SHANGHAI, Oct. 15 (SMM)--
Copper for delivery in January on the Shanghai Futures Exchange (SHFE), opened at RMB 51,720/mt on Monday. The contract found support at the 60-day moving average after a brief retreat to RMB 51,330/mt, being pushed up to RMB 52,000/mt by buying. The red metal, however, fell back again to hover near RMB 51,800/mt. In the afternoon trading, rising LME copper drove SHFE 1401 copper contract up to RMB 52,300/mt. Finally, SHFE copper for January delivery closed RMB 570/mt or 1.1% higher at RMB 52,260/mt. Trading volumes grew by 65,550 lots to 305,670 lots, and positions also increased to 230,580 lots. There is still room for January copper on the SHFE to rise.
Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt and a backwardation of RMB 0-80/mt over SHFE 1310 copper contract in the morning. Traded prices were RMB 52,070-52,150/mt for standard-quality copper, and RMB 52,150-52,330/mt for high-quality copper. SHFE copper swung violently in early morning session, but later held stable. Cargo holders were anxious to sell, causing backwardation to narrow. Contango of standard-quality and low-end hydro copper, in particular, expanded. Some speculators bought spot copper while selling SHFE copper after the price gap between SHFE 1310 and 1311 copper contracts narrowed to less than RMB 100/mt. Downstream producers seldom entered the market. In the afternoon, cargo holders in spot markets showed diverged opinions on the rallying SHFE copper. Contango for standard-grade copper expanded to RMB 100-150/mt with some traders selling at high prices to generate cash. High-grade copper was quoted at a contango of RMB 0-30/mt and a backwardation of RMB 0-50/mt. Traded prices increased to RMB 52,100-52,500/mt. However, some bullish traders still refrained from selling, awaiting price rebound.
The most recent SMM survey shows that 30% of participants in copper markets predict that LME copper will rise further to break above USD 7,250/mt, with SHFE copper moving between RMB 52,200-52,800/mt. With the US fiscal impasse easing last Thursday, market became more optimistic to the result of debt ceiling increase, leading to a rise in long positions for LME copper. Elsewhere in Europe, the latest Eurozone industrial data improved as expected and CPI is expected to remain in control. Germany economic signposts continued to show positive signs, driving European equities to climb. The euro also obtained support at the 20-day moving average following a brief pullback against the US dollar, and is expected to test a high of 1.360. These factors will also help lift base metals. Last Thursday, the US stock market presented the biggest intraday gain since September, with the Dow closing higher for a third day straight, increasing by 1.1% in a single week. Moreover, market is optimistic towards the US building permits and NY Fed manufacturing index due for release this week. As such, the US stocks will extend the gains, encouraging morale in base metals markets. In China, despite the mixed economic data reported last week, the remarks of Premier Li Keqiang that GDP growth should be between 7.5-7.8% in Q3 and Q4 and reform policies expected to be introduced at the Third Plenary Session of the CPC Central Committee forthcoming will lift market confidence. Chinese A-shares will likely challenge 2,250 points. That, combined with increasing trading volumes and positions for SHFE copper expected after the delivery, will enable SHFE copper to gain traction. In spot copper markets, selling interest downstream will improve as copper consumers will continue to report decent orders in the traditional peak demand season.
20% of market players believe the rebound in copper prices will be ephemeral and LME copper prices will fall back to USD 7,100-7,150/mt, with SHFE copper expected to move at RMB 51,300-51,700/mt. Backwardation for spot copper will also narrow. Although market focus switched from the Fed's QE tapering to the US debt ceiling crisis, expectation for the wind-down of Fed's asset purchasing still dragged currencies for several emerging countries down to new lows, eroding momentums for economic recovery in these nations. The US dollar index thus rebounded after gaining strong support, which is expected to weigh on base metals. This was particularly evident to gold which already suffered sell-offs and presented sharp decline last Friday. In China, Customs data posted an unexpected decline in September exports, while the CPI for September was reported higher than forecast and is expected to approach 3.5% in the next three months, leaving investors wary of swelling inflation pressure. On the other hand, liquidity conditions became tighter with many smaller or local commercial banks attracting deposits via higher interest rates and other wealth management products, competing with the five largest banks. Meanwhile, capital flowing into financial and base metals markets remained limited, and the resulting financial pressure prompted some cargo holders to rush to sell for cash flow. The rising supply will prevent spot copper prices from increasing.
The remaining 50% of market players surveyed by SMM are cautious, expecting LME copper to remain between USD 7,150-7,250/mt and SHFE copper to be around RMB 52,000/mt. High risk assets are expected to rally after the negative influence of the US budget talk dissipates, while copper will be favored again after the release of Chinese economic data. However, caution prevailing in the market should cause speculators to go bargain hunting and sell at highs, preventing copper prices from swinging largely. China Customs reported that China's copper imports in September grew noticeably by 18% MoM. In response to the strong demand from China, LME copper prices attempted to rebound, but the ample supply in China and recovering SHFE/LME copper prices ratio left mounting oversupply pressure in copper market. Besides, the falling backwardation for spot copper prompted an increasing number of investors to buy spot goods and sell in futures markets, adding to selling pressure on back-month copper contracts, also leaving copper prices in consolidation.
December aluminum on the Shanghai Futures Exchange (SHFE), the most active one, declined to RMB 14,420/mt after opening at RMB 14,465/mt on Monday, dragged down by falling SHFE 1310 aluminum contracts. However, the contract nudged up at the tail of the session, closing at RMB 14,440/mt, up RMB 5/mt. Trading volumes contracted 3,808 lots to 5,604 lots, and positions also shrank 1,488 lots to 66,562 lots.
Mainstream traded prices for spot aluminum in Shanghai were RMB 14,600-14,610/mt on Monday, a premium of RMB 0-10/mt over SHFE 1310 aluminum contracts. Aggressive sales by Inner Mongolia Datang Renewable Resources and Henan Shenhuo Group sent prices in Wuxi down to RMB 14,600-14,610/mt in Wuxi, flat with Shanghai. Prices were RMB 14,610-14,620/mt in Hangzhou. High prices deterred downstream producers from buying. In the afternoon, trading remained muted.
SMM surveyed 42 large aluminum ingot producers and traders in China.
An overwhelming majority (76%) of the companies surveyed are worried that spot aluminum prices will fall below RMB 14,600/mt this week for the following reasons. First, prices will fall as shipments continue to arrive. Second, SHFE 1311 aluminum contracts, prices of which are lower than those of SHFE 1310 aluminum contracts, will shift to the new current-month contract on Tuesday. This will send aluminum prices down. Third, demand is weak in normally high-demand October, also exposing aluminum prices to downward correction.
The remaining 24% expect spot aluminum prices to hold steady between RMB 14,600-14,640/mt. 1. Most of the goods that arrived after the weeklong holiday were bought by large producers, leaving limited aluminum ingot available in spot markets. Meanwhile, arrivals last week did not grow sharply, helping aluminum prices hold stable. 2. Downstream producers refrained from aggressive restocking after the Chinese National Day holiday on the belief that prices would fall. However, those processors may increase purchasing this week, keeping prices for the light metal stable.
US will default if it fails to raise debt ceiling before October 17, with market wariness prevailing in the market. SHFE 1401 zinc contract prices opened at RMB 14,960/mt, soaring immediately following opening but dropping back later, hitting a daily low of RMB 14,885/mt. SHFE zinc prices edged up as bargain hunters entered the market, rallying to the opening price. China's September CPI rose 0.8% MoM, and up 0.8% YoY; PPI rose by 0.2% MoM, but down 1.3% YoY. Narrower declines show demand improved, giving support to zinc prices. SHFE zinc prices touched RMB 14,995/mt, and closed at RMB 14,980/mt, up RMB 50/mt or 0.33%. Trading volumes decreased by 30,322 lots, to 43,832 lots, and total positions increased by 4,244 lots, to 149,166 lots.
#0 zinc prices were between RMB 15,050-15,110/mt, with spot premiums of RMB 100-150/mt against SHFE 1401 zinc contract prices. #1 zinc prices were between RMB 15,000-15,010/mt, and Belgium #0 zinc prices were between RMB 14,990-15,030/mt. SHFE 1401 zinc contract prices fluctuated in a wider range, up from last Friday's levels. Cargo holders were holding prices firm, with spot premiums expanding. Shuangyan branded #0 zinc prices were between RMB 15,080-15,110/mt, and Jiulong and Qinxin branded #0 zinc prices were between RMB 15,050-15,080/mt, with premiums of Belgium #0 zinc prices around RMB 40/mt. low imported zinc prices impacted #1 zinc market, with #1 zinc prices around RMB 15,010/mt. Downstream buying interest was low, leaving transactions muted. As SHFE inched down, #0 zinc prices fell to RMB 15,030-15,060/mt, with #1 zinc supply increasing, and prices between RMB 14,970-15,000/mt. Imported #0 zinc prices were between RMB 14,980-15,030/mt. SHFE zinc prices opened high and moved higher, and spot zinc prices rose by RMB 100/mt. Cargo holders moved goods at higher prices, while downstream buying interest was undermined, leaving transactions muted.
US debt ceiling issue refrained zinc price gains last week.
SMM undertook a survey and found that 50% market players are optimistic towards zinc price trends this week, believing LME zinc prices will break through USD 1,935/mt, and test resistance at USD 1,950/mt. SHFE 1401 zinc contract prices will break through USD 15,000/mt, and test pressure at USD 15,300/mt. although US default is likely if it fails to raise debt ceiling before its October 17 deadline, the market is not worried because the debt issue is expected to be resolved at the last moment. Once the US debt ceiling issue is resolved, the market will be positively affected. Meanwhile, the US dollar index has been falling since US debt crisis occurred, which lent some support to base metals prices. China's trade surplus narrowed in September, while imports grew slightly, and exports dropped sharply. A China Customs manager reported China import and export stabilized at low levels during the first three quarters of 2013, and foreign trade dependence degree in 1H was 50.4%, down 0.7 percentage point from the same period last year. China's September CPI rose 0.8% MoM, and up 3.1% YoY; PPI was up 0.2% MoM, but down 1.3% YoY. That shows industry production is stable. China's Q3 GDP, fixed assets investments in cities and towns during January-September and retail sales in September will be released this Friday, which is optimistic and are expected to boost zinc prices.
13.3% are pessimistic. US government remains closed, and the release of non-farm employment data was postponed. ADP showed only 166,000 jobs were added, falling short of expectations and pointing to a sluggish job market. If the US non-farm employment data is released this Friday, they are pessimistic, and will negatively affect zinc prices. LME zinc prices will fall below 10 and 20-day moving average, testing support from USD 1,870/mt. SHFE 1401 zinc contract prices will fall to test support from RMB 14,800/mt. galvanizing and zinc oxide enterprises near Tianjin will not restart until next week due to the ongoing Asian Games. Spot premiums remained high recently, but downstream purchasing was muted. Besides, strict air pollution inspections in Beijing, Tianjin and Hebei will affect galvanizers, and will curb zinc demand. Cargo holders held prices firm early this week, with Shanghai #0 zinc prices up to RMB 15,100/mt, the highest since September, but as SHFE zinc prices inch down, zinc prices are expected to fall below RMB 15,000/mt.
The remaining 36.7% are neutral toward zinc prices. US political impasse will kept investors away from the market. LME zinc prices will hover above the 60-day moving average, and SHFE 1401 zinc contract prices will fluctuate around RMB 14,900/mt, with spot premiums between RMB 100-150/mt and traded prices around RMB 15,000/mt.
The most active SHFE lead contract prices opened flat at RMB 14,145/mt on Monday. China's CPI released in morning trading session rose 3.1% from a year ago, higher than a forecast of 2.8% and August' s 2.6%, aggravating worries over tighter monetary policy in the future. However, the September PPI fell 1.3%, a smaller fall than the 1.4% expected by the market and the 1.6% drop in August, which pointed to a manufacturing recovery. In this context, the 1312 SHFE lead contract prices consolidated between RMB 14,100-14,130/mt on Monday, underperforming the other base metals prices in morning trading hours. The prices, boosted by the rally of LME lead prices in afternoon trading session, surged above RMB 14,200/mt with the last deal done at RMB 14,420/mt, leaving SHFE lead prices up RMB 275/mt from the previous trading day. However, the extraordinary high traded price was considered caused by a mistake.
In Shanghai spot lead market, prices for Chihong Zn & Ge were between RMB 14,050-14,060/mt on Monday, with contango of RMB 50-60/mt against the most active SHFE lead contract price. Shuikoushan was quoted at a backwardation of RMB 20/mt over the SHFE 1311 lead contract price. Chengyuan and Nanfang were traded at RMB 14,040/mt, while Hanjiang and Shenqian were sold at RMB 14,020/mt. Humon's resources were traded at RMB 14,000/mt. Cargo holders moved goods aggressively, but buying interest downstream weak, leaving transactions limited.
According to the most recent SMM survey, 40% of participants in lead markets are optimistic to lead price trends this week, believing that LME lead will touch a high of USD 2,130/mt and continue to trend up, and spot lead prices may register a gain a RMB 100-200/mt. Although the proposals of the House and Senate about debt ceiling increase have been rejected, a US default has never occurred in the history as a default may result in surging Treasury rates which will severely hurt the US and global economy. Besides, many Americans hold that Republicans are primarily responsible for the partial government shutdown, and the Republicans will unlikely carry on in regardless of public views. As such, market expects the debt ceiling crisis will finally be resolved, lending support to LME lead prices. In addition, market focus will shift from the US to China, with the country's economic figures, including CPI, PPI, 3Q GDP, and retail sales, expected to be announced this week, and expectations for these data are positive. On the other hand, the International Lead & Zinc Study Group (ILZSG) predicted recently that global lead market, for the first time in five years, will see a shortage of 23,000 mt in 2014. The continuous rises in positions for LME lead mirrored the improvements in fundamentals. In this context, some market players project that LME lead prices will move up after hitting USD 2,130/mt this week. In China's spot lead markets, downstream demand has been weak after the Chinese National Day holiday. However, since most lead consumers held raw materials stocks at around 10 days, many are expected to increase purchases once lead prices increase, which will in turn send lead prices higher.
However, 60% of industry insiders are conservative, expecting LME lead prices to remain at USD 2,100/mt and SHFE lead prices to hold steady at RMB 14,100-14,200/mt, with spot lead prices staying around RMB 14,000/mt. Although most investors believe the US will not touch debt ceiling, market is not likely to be largely shored up even if the issue is resolved smoothly as the result is in line with forecast. Resultantly, base metals prices may not rise significantly. In China, downstream buyers will feel the need to replenish stocks, while lead smelters will also increase supplies. Plus the approach of delivery date, goods availability in spot markets will be escalated, leaving spot lead prices consolidating.
Spot tin prices in Shanghai held steady between RMB 150,500-153,500/mt Monday morning. The consolidation of LME tin limited any decline in tin prices, and tin smelters held quotations firm, offering strong support for spot prices. In the afternoon, spot tin prices began slipping dragged by weak demand. Prices for Nanshan and Jinlong dipped as low as RMB 149,500/mt, but transactions remained unimproved.
SMM survey reveals that 45% of industry insiders believe tin prices will hold steady, noting that LME tin prices will consolidate at high levels with market awaiting result for the US debt ceiling talks. These market players hold that the LME tin prices will gain limited support even if the outcome of the talk turns out positive, as investors have become deadened to the hypes for such issue. Meanwhile, the concerns over Indonesia's tin supply will continue to bolster LME tin. In Chinese tin markets, downward room for spot prices will also be limited as producers of well-known brands refuse to low quotes. Thus, spot tin prices are expected to find support at RMB 150,000/mt.
40% or market players expect tin prices to fall this week due mainly to sluggish demand and rising selling interest among smelters. Investors are less confident to market outlook, with wait-and-see sentiment looming. Some resources from Jiangxi were traded as low as RMB 150,000/mt on Monday, indicating that many smelters felt obliged to sell goods. That, combined with anemic consumption, many drag down spot tin prices. The US debt ceiling negotiation is another concern, as financial market will be largely hit if the negotiation does not run smoothly.
The remaining 15% of investors are bullish given optimism to result of the US budget talk. Besides, the export restriction of Indonesia is believed to continue affecting the market, giving incentives for LME tin price increase. This will also help buoy spot tin prices in China.
In Shanghai, Jinchuan raised nickel prices by RMB 400/mt, to RMB 97,700/mt. SMM #1 nickel prices were RMB 96,500-97,500/mt, with transactions mainly made in the morning session. Traders held back goods in the afternoon due to rising LME nickel prices.
SMM undertook a survey of 36 market players and found 39% believe LME nickel prices will rebound to USD 14,000-14,200/mt. LME nickel prices rose last Thursday and closed at USD 13,907/mt last Friday. As US debt ceiling issue moves toward resolving, US government is expected to reopen this week. China's PPI in September dropped 1.3%, with declines down 0.5% on the MoM basis, but improved for the fourth consecutive week. Improving domestic industry demand will give support to LME nickel prices. China's GDP and fixed assets investment data to be released this week is also optimistic.
44% believe LME nickel prices will move between USD 13,600-14,000/mt. The market will avert risks before the US government reopens, and LME nickel price gains recently will unlikely sustain. Besides, if the US dollar index rebounds, LME nickel prices will likely fall.
17% think LME nickel prices will hover between USD 13,500-13,600/mt. LME nickel inventories remain high, and downstream demand did not improve, with cargo holders expected to selling goods to generate cash.