SHANGHAI, Oct. 9 (SMM) –
The most active copper contract on the Shanghai Futures Exchange (SHFE) opened RMB 10/mt lower at RMB 52,560/mt on Tuesday, dragged down by falling LME copper prices. The contract was traded at a low of RMB 52,300/mt before bouncing back to near the daily moving average, drawing support from the Shanghai Composite Index, which rallied by 1%. Increased buying of SHFE far month copper contracts pushed SHFE copper for December delivery further up to a day’s high of RMB 52,650/mt. The red metal, however, still ended RMB 50/mt or 0.1% lower at RMB 52,520/mt. Trading volumes and positions of SHFE 1312 copper contracts plummeted by 47,630 lots and 7,612 lots, respectively. Trading volumes and positions of SHFE 1401 copper contracts, on the contrary, added 12,825 lots and 12,036 lots, respectively. As such, SHFE copper for delivery in January next year will likely become the new most active contract soon. Investors should be wary that possible selloff in SHFE far month copper contracts will keep a lid on the most active SHFE copper contract.
Spot copper in Shanghai was offered higher than the SHFE current month copper prices Tuesday morning as delivery date for the current month contracts is approaching. However, the typhoon lashing east China dampened spot copper transactions as downstream buyers feared that the severe weather may hamper goods delivery. Thus, spot copper was later at a contango of RMB 0-20/mt and a backwardation of RMB 0-120/mt over SHFE 1310 copper contract. Traded prices were RMB 52,650-52,730/mt for standard-quality copper, and RMB 52,730-52,850/mt for high-quality copper. Traders largely watched from the sidelines. In the afternoon, spot copper was quoted between a contango of RMB 0-20/mt and a backwardation of RMB 0-100/mt, with traded prices edging lower to RMB 52,600-52,750/mt.
According to the most recent SMM poll, 29% of participants in copper markets believe LME copper may break above the resistance at USD 7,280/mt and test a high of USD 7,300/mt this week, with SHFE copper making a foray up to RMB 52,800/mt. In China, manufacturing PMI recovered for a third straight month, confirming that China’s economy in third quarter performed better than the second quarter. The bright data also indicate China will not conduct reforms at the expense of unlimited economic slowdown, with GDP growth expected to remain between 7% and 8%. The positive results of reforms may help bolster stock markets in China and even across Asia, offering upward momentum for copper prices. Elsewhere in the US, the greenback has been falling given the recent US government shutdown, dipping below the 80 mark and tending to drop further on the horizon, lending support for copper prices. In addition, the US Commodity Futures Trading Commission (CFTC) reported that net short positions shrank from 15,253 lots to 7,250 lots during the week ending September 24, with selling pressure on copper easing somewhat. In China’s A-share markets, shares worth only RMB 20 billion will be unlocked in the first trading week after the Chinese National Day holiday, with pressure causing by unlocked share expected to ease in October. Meanwhile, market will shift its focus from the Shanghai Free Trade Zone to financial and land reforms, as well as industrial restructuring given the Third Plenary Session of 18th CPC Central Committee scheduled for November. In China’s spot copper markets, some copper consumers downstream may begin replenishing stocks and the improving consumption will enliven trading in copper markets.
42% of market players expect LME copper to stay around USD 7,250/mt and SHFE copper to move around RMB 52,500/mt this week. The US government shutdown means that release of job report of the Labor Department will be postponed. Despite employment data from other unofficial agencies, market will be cautious before the disclosure of job data from the Labor Department, limiting any sharp movements for copper prices. The underwhelming performance for gold and crude oil will also negatively affect copper price trends in the near term. In addition, the price gap between the SHFE 1310 and 1311 copper contracts is now around RMB 100/mt. Spot copper prices may hold firm at the current level should the price gap narrows with the approach of the delivery date. However, spot copper may be offered at contango if the price gap enlarges to more than RMB 300/mt like in September. In this context, many hold that copper prices will unlikely stage large swings this week.
Nevertheless, 29% of market participants are still pessimistic, anticipating that LME copper will retreat below USD 7,200/mt and SHFE copper will test RMB 52,000/mt. Market will be primarily influenced by the US government shutdown and debt ceiling issue, as the two events are bound to impact global economy which just saw a nascent recovery. With no substantial progress made for the debt ceiling increase, apprehension on the issue mounted, possibly leading to stronger bears in financial markets. That, combined with the slipping US equities, will place downward pressure on copper markets. In China’s money market, the tight liquidity eased in a way given two reverse repos prior to the Chinese National Day holiday, with interbank money rates falling back and bond yields fluctuating. However, three-year Central Bank Bills issued by the People’s Bank of China (PBOC), albeit in limited amount, still suggest that the PBOC remains cautious towards long-term liquidity conditions. On October 10, RMB 80 billion of 14-day reverse repos should mature, while fiscal deposits for the third quarter will be hand in, with liquidity conditions expected to remain tight after the holiday. Under such circumstances, some market players believe copper prices will remain weak this week.
The most active aluminum contract on the Shanghai Futures Exchange (SHFE), SHFE 1312 aluminum contract, hovered near its opening price after starting the day higher at RMB 14,370/mt on Tuesday. SHFE aluminum for December delivery was dragged down by falling SHFE 1310 aluminum contract to RMB 14,325/mt at the tail of the session, but did rebound later, closing RMB 70/mt higher at RMB 14,355/mt. Trading volumes were up 334 lots to 7,534 lots, but positions were off 2,358 lots to 71,484 lots. The light metal is expected to consolidate at high levels.
The price gap between SHFE 1310 and 1311 aluminum contracts expanded to over RMB 100/mt, causing backwardation over SHFE current-month aluminum contract to narrow. Meanwhile, more aluminum ingot arrived after the holiday, also keeping aluminum prices in check. Consumption improved as downstream producers began to replenish stocks in the wake of the week-long holiday. Mainstream traded prices in Shanghai were RMB 14,590-14,610/mt on Tuesday, RMB 14,600-14,620/mt in Wuxi, and RMB 14,610-14,620/mt in Hangzhou. In the afternoon, SHFE current-month aluminum contract dropped, dampening sentiment in spot markets and depressing trading.
SMM surveyed 40 large aluminum ingot producers and traders in China.
55% of the companies surveyed are worried that spot aluminum prices will fall below RMB 14,570/mt this week for the following reasons. First, growing arrivals will ease tightness in supply, causing backwardation to narrow. Second, aluminum prices will face downward correction following sharp gains seen before the week-long holiday. Third, demand after the holiday will not be as strong as before the holiday, which will weigh aluminum prices down. Fourth, dissatisfying US economic data will depress SHFE aluminum, which in turn will send spot aluminum down.
25% of market players covered in SMM’s survey expect spot aluminum prices to hold stable between RMB 14,570-14,610/mt this week. On the one hand, backwardation will fall now that supply has increased. On the other hand, strong SHFE 1310 aluminum contract will preclude any sharp decline in spot aluminum.
The remaining 20% are optimistic that spot aluminum prices will rise above RMB 14,610/mt. 1. Some aluminum smelters in Shandong and Henan cut production earlier against weak demand, which will create a shortfall of aluminum ingot and thus push aluminum prices up. 2. Those who refrained from buying before the Chinese National Day holiday due to high backwardation will probably rebuild stocks after the holiday. 3. Arrivals will be limited since transportation networks were tight during the 7-day holiday. 4. The arrival of seasonally peak-demand month will also underpin aluminum prices.
SHFE 1312 lead contract price gapped nearly RMB 100/mt lower at RMB 14,050/mt on the first trading day after the Chinese National Day holiday influenced by an over 3% slump in LME lead during the seven-day break. Market concerns held many investors on the sidelines, leaving the most active SHFE lead contract hovering between RMB 14,030-14,050/mt. In the afternoon trading session, the rallying Shanghai Composite Index pushed the SHFE lead for December delivery up to a high of RMB 14,080/mt briefly, but resistance at the 5-day moving average was strong. Resultantly, the most active SHFE lead contract price closed at RMB 14,055/mt. Traded volumes for the SHFE 1312 lead contracts added 54 lots to 492 lots, and positions were up 66 lots to 8,380 lots. Now that LME lead prices were still consolidating, SHFE lead prices will remain under the influence of LME lead before any breakthrough. Warehouse warrants for SHFE lead continued to fall by 277 lots to 73,926 lots Tuesday, helping limit any downward room for SHFE lead.
In Shanghai spot market, warehouse warrants for Chihong Zn & Ge were reportedly offered at RMB 14,050/mt, a premium of RMB 10/mt over the most active SHFE lead contract price, but few transactions were made. Yubei’s warrants were quoted at RMB 14,080/mt, a backwardation of RMB 40/mt over the SHFE 1312 lead contract price, with trading muted at high price. Shuikoushan’s warrants were quoted at RMB 14,040/mt, flat at the most traded SHFE lead contract price, while Chengyuan was offered at a premium of RMB 110/mt over the SHFE 1310 lead contract price at RMB 14,040/mt. The limited price gap between different brands dampened buying interest downstream, leaving transactions quieter than expected.
During the first day of the Chinese National Day holiday, LME lead prices fell below three moving averages and presented a 1.89% intraday loss due to the US government shutdown resulting from the failed budget talk. Later, mixed economic data from both China and the US left LME lead consolidating. SMM conducted a survey on lead prices after the holiday, finding that most industry participants were conservative.
60% of industry insiders surveyed by SMM anticipate that LME lead prices remain between USD 2,050-2,077/mt with resistance at the 10-day moving average, noting that the US shutdown caused a delay for release of US economic figures, including the September non-farm payrolls, adding to uncertainty in the market. In addition, the LME Week opened on October 8 will garner considerable attention, leaving prices directionless before any new trends. In spot lead markets, expectation for the post-holiday replenishments fell through, and both sellers and buyers waited outside the markets given uncertainty from the macroeconomic front. Lead-acid battery producers were busy consuming existing finished goods inventories, only purchasing as needed given modest orders and uncertain market outlook. Meanwhile, the typhoon Fitow lashing China’s Jiangsu, Zhejiang and Shanghai also negative affected sales of lead ingots and impeded lead shipments to major consuming regions, such as Zhejiang and Jiangsu. The resulting quiet transactions lead many market players to believe that lead prices will test RMB 14,000/mt repeatedly this week.
The remaining 40% of market participants are pessimistic as the US government has shut down for eight days and debt ceiling concerns loomed large. Tumbling US and European equities mirrored intensifying worries among investors, and caused some to expect that LME lead prices may dip to a low of USD 2,030/mt, with resistance at the 5-day moving average. In China’s domestic markets, enterprises continue to bear financial pressure as loan issuance has been postponed due to the week-long holiday. As such, lead smelters expressed intention to increase supplies in about next 10 days. With lead supply growth exceeding the pace of restocking by downstream buyers, spot lead prices will be dragged lower, with traded prices expected at RMB 13,850-14,000/mt.
Risk aversion grew as US government shut down during Chinese National Day holiday, pushing down LME zinc prices and dragging down SHFE zinc prices. SHFE 1312 zinc contracts prices opened at RMB 14,700/mt, and fluctuated around RMB 14,720/mt during the day, dipping to as low as RMB 14,680/mt, with transactions muted. Near the end of trading, LME zinc prices soared, and combined with strengthening Shanghai Composite Index, SHFE zinc prices gain back some losses and closed at RMB 14,745/mt, down RMB 70/mt or 0.47%. Trading volumes decreased by 10,170 lots, to 14,586 lots, and total positions increased by 968 lots, to 114,174 lots. Trading volumes of SHFE 1401 zinc contract increased by 1,750 lots, to 28,132 lots, and total positions increased by 6,076 lots, to 106,016 lots. SHFE 1401 zinc contracts are expected to become the most actively traded one on Wednesday.
#0 zinc prices were between RMB 14,880-14,910/mt, with spot premiums of RMB 150-180/mt against SHFE 1401 zinc contract prices. #1 zinc prices were between RMB 14,850-14,860/mt. large amounts of imported zinc arrived at ports ahead of the holiday, with Belgium and Indian #0 zinc prices between RMB 14,830-14,850/mt. Dragged down by LME zinc prices, SHFE 1312 zinc contract prices opened low, but investors lacked interest in purchasing. Cargo holders were actively moving goods with firm prices, causing spot premiums to expand significantly, with RMB 200/mt for Shuangyan branded zinc against SHFE 1401 zinc contract prices. But due to the lack of downstream buyers, transactions were quiet, with mainstream premiums of RMB 170-180/mt for Shuangyan branded #0 zinc. With sluggish downstream orders and the typhoon, overall transactions were muted.
With regard to zinc price trends this week, 50% market players surveyed by SMM are optimistic, believing LME zinc prices will rise to USD 1,900/mt, and SHFE 1401 zinc contract prices will break through RMB 14,800/mt. They believe an agreement will be eventually reached on the US debt issue. Few investors sold off goods with the exception of the day on which US government was closed. The US debt crisis may result in a delay in the wind-down of QE3, weighing down the US dollar index and positively affecting zinc prices. News from China and Europe was upbeat. European Central Bank decided to maintain its benchmark rate unchanged at 0.5%, and Draghi reemphasized his easy-money stance. In Italy, Berlusconi withdrew his support for Leta, and the Liberal People's Party pledged they will continue their support for existing government. During Chinese National Day holiday, China’s official PMI in September hit a 17-month high, while non-manufacturing PMI was 55.4%, a 6-month high. The average price of new housing in Chinese 100 cities was RMB 10,554/㎡, up 1.07% MoM, and this is the 16th straight month in which the average price rose on the month. Improving PMI and strong real estate market will enhance optimism toward demand in China.
10% are bearish since ADP data showed last week only 166,000 jobs were added, falling short of expectations, and US non-farm employment data will be released this Friday, which is also pessimistic and will negatively affect zinc prices. LME zinc prices are expected to fall to USD 1,855/mt, and SHFE 1401 zinc contract prices will find support at RMB 14,610/mt. Trading in southeast China was muted due to the typhoon. East Asian Games opened October 5 in Tianjin, and gaolvanizers and zinc oxide enterprises near Tianjin were affected, which affected their interest in building raw materials. Cargo holders were cautious on the first trading days following the Chinese National Day holiday, with spot premiums against SHFE 1401 zinc contract prices expanding to RMB 150-180/mt, but are expected to narrow to RMB 150/mt due to the lack of downstream buyers.
The remaining 40% are neutral, believing until the US debt issue was resolved, LME zinc prices will move between USD 1,860-1,890/mt, and SHFE 1401 zinc contract prices will hover between RMB 14,700-14,800/mt.
On Tuesday, spot tin prices in Shanghai rose significantly to RMB 151,000-154,000/mt boosted by the strong LME tin during the Chinese National Day holiday. Tin smelters mostly quoted between RMB 155,000-156,000/mt. However, consumption did not improve, with inquiries from downstream buyers limited, leaving trading muted. Thus, the rising prices only stocked wait-and-see sentiment in the market.
SMM poll on tin price trends this week revealed that 45% of market players expect tin prices will remain stable for the rest of the week following the sharp rally on Tuesday, as the limited transactions may pose hurdle for any further price increase. Besides, LME tin prices met resistance at USD 24,000/mt, and spot tin may gain little upward momentum should LME tin prices fail to cross above the resistance. However, as market confidence was shored up by the strong LME tin lately, spot prices may find support at RMB 150,000/mt.
40%of market participants expect further rise in tin prices, hoping that LME tin will break through the resistance and that the tin trading policy in Indonesia will continue to underpin tin prices.
The remaining 15% of market players are bearish, noting that LME tin prices will stage a pullback after the strong rebound. That, combined with the weak demand in domestic markets, will hurt tin prices. Moreover, uncertainty resulting from the US government shutdown will also dent market mood and negatively affect base metals prices.
In Shanghai, SMM #1 nickel prices were between RMB 96,600-97,700/mt in the morning. Trading of Jinchuan nickel at RMB 97,700/mt was brisk, and Russian nickel prices were around RMB 96,700/mt. As cash flow problems eased, transactions improved.
SMM surveyed 36 investors and found that 39% believe LME nickel prices will rise to USD 14,000-14,200/mt this week. US government shutdown and worries over US economy undermined expectations of QE3 wind-down this year, which weighed down the US dollar index and lent some support to LME nickel prices. Besides, both China’s official manufacturing and service PMIs in September were better than August, showing domestic consumption and demand improved, which will drive up LME nickel prices.
50% market players believe LME nickel prices will level out. The looming US debt crisis kept investors cautious, so LME nickel prices will unlikely rise.
11% investors see LME nickel prices falling to USD 13,500-13,600/mt. they think demand for LME nickel will not improve given steady NPI market, unless LME nickel prices drop to USD 13,200/mt.