SHANGHAI, Oct. 22 (SMM) –
Copper for delivery in January on the Shanghai Futures Exchange (SHFE), the most active one, opened RMB 20/mt lower at RMB 52,130/mt on Monday, as LME copper erased gains last Friday. The contract hovered around the daily moving average for most time of the morning session, meeting resistance at RMB 52,200/mt due to selloff, but bounced back above RMB 52,000/mt after briefly falling to RMB 51,850/mt, helped by a 1.6% rally in the Shanghai Composite Index. In the afternoon session, SHFE 1401 copper contract followed LME copper up to an intraday high of RMB 52,380/mt before finishing at RMB 52,330/mt, up RMB 180/mt or 0.35%. Trading volumes dropped 16,226 lots, while positions grew 6,312 lots. Some investors may close positions following continuous rise in copper prices.
Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt over SHFE 1311 copper contract Monday morning. Traded prices were RMB 52,100-52,180/mt for standard-quality copper, and RMB 52,150-52,250/mt for high-quality copper. Growing supply of imported copper and the end-of-month liquidity crunch compelled cargo holders to sell at lower prices. High-quality copper was offered at a contango near midday. Some traders bought spot copper while selling SHFE copper. Downstream producers held to a wait-and-see stance on the first day of the week. In the afternoon, spot copper was quoted at a contango of RMB 30-120/mt, with prices for standard-grade copper holding relatively firm. Traded prices edged higher to RMB 52,200-52,330/mt.
With respect to copper price trends this week, 30% of industry insiders surveyed by SMM were optimistic, predicting that LME copper will rebound to USD 7,300/mt and SHFE copper may jump above RMB 52,500/mt. With the US fiscal impasse unlocked and Q3 performance of listed US companies reported bright, major indices on the US stock markets rallied, turning market attention from the US debt issue to the Q3 financial statements. Meanwhile, as the partial Federal government shutdown may hurt the nation’s economic recovery, market expects that the Fed will keep the monthly asset purchases unchanged at USD 85 billion. The further delay of QE taper may drive US stocks to extend gains for the foreseeable future, helping support copper prices. The US dollar index will continue to consolidate at low levels after the slump last week, also offering support to copper. Besides, forecast for the HSBC’s China October manufacturing PMI is optimistic. In this context, nearly one third of industry participants believe copper prices will rise this week.
55% of market players expected copper prices to remain range-bound this week, with LME copper prices at USD 7,180-7,300/mt and SHFE copper prices between RMB 51,800-52,500/mt. The partial government shutdown in the US will add uncertainty over the belated September nonfarm payroll report this week. The US existing and new home sales in September, as well as the University of Michigan Consumer Confidence Index for October will also be released this week. Market believes that the US debt ceiling issue, thought resolved, in combination with any negative releases, will lead the Fed to continue to postpone the QE scale-back, dampening the greenback and benefitting commodities markets. Technical indicators also pointed to a narrow range for copper prices. The limited volatility of copper prices will persuade investors to buy on the dips and sell at highs and prefer short-term operations, in turn deterring the prices from fluctuating wildly. In China’s stock markets, shares to be unlocked this week fall 2.811 billion or 63.41% from last week, with their value down RMB 8.121 billion or 32.13%, which should be the lowest level so far this year. The Shanghai Composite Index thus is expected to hold firm around 2,200, but lacks momentum to rise further. As a result, over half of market players believe copper prices will unlikely show clear direction, but only remain at the current level this week.
The remaining 15% of industry participant held a bearish attitude, expecting LME copper to fall below USD 7,180/mt and SHFE copper to test support at RMB 51,500/mt. In the Eurozone, the Bank of Spain reported that bad debt ratio of the nation’s banking sector rose to 12.1% in August from July’s 12%, its new historical high, with the non-performing loans mounting to USD 247 billion. The ratio has been climbing during the past few months, despite slower growth at several banks during Q2. The persistently high unemployment rate and rising bad debt ratio in Spain have become the most pressing issues impeding the Eurozone recovery. Elsewhere in Portugal, massive protest was launched against austerity. Some leaders from labor unions and members of the parliament also participated in the protest. Arménio Carlos, Secretary-General of the General Confederation of Portuguese Workers (CGTP) said in a speech October 15 that he expected more protests. The euro will be influenced by these two events which threaten the stability in the currency union, while European stocks may also pull back this week following the rises last week. In China, money rates, especially medium to short term rates, dropped. The rate of seven-day reverse repos edged up 2BP to 3.36% on October 17 after the People’s Bank of China suspended open market operations during the week, revealing a tight balance for market liquidity, which may impact trading in stock and futures markets. In spot copper markets, growing oversupply pressure left spot copper quoted at contango against the SHFE current-month copper contract, with the contango tending to expand, while copper consumption failed to improved. The weak fundamentals will pose downside risk for copper prices.
December aluminum on the Shanghai Futures Exchange (SHFE), the most active one, started Monday lower at RMB 14,340/mt, but broke through the 5-day and 10-day moving averages to RMB 14,395/mt at the tail of the session. Finally, the light metal closed up RMB 20/mt at 14,385/mt. Trading volumes increased 312 lots to 2,684 lots, while positions shrank 1,284 lots to 60,518 lots. SHFE 1401 aluminum contract may shift to the most active contract soon.
Mainstream traded prices for spot aluminum in Shanghai were RMB 14,460-14,480/mt on Monday. Prices were RMB 14,430-14,450/mt in Wuxi, and RMB 14,440-14,460/mt in Hangzhou. Supply was tight in Shanghai, lending support to prices there. However, ample supply and slack demand forced cargo holders in Wuxi to sell at discounts. In the afternoon, traded prices remained unchanged, with thin trading reported.
SMM surveyed 33 large aluminum producers and traders in China.
33% of the companies surveyed believe spot aluminum prices will rise above RMB 14,480/mt this week. First, only a limited amount of aluminum ingot has arrived in east China, especially in Shanghai where supply remains tight. This will push spot aluminum prices up. Second, firm LME aluminum prices will provide upward momentum to SHFE aluminum, which in turn will lend support to spot aluminum in China.
Another 12% of market participants are bearish that spot aluminum will retreat below RMB 14,440/mt 1. There is an overhang of aluminum ingot in Henan, where aluminum prices have dropped by over RMB 100/mt. Sources indicate that surplus aluminum in Henan will be shipped to east China. This will add oversupply pressure in east China and drag prices there down. 2. SHFE aluminum may slide on bearish expectations for upcoming US economic figures after the US government reopens, which will weigh spot aluminum down as well. 3. Demand is waning, especially when the normally peak-demand season is coming to an end. Besides, large arrivals into Wuxi will also pull spot aluminum down.
The remaining 55% expect spot aluminum to remain stable between RMB 14,440-14,480/mt. On the one hand, downstream demand remains slack and traders are little inclined towards buying, acting as a brake against any spike in aluminum prices. On the other hand, large smelters were not in a rush to sell at discounts even when aluminum prices dropped sharply last week. Cargo holders will continue to hold offers firm this week, precluding any decline in aluminum prices.
The most-traded SHFE lead contract prices started at RMB 14,405/mt Monday and briefly touched a low of RMB 14,360/mt. However, the prices were later boosted by the news that “T+0” settlement which allows investors to buy and sell a stock on the same day is now open to some products on the Shanghai Stock Exchange, to move up to RMB 14,410-14,430/mt in the morning session. The SHFE lead for December delivery further climbed to RMB 14,450-14,470/mt and finally closed RMB 60/mt higher at RMB 14,455/mt. Traded volumes were up 10 lots to 1,402 lots, while positions dropped 32 lots to 10,010 lots.
Spot lead prices in Shanghai edged up. Prices for Chihong Zn & Ge were between RMB 14,290-14,300/mt, flat with last Friday and with a contango of RMB 120-130/mt against the most active SHFE lead contract price. Supplies from the company increased. Hanjiang, Mengzi, and Yunyue were traded at RMB 14,220-14,230/mt, while Humon and Shenqian were sold at RMB 14,160-14,180/mt. Deliverable brands, except for Chihong Zn & Ge, were hardly seen as traders rarely conducted arbitrage. Downstream consumption was poor. In the afternoon, traders lowered prices to promote sales, with Jinsha offered at RMB 14,270-14,280/mt and prices for Dongling at RMB 14,260/mt. Trading was more brisk than morning session.
According to the most recent SMM survey, half of industry participants polled believe that LME lead prices will break through USD 2,200/mt this week, with the most active SHFE lead contract price climbing to RMB 14,500/mt, which is also the 60-day moving average, and spot lead prices expected at RMB 14,250-14,350/mt. Positive result of the US debt ceiling debate has helped free the market from concerns over a US default. Rating agency S&P estimates that the Federal government shutdown may cost 0.6% in growth from US 4Q GDP, equating to an economic loss of USD 24 billion, and the resultant uncertainty to the US economic prospect may cause further delay of QE tapering. In this context, market attention will switch from these risky events to economic signposts at major economies which turned out upbeat lately. At the meantime, LME lead prices have found support at the 250-day moving average which promises to lead to significant price hike given that LME lead prices had staged strong rallies after standing above this mark in late May and early August. Longs may also help boost lead prices this week should economic figures hold up well. In China’s domestic markets, SHFE and spot lead prices may rise in tandem with LME lead.
Projection of 30% of industry insiders is that lead prices will consolidate this week, noting that a lack of market confidence and uncertainty toward the US nonfarm payrolls and PMI data due for release this week will leave investors cautious.
The remaining 20% of market players hold that LME lead prices will retreat to USD 2,130/mt and SHFE 1312 lead contract prices will slip to RMB 14,200-14,300/mt, with spot lead traded at RMB 14,100-14,200/mt. LME lead bucked the trend to drift higher last week despite growing concerns over the US debt crisis, leading some to believe that LME lead will present a pullback this week given the absence of new stories. In China, lead consumption remained tepid, while selling interest in spot market will be escalated given higher finished goods stocks and accelerating production at smelters, which will weigh spot lead prices down.
SHFE 1401 zinc contract prices opened flat at RMB 14,960/mt, and then edging up after briefly dipping to RMB 14,910/mt. Boosting by rising LME zinc prices and strengthening Shanghai Composite Index, SHFE zinc prices broke through RMB 15,000/mt, then hovering between RMB 15,050-15,080/mt. At the end of trading, the Shanghai Composite Index continued to rise and closed up 1.62%, pushing up SHFE zinc prices to close at a second daily high of RMB 15,115/mt, up RMB 155/mt or 1.04%. Trading volumes increased by 54,960 lots, to 92,234 lots, and total positions increased by 23,580 lots, to 152,598 lots.
#0 zinc prices were between RMB 15,090-15,160/mt, with spot premiums narrowing RMB 50/mt, to RMB 50-100/mt against SHFE 1401 zinc contract prices. #1 zinc prices were between RMB 15,040-15,050/mt. SHFE 1401 zinc contract prices opened flat but strengthened later the day, with both smelters and other cargo holders actively moving goods, causing supply to increase and spot premiums to narrow. A large number of traders entered the market, but downstream buying interest was low, leaving trading muted. Shuangyan and Yuguang branded #0 zinc prices were RMB 15,140-15,160/mt, with Baohui brand #0 zinc prices between RMB 15,090-15,100/mt. Other regular #0 zinc prices were between RMB 15,110-15,130/mt, with spot premiums of SMC #0 zinc against SHFE 1401 zinc contract prices around RMB 50/mt.
An agreement was reached on the US debt ceiling issue, but without further support, LME zinc prices leveled out.
SMM undertook a survey and found that 50% market players are optimistic toward zinc prices this week, believing LME zinc prices till test USD 1,960/mt, and SHFE 1401 zinc contract prices will test RMB 15,300/mt. US September non-farm employment data will be released this Tuesday, if the data fall short of expectations, when combined with worries that US government shutdown will impact economy, the likelihood of QE3 wind-down is very low, which will give support to base metals prices. China's Q3 GDP rose 7.8%, compared to 7.5% in 2Q, showing China's economy is improving. When combined with an agreement on the US debt ceiling issue and US government reopening, market regains confidence. Manufacturing PMIs from China, Eurozone and US in September will also be announced this week, which is optimistic, and will positively affect zinc prices. Galvanizers and zinc oxide producers in and around Tianjin will restart operations after the East Asian Games, which will boost demand in north China, with spot premiums against SHFE 1401 zinc contract prices between RMB 0-50/mt.
7.9% are pessimistic toward zinc prices. Zinc prices have leveled out, although the impasse of US debt ceiling issue broke, the US government is only allowed to open before January 15, 2014. The market worries that will affect US consumption and investment growth. In this context, LME zinc prices will fall to test support from USD 1,900/mt, and SHFE 1401 zinc contract prices will test RMB 14,850/mt, with spot premiums between RMB 100-150/mt.
42.1% take a neutral attitude. Major macroeconomic news is mixed, and global economy lacks ability to recover. In this scenario, the market will unlikely dip or soar, with both longs and shorts taking a wait-and-see attitude. LME zinc prices will move between USD 1,915-1,950/mt, and SHFE 1401 zinc contract prices will hover around RMB 15,000/mt, with spot premiums between RMB 50-100/mt.
Mainstream traded prices for spot tin in Shanghai were between RMB 146,300-150,000/mt on Monday, flat with last Friday’s level. Nanshan, Jinlong, Yunxiang, and Yinsheng were mainly sold at RMB 146,500/mt, while resources of Yunnan Tin Group were traded around RMB 150,000/mt due to limited supply. Despite recovering LME tin prices, spot tin prices failed to gain any support, and spot trading remained modest.
China’s tin prices were mainly influenced by LME tin prices and market morale recently. Downward pressure confronting spot prices may ease somewhat following the sharp declines last week. A lack of any substantial support from real demand caused prices to fall quickly following the rapid rises around the Chinese National Day holiday.
According to SMM’s latest survey, half of market players contacted by SMM believe prices will hold steady this week. LME tin prices found support at USD 22,700/mt but also met strong resistance at higher levels, so prices are expected to stabilize around the level this week. In China’s spot markets, prices for most brands, except for Yunnan Tin Group, were relatively low, but showed no sign of further declines. As such, spot tin prices will likely level out, following the trend of LME tin.
30% of market players hold that spot tin prices will rally. These investors expected LME tin prices to break through the resistance at USD 23,200/mt and test USD 24,000/mt as LME tin prices edged up during Asian trading hours on Monday. Spot tin prices also stopped falling on Monday, and may drift higher driven by LME tin prices.
20% of industry participants are still pessimistic, noting that if LME tin prices fail to bounce back, prices may test support at USD 22,700/mt and then USD 22,300/mt, and even lower level of USD 22,000/mt. Spot tin prices will slip in tandem with LME prices and may find support at RMB 145,000/mt.
In Shanghai, Jinchuan raised nickel prices by RMB 1,000/mt, to RMB 99,000/mt. SMM #1 zinc prices were between RMB 98,100-99,100/mt, with Russian nickel supply tight and transactions quiet. Jinchuan nickel prices were around RMB 99,500/mt in the afternoon, but trades were muted.
SMM surveyed 36 market players and found that 72% believe LME nickel prices will rise to USD 14,200-14,500/mt this week. China’s 3Q GDP rose by 7.8%, boosting market confidence. US non-farm employment data will be released Tuesday, which is optimistic. But the market thinks US government shutdown has hurt real economy, and US will unlikely back off QE3 until next March, which will positively affect LME nickel prices in the near term.
28% market players believe LME nickel prices will move between USD 14,000-14,200/mt. They will remain cautious prior to the release of housing data, CPI, PPI and non-farm employment figures from the US. Besides, LME nickel prices will lack ability to rise due to sluggish demand.