pressure and stable order growth, China’s electric vehicle battery giants, Tianneng and Chaowei, both raised prices for electric vehicle batteries for two consecutive weeks, with 48V 12AH battery prices up RMB 40-50/set to RMB 350/mt, and prices for 48V 20AH battery rising RMB 35/set to RMB 550/set. Although some other producers failed to follow suit, most reported improvement in sales and are considering raising prices. On the demand side, shortage in domestic lead concentrate supply continue to impede refined lead smelting, while some lead smelters entered regular maintenance cycles in summer months. Thus, the tightening supply may also lend some support to lead prices. These optimistic investors expect spot lead price to be RMB 13,700-13,850/mt this week and LME lead to edge up along with weakening US dollar with support at USD 2,060/mt but resistance at USD 2,100/mt. 
SHFE 1310 zinc contract prices opened slightly lower at RMB 14,680/mt. China's Q2 GDP was 7.5%, coinciding market expectations, and helping ease market concerns. A-shares opened low but moved higher, closing the day up 0.98%. Pushed up by a large number of longs, SHFE 1310 zinc contract prices edged up to RMB 14,710/mt. LME zinc prices failed to break through USD 1,900/mt, falling back to the 5-day moving average, dragging down SHFE zinc prices to RMB 14,660/mt, and finally closing at RMB 14,690/mt. Trading volumes decreased by 12,788 lots, to 33,194 lots, and total positions decreased by 3,176 lots, to 151,056 lots.
#0 zinc prices were between RMB 14,760-14,790/mt, with spot premiums of RMB 70-90/mt against SHFE 1310 zinc contract prices. #1 zinc prices were between RMB 14,730-14,740/mt, with imported #0 zinc prices between RMB 14,750-14,760/mt. SHFE zinc prices opened low but moved higher, with #0 zinc prices remaining around RMB 14,750/mt, their highest since mid-June. Smelters unwillingness to sell goods eased, but downstream buyers only purchased as needed, with transactions muted. SHFE zinc prices dropped in the afternoon, with #0 zinc prices between RMB 14,760-14,780/mt, and spot premiums of RMB 80-100/mt against SHFE 1310 zinc contract prices.
Ben Bernanke expressed his support to continue easing policies, so the US dollar index plunged due to selloffs, giving support to zinc prices. Will zinc prices extend increases this week?
A most recent SMM survey shows 60% market participants are neutral towards zinc prices, believing LME zinc prices will not break through USD 1,900/mt level, and SHFE 1310 zinc contract prices will move between RMB 14,600-14,800/mt, with spot premiums between RMB 50-90/mt. Many countries will release June PPI on Tuesday, and Bank of Japan will announce June interest rate meeting minutes on Wednesday, and Bank of UK's July meeting minutes will be announced. Bank of Canada's July interest rate decision and Bernanke's testimony before the congress will also be made on Wednesday. China announced its June sales data, industry production figures and Q2 GDP on Monday. Q2 GDP recorded 7.5%, in line with market expectations, which is acceptable and helped ease market concerns. China's liquidity crunch eased in July, and cash flow problems at smelters also mitigated. Given low zinc prices, smelters held back goods again, leading to tightness or shortfalls of some brands, particularly in Tianjin, which will give support to spot zinc prices.
40% believe LME zinc prices will test USD 1,850/mt, and SHFE 1310 zinc contact prices will fall back to RMB 14,400-14,500/mt, with spot premiums around RMB 100/mt. US economic recovery is optimistic, while economic growth in central Europe is still slow. Ratings of Portugal and France were downgraded, weighing down the euro. China's June social power consumption was up 6.3% YoY, with industry power consumption growing slightly on a MoM basis. YTD power consumption through June rose 5.1%, with the growth 0.4% lower, showing a slow industry growth in China. As the low demand season for galvanizing and zinc oxide set in, zinc prices will be weighed down. Transactions of galvanized products improved last week, with prices rising. Ex-works galvanized products prices for August generally rose slightly, but home appliance subsidy was canceled in July. Besides, construction was disrupted by the high temperature, and transactions were mainly made among traders. As such, galvanized products lacked support and will barely rise further, with steel plants purchasing as needed. LME zinc inventories continued to fall by 27,000 mt, but still stood above 1 million mt. SHFE zinc inventories grew by 768 mt, to 275,088 mt. SMM reported inventories in Tianjin, Shanghai and Guangdong fell by 600 mt, with the declines slowing and showing sluggish consumption.  
Mainstream traded prices in Shanghai tin market were RMB 137,000-138,000/mt, with a few goods from Jiangxi traded at RMB 136,800/mt. Smelters of non-leading brands were unwilling to move goods, with low-priced goods consumed up gradually, giving support to spot tin prices. However, high-end prices remain difficult to rise, narrowing moving range for prices. Trading was still weak.
75% of market players surveyed by SMM expect spot tin prices to remain flat this week, as LME tin will be unable to break through the current resistance but support at USD 19,500/mt remains strong. As such, LME tin prices may be stable unless major negative event is reported. In China’s spot tin markets, supplies of branded tin will remain limited as some smelters refrain from selling. Despite weak consumption, low-end prices will unlikely fall further. 
The remaining 25% investors believe tin prices will continue to fall, noting that LME tin prices still face downside risk with strong US dollar will weigh down base metals. Once LME tin fall below USD 19,500/mt, sentiment in spot tin markets will be largely hurt, and non-leading producers will start selling goods out of fear for further declines, dragging spot tin prices lower.
Despite LME nickel prices closed with gains of USD 113/mt last Friday, spot prices in China were level with last Friday in the morning trading. #1 nickel prices were between RMB 96,200-97,300/mt, down RMB 50/mt. Jinchuan nickel lowered nickel prices by RMB 4,500/mt, to RMB 97,500/mt. In the afternoon, transactions were made in a RMB 96,000-97,500/mt range. Mainstream Russian nickel prices were around RMB 96,300/mt, and Jinchuan nickel prices were around RMB 97,300/mt, with ample supply of South African nickel.
According to a most recent SMM survey, 60% market participants believe LME nickel prices will hover between USD 13,600-13,800/mt.
20% believe LME nickel prices will rebound to USD 13,800-14,000/mt. The market is still absorbing Ben Bernanke's statement supportive for easing policies, and sluggish data from China will not affect the market significantly.
20% believe LME nickel prices will dip to USD 13,200-13,500/mt. They think China's central bank will likely implement prudent monetary policies as inflation rate rose, which will cause liquidity tightness again. Besides, a strong US dollar index will weigh down base metals. So LME nickel prices are expected to fall.
base metal price forecast
SHFE copper price
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lead price forecast
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nickel price forecast

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