Major economic data from China was upbeat, helping boost the Shanghai Composite Index by 5.4% from a week ago, and pushed up the SHFE/LME copper price ratio to 7.24. However, due to market caution and selloffs later in the week, SHFE copper prices plummeted and LME copper prices were down by 2.5%. Trading volumes rose by 230,000 lots, while total positions were down by over 8,000 lots, which were also closed at the week's end.

 

China's National Development & Reform Commission (NDRC) issued a document three weeks ago that outlined how it can adjust and control bond issues. New forex receipts continued to fall during June and July. Forex receipts at financial institutions (including China's central bank and commercial banks) were down significantly, but forex receipts at the People's Bank of China (PBOC) rose slightly. The PBOC mainly executes short-term reverse-repurchases, with no 3-month or 1-year Central Bank Bill issued. Since early July, RMB 643 billion in Central Bank Bills have come due, with RMB 24 billion in bills repurchased and RMB 294 billion injected into markets from reverse-repurchases, bringing a total of RMB 961 billion injected. The issue of Central Bank Bills, including 3-year bills, totaled RMB 395.9 billion, with RMB 264 billion in reverse repurchases due, for a total capital withdrawal of RMB 659.9 billion, and a net injection was RMB 301.1 billion. Under these conditions, the Shanghai Composite Index should test 2,250. SHFE copper prices are also expected to rise to RMB 52,000/mt if support is first found at RMB 50,800/mt.

 

Despite encouraging Chinese economic data, falling LME aluminum prices dragged down SHFE 1312 aluminum contract prices to RMB 14,170-14,250/mt last week. In China’s spot markets, fewer arrivals allowed cargo holders in east China to hold prices firm, leaving spot aluminum prices at a backwardation of RMB 0-40/mt over SHFE 1309 aluminum contract prices. Downstream producers showed little buying interest.  

 

In the coming week, SHFE 1312 aluminum contract prices should fluctuate between RMB 14,150-14,250/mt due to recent positive Chinese economic data. In spot markets, a backwardation of RMB 0-30/mt is expected over SHFE current-month aluminum contract prices provided shipments of aluminum ingots from northwest China to east China do not increase sharply.

 

SHFE 1309 lead contract prices fell from RMB 14,400/mt to RMB 14,100/mt, losing over 1% and down for a fourth straight week. Positions for SHFE lead also fell by 1,300 lots last week, an indication of strong caution among domestic investors. As the SHFE will be only open for the first three days of this week due to the Chinese Mid-Autumn Festival holiday on Thursday and Friday, many investors will take profits before the Fed meeting, with SHFE lead prices expected to consolidate between RMB 14,100-14,250/mt.

 

Premiums for spot lead against the SHFE current-month lead contract price remained at RMB 20-70/mt. Smelters restricted supplies in anticipation of stock replenishments ahead of the Chinese Mid-Autumn Festival this week. However, traders were actively making trades for warehouse warrants as SHFE lead prices continued to fall, leaving amply supply in the market. Downstream buyers increased purchases last Monday as prices rose, but turned cautious after prices began to fall. This week, downstream buyers will replenish stocks during the first three days, but smelters will remain reluctant to sell due to falling lead prices, leaving goods supply tight. Spot lead prices are expected at RMB 14,150-14,300/mt, with premiums over the most active SHFE lead contract price at RMB 40-60/mt.

 

As market expectations of an early end to QE3 eased somewhat following the release two Fridays ago of disappointing US non-farm employment data, SHFE 1312 zinc contract prices opened the week high, but fell back to around RMB 14,850/mt. Dragged down by LME zinc prices overnight, SHFE zinc prices fell at one point to a five-week low of RMB 14,640/mt. Trading volumes increased by 40,222 lots, to 422,000 lots, and total positions grew by 35,824 lots to 274,000 lots.

 

Spot trading was lackluster, but since zinc smelters were holding back goods, spot premiums for #0 zinc against SHFE 1312 zinc contract prices expanded from RMB 50-60/mt, to RMB 100-110/mt. Downstream buyers continued to purchase on an as-needed basis, and since most traders were still suffering from tight credit, transactions were muted.

 

Total positions grew over the past eight trading days, with short momentum growing as well. The SHFE will be closed this Thursday and Friday, so ahead of the Wednesday Fed policy meeting, SHFE zinc prices should weaken and test support at RMB 14,600/mt.

 

In Shanghai spot tin markets, prices rose to RMB 148,500-150,000/mt early last week, but began to slip in the latter half of the week with increase in LME tin arrested, and closed out the week at RMB 146,500-148,500/mt. Smelters held prices firm and shied away from selling, limiting decline in spot prices. Trading was brisk at the beginning of the week as downstream buyers replenished stocks actively, but wait-and-see sentiment prevailed in the market after traded prices fell, leaving transactions muted on Thursday and Friday. Supplies from Jiangxi’s smelters were sparse, and most resources traded in the market were supplied by producers from Yunnan.

 

In China’s domestic spot market, the average price of #1 nickel was RMB 97,500/mt for the week ending September 13th, up RMB 60/mt from a week earlier. Jinchuan Group kept its ex-works prices unchanged at RMB 102,300/mt. Traded prices for Jinchuan nickel, however, were between RMB 97,500-98,800/mt, and with Russian nickel prices at RMB 96,300-97,900/mt, there was a gap of RMB 900-1,200/mt between the two. Strong market caution turned trading light.  

Downstream producers in China’s nickel spot markets entered the market last Wednesday after copper prices rallied slightly, but no trading was reported for the remainder of the week. Overall trading was light, and domestic nickel spot prices are expected to move in the RMB 97,000-100,000/mt range in the coming week.