SHANGHAI, Oct. 29 (SMM) – Last week, the weaker-than-expected US nonfarm payrolls fueled expectations that the Fed will maintain QE through the end of the year, driving down the US dollar index. Base metals rose in response, but the price hikes were arrested due to profit taking and selling pressure. When combined with the growing oversupply pressure in copper markets, SMMI.Cu dropped by 0.95% last week. LME nickel, in contrast, kept climbing last week, gaining some USD 500/mt. In China, Jinchuan Group also raised ex-works prices, and SMMI.Ni jumped by 2.67%. Other base metals also exhibited slight declines dragged by falling copper prices, with SMMI down 0.36% last week. Sluggish demand and liquidity crunch were mainly behind the weak prices.
Chinese A-shares lost 1.4% last week. SHFE copper followed LME copper trends, falling after initially rising, dragged down by liquidity shortages and the drops across financial market. SHFE copper prices fell below RMB 51,500/mt after meeting resistance at RMB 52,600/mt, and even as low as RMB 51,100/mt, before ending the week down 2%. The SHFE/LME copper price ratio fell significantly, while positions for SHFE copper increased. Some investors now intend to sell goods to avoid further losses.
In the spot market, discounts expanded and some traders and downstream producers entered the market after prices fell below RMB 52,000/mt in late week trading. Transactions were up, but oversupply pressure remains strong.
Longs aggressively closed positions after SHFE 1312 aluminum contract prices rose to RMB 14,450-14,555/mt, making SHFE 1401 aluminum contracts the new most active contract last Wednesday. Prices for SHFE 1401 aluminum contracts opened lower at RMB 14,355/mt on Thursday, but drifted higher after HSBC’s flash China manufacturing PMI for October boosted market sentiment.
In spot markets, spot aluminum prices rose from RMB 14,460/mt last Monday, to RMB 14,500/mt on Wednesday. Trading in Shanghai was brisk, but high premiums in other regions drove downstream producers to the sidelines.
In the coming week, SHFE 1401 aluminum contract prices will have little room to fall given the latest positive Chinese economic figures, with prices expected to move in a RMB 14,300 -14,450/mt range.
SHFE lead prices tracked the movement of LME lead prices last week, rising 2% to RMB 14,550/mt, but later fell back by 1%. The most active SHFE lead prices met resistance at the 6 and 60-day moving averages last week. When combined with declining LME lead prices, SHFE lead prices will likely fall this week, but find solid support between RMB 14,200-14,250/mt.
In China’s spot lead market, discounts for spot lead prices expanded over the most active SHFE lead price since smelters traded aggressively as finished goods inventories grew and downstream demand remained weak. Tight supply in Shanghai caused prices gaps between spot prices in Shanghai and Guangdong, Hunan, and Jiangxi provinces. Spot lead prices will further decline this week due to tight month-end liquidity at smelters and downstream producers. In addition, price gaps between SHFE lead and spot lead will narrow since spot prices should be more resistant to declines than SHFE lead prices. In this context, previous lead supplies used by traders for arbitrage will enter markets, compounding oversupply of spot lead.
SHFE 1401 zinc contract prices tracked LME zinc prices, touching RMB 15,160/mt early in the week and hitting a new record high since late August. LME zinc prices fell later in the week, however, dragging down SHFE zinc prices. SHFE zinc warrants fell by 1,931 mt, to 82,043 mt.
Demand for spot zinc did not improve last week since downstream buyers purchased only on an as-needed basis. Zinc prices rose early in the week, however, and due to the need to generate cash, both smelters and traders were actively moving goods, with #0 zinc prices in Shanghai moving between RMB 15,080-15,170/mt. Prices in the Guangdong market improved, with the price spread with Shanghai narrowing to RMB 80-90/mt. Demand in Tianjin remained soft due to ongoing environmental inspections, with zinc price discounts against Shanghai contracting to RMB 20-50/mt.
Markets are awaiting possible reform policies from the 18th Plenary Session of the Third CPC Central Committee to be held in November. SHFE zinc prices are expected to move between RMB 14,950-15,150/mt.
Cargo holders will continue to aggressively sell goods to generate cash, while downstream buyers will purchase on an as-needed basis, with spot premiums against SHFE 1401 zinc contract prices between RMB 60-110/mt.
Spot tin prices remained between RMB 146,500-151,000/mt last week. Ample supplies for non-leading brands early last week left prices weak, with low-end price at RMB 146,500/mt. In the latter half of the week, spot prices drifted higher to RMB 147,000/mt since cheap resources were sold out and LME tin prices were resistant to declines. Prices for goods of Yunnan Tin Group held up high at RMB 150,500/mt due to limited supplies. Downstream consumption was soft on the whole.
In China’s domestic spot markets, the average price of #1 nickel from 18-24 October was RMB 99,520/mt, up RMB 2,150/mt. Trading of Russian nickel was more active than Jinchuan nickel, with traded prices for Jinchuan nickel between RMB 98,100-100,100/mt, which created a gap of RMB 1,000/mt between the two. Jinchuan Group adjusted ex-works prices four times last week, with a total increase of RMB 2,200/mt.
LME nickel inventories and the number of cancelled warrants continued to rise last week, both indications of sluggish demand. The US Federal Reserve’s meeting this week will be closely watched by markets, while the official China manufacturing PMI for September will be also announced. LME nickel prices are expected to move between USD 14,600-14,900/mt. In the China’s nickel spot market, downstream producers will continue to purchase to order, with overall trading sentiment remaining low. Traded prices for Jinchuan nickel are expected between RMB 100,000-101,500/mt, with the price gap between Jinchuan and Russian nickel around RMB 1,000/mt.