SHANGHAI, Oct. 29 (SMM) –
SHFE 1401 copper contract prices started RMB 10/mt higher at RMB 51,420/mt on Monday, and followed LME copper up, but met resistance at RMB 51,650/mt. SHFE copper for January delivery hovered near RMB 51,500/mt later in the day before closing RMB 100/mt or 0.19% higher at RMB 51,510/mt. Trading volumes and positions were off 102,000 lots and 7,064 lots, respectively. The weak prices were mainly a result of shorts closing positions and longs staying out of the market. SHFE copper still confronts downside risk.
Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt and a backwardation of RMB 0-20/mt over SHFE 1311 copper contract on Monday. Traded prices were RMB 51,630-51,750/mt for standard-quality copper, and RMB 51,680-51,870/mt for high-quality copper. SHFE copper had little upward momentum, driving market players to hold on the sidelines. Some traders started month-end settlement ahead of schedule, curtailing goods available in spot markets, but low buying interest limited any increase in backwardation. Only Guixi copper was offered at a backwardation. Later, a few traders went bargain hunting after SHFE copper fell, but downstream producers remained cautious. In the afternoon, spot copper was offered at a contango of RMB 0-120/mt. Traded prices remained little changed, but transactions sagged.
The latest Shanghai Metals Market (SMM) poll reveals that only 19% of respondents are bullish towards copper prices this week, saying that LME copper prices may bounce back to USD 7,230/mt, and SHFE copper will jump to RMB 51,800/mt. Expectations for the continuation of Fed’s asset purchase program are on the rise, with the US dollar hovering at lows, lending support to commodities. Besides, optimism to the US data releases this week will send the US stocks higher, which will also bolster copper prices. Meanwhile, TC/RC for imported copper concentrate and premiums for imported copper hold up high, as price negotiations about long-term contracts of imported copper should be held by year’s end. That, combined with increasing bargain hunting for LME copper expected recently, will help with the rebound in copper prices.
48% of market participants polled by SMM believe copper prices will hold steady, with LME copper moving around USD 7,180/mt and SHFE copper around RMB 51,500/mt. Despite rosy forecasts for euro zone economic data expected to come out this week, the positive influence will be neutralized by the European Central Bank’s plan to run stress tests on large euro zone banks, leaving copper prices entrenched in a narrow range. Although the US dollar remains weak at the moment, copper prices may gain limited support therefrom. In addition, although crude oil ran counter to the price trends of gold recently, neither of them presented an extensive move in one direction. Technical indicators also showed no clear direction for copper prices in the near term.
The remaining 33% of industry participants are bearish, expecting that LME copper will fall below USD 7,150/mt and SHFE copper prices will test lower level of RMB 51,300/mt. Both LME and SHFE copper prices have dropped below all short term moving averages. Besides, the month-end liquidity strains will dampen activity in futures and stock markets. The value of unlocked shares is expected to be RMB 29.3 billion this week, placing downward pressure on the market, and adding to drag on domestic copper prices. In spot copper markets, the tight financing will persuade cargo holders to increase supply to raise cash, and smelters will also ramp up production in mid-Q4, leaving greater oversupply pressure in spot markets. In this context, contango for spot copper over the SHFE 1311 copper contract price will expand, with copper prices expected to fall this week.
December aluminum on the Shanghai Futures Exchange (SHFE), the most active one, started at RMB 14,400/mt on Monday. The light metal found its low at RMB 14,355/mt in early morning session, but rebounded later, closing at a session high of RMB 14,430/mt, up RMB 65/mt. Trading volumes added 640 lots to 7,968 lots, and positions also increased 944 lots to 58,412 lots.
Spot aluminum prices in Shanghai were RMB 14,490-14,500/mt, a premium of RMB 0-10/mt over SHFE 1311 aluminum contract. Prices in Wuxi edged higher to RMB 14,490-14,500/mt due to falling supply. Traded prices were RMB 14,480-14,490/mt in Hangzhou. Tightening liquidity at the month’s end deterred downstream producers and traders from buying. In the afternoon, aluminum prices remained little changed and trading was light.
SMM surveyed 30 large aluminum producers and traders in China.
53% of companies in SMM’s survey expect spot aluminum to remain stable between RMB 14,470-14,520/mt this coming week. First, SHFE 1311 aluminum contract will probably hold largely level, which will help spot aluminum stabilize as well. Second, current supply and demand are basically balanced. Third, a lack of positive economic data will deprive spot aluminum of any upward momentum.
Another 20% of market participants are bearish that spot aluminum will retreat to RMB 14,470/mt 1. Aluminum ingot is continuously arriving at Shanghai, Wuxi and Hangzhou, adding oversupply pressure. 2. Growing supply and tightening liquidity will leave cargo holders in rush to sell at discounts. 3. Demand from downstream producers and traders will dwindle due to tightening cash flows at the month’s end, which will weigh spot aluminum down.
The remaining 27% believe spot aluminum prices will rise above RMB 14,520/mt this week. First, the Third Plenary Session of the 18th CPC Central Committee to be held in November is expected to introduce policies favorable for base metals. Second, LME aluminum will draw support from a weaker greenback after downbeat US economic data raised expectations that the US Federal Reserve will delay QE3 exit. This will lend support to SHFE aluminum, thereby pushing spot aluminum up as well.
SHFE 1312 lead contract prices opened flat at RMB 14,385/mt on Monday and reached an intraday high of RMB 14,465/mt immediately, mirroring gains by LME lead prices last Friday. SHFE lead for December delivery then consolidated in RMB 14,430-14,450/mt range and finally closed at RMB 14,435/mt, up RMB 115/mt. Trading volumes gained 836 lots to 1,532 lots, while positions expanded 702 lots to 11,382 lots.
Spot lead prices failed to rise along with SHFE lead prices. Quote for Nanfang was RMB 14,300/mt, a discount of RMB 140/mt against the most active SHFE lead contract price. Mengzi was traded at RMB 14,270/mt, and Humon’s resources were sold at RMB 14,180/mt. Spot market has remained weak last week, but trading was even lighter on Monday as rising SHFE lead prices fueled wait-and-see sentiment among downstream buyers.
SMM’s latest survey of 30 participants in lead markets revealed that 40% of them, mostly smelters and traders, are bullish to lead prices this week, expecting LME lead to rise to USD 2,250/mt and spot lead prices up to RMB 14,300-14,400/mt. Last Friday, the University of Michigan consumer-expectations index was reported at 62.5 in October, a low never seen since November 2011. The US durable goods orders rose 3.7% MoM – the fastest pace in three months. Orders of durable goods excluding transportation, however, fell 0.1%. These downbeat numbers drove base metals to bounce back, an indication that market still believes the Fed will not commence QE tapering. Moreover, projections for economic data due for release this week, including US existing home sales, retail sales, ADP employment, and PMI, are not promising, strengthening expectations for the continuation of QE, and dampening the US dollar, which will help bolster base metals. In China, reform policies announced over the weekend and anticipation for pro-growth policies will inspire investment enthusiasm. Meanwhile, technical indicators also showed that LME lead may continue to trend up and test a high of USD 2,250/mt. In China’s spot lead markets, domestic lead concentrate supply tightened with winter approaching, which may lead to a decline in availability of spot lead and thus benefit lead prices.
30% of industry participants hold that lead prices will fall further this week, with LME lead down below the 250-day moving average to USD 2,170/mt and SHFE lead dipping as low as RMB 14,300/mt, and spot lead are expected to be traded at RMB 14,150-14,250/mt. Most of these participants are lead-acid battery producers, as they believe lead ingot supply will increase after smelters complete maintenance, while demand downstream should wane by the end of the month.
The remaining 30% believes lead prices will continue to consolidate given mixed economic reports. Despite positive expectation for China’s reforms, the tight liquidity conditions are not negligible, meaning investors will be more cautious.
SHFE 1401 zinc contract prices opened higher at RMB 15,030/mt as LME zinc prices overnight closed the day with gains, and then leveled out. But due to sluggish spot zinc market, SHFE zinc prices dropped later the day to RMB 15,035-15,055/mt. But since LME zinc prices jumped, SHFE zinc prices stabilized and closed at RMB 15070/mt, up RMB 120/mt. Trading volumes decreased by 9,242 lots, to 48,040 lots, and total positions increased by 2,900 lots, to 132,000 lots. The market remains cautious awaiting result from the Fed's policy meeting.
#0 zinc prices were between RMB 15,090-15,150/mt, with spot premiums between RMB 40-80/mt against SHFE 1401 zinc contract prices. #1 zinc prices were around RMB 15,040-15,060/mt. Imported SMC and KZ #0 zinc prices were around RMB 15,100/mt, with Peru zinc price around RMB 15,070/mt. SHFE 1401 zinc contract prices soared before falling back, but up from last Friday's level. Downstream buying interest was low due to month-end cash flow problems, while cargo holders were actively moving goods, but overall trading was muted.
Investors focus their attention on the Fed's seventh policy meeting held October 29-30. SMM undertook a survey and found that 46% market players believe US major economic data are mixed, and the Fed's policy meeting will become a focus of markets. Although European currencies continued to rebound, and the US dollar index was pushed down, base metals will gain little support. LME zinc prices will hover around RMB 15,000/mt. As LME zinc prices resist both increases and declines and since enterprises are busy with month-end settlement, #0 zinc prices will be RMB 40-80/mt higher than SHFE 1401 zinc contract prices.
27% market players are pessimistic. Concerns that the Fed will scale back QE3 in October permeate in the market, causing risk aversion to grow. LME zinc prices are expected to fall back to USD 1,930/mt. As it was reported that China will resume Initial Public Offerings and since 3Q earnings report of listed companies fell short of expectations and due to tightening liquidity, SHFE 1401 zinc contract prices should move between RMB 14,860-15,000/mt, with spot premiums between RMB 60-100/mt.
The remaining 27% think LME zinc prices will edge up to USD 1,945 -1,980/mt. profit at scale-efficiency industry enterprises during January-September was up 13.5% YoY, with the growth up 0.7 percentage point from January-August. That shows China's industry production is recovering. The market will be optimistic that the Third Plenary Session of the 18th CPC Central Committee will result in reform policies. Mixed economic news from the US undermined market expectations that the Fed will taper off QE3 during the remainder of the year. In the spot market, Zhuzhou Smelter Group and Huludao Zinc Industry Company released their 3Q earnings report recently, which improved from 2Q. Besides, SMM sources report operating rates at zinc oxide producers, galvanizers and zinc alloy producers climbed with China's recovering economy. SHFE 1401 zinc contract prices should move between RMB 15,000-15,200/mt, with spot premiums between RMB 0-20/mt.
Mainstream traded prices in Shanghai spot tin market were RMB 146,700-150,500/mt on Monday, with a few deals made at RMB 146,500/mt. Branded secondary tin from Guangdong were quoted at RMB 146,000/mt. Trading was modest and prices virtually held steady, despite a few resources offered at lower prices. Producers of branded tin held quotations firm, helping support spot prices.
SMM’s most recent survey indicates that 60% of industry insiders believe tin prices will remain at the current levels this week. Market confidence is lifted by prediction that the Fed will not commence QE tapering in its October policy meeting. However, the credit crunch remains a major concern, pressuring LME tin prices. As a result, LME tin will unlikely make any breakthrough this week, with spot tin prices also remaining stable.
25% of market players believe tin prices will rise this week. These investors expect that LME tin prices will extend gains once standing above USD 23,000/mt, driven by the positive expectation for Fed’s decision about the QE. In spot tin markets, the supply glut has eased lately following months of depletion. When combined with satisfactory LME tin price movements and low selling interests among tin smelters, tin prices will find solid support. As such, some market players believe that spot prices will rise should LME tin cross above the resistance at USD 23,300/mt.
The remaining 15% of industry participants still foresee downside risk for tin prices, considering the strong resistance confronting LME tin and sluggish demand downstream, but expect spot prices will find support at RMB 145,000/mt.
In Shanghai, transactions of Jinchuan nickel were muted, with trading mainly made for Russian nickel. SMM #1 nickel prices were between RMB 99,400-100,400/mt, with transactions quiet. Although LME nickel prices rose in the afternoon, spot prices in Shanghai remained largely unchanged, with Jinchuan nickel prices around RMB 100,200/mt and Russian nickel prices around RMB 99,300/mt.
SMM surveyed 36 market players and found that 28% believe LME nickel prices will rise to USD 14,700-15,000/mt this week. With the release of China's 383 reform report, the market expects Chinese economy will improve due to economic reform, giving support to nickel prices. US non-farm employment data in October is pessimistic due to the US government shutdown, which will weigh on the US dollar index and positively affect LME nickel prices.
44% think LME nickel prices will move between USD 14,500-14,700/mt this week. Although China's economic data are optimistic, China's cash flow tightness remains. Rising inter-bank rate at commercial banks triggered concerns over money crunch, which will cause risky asset selloffs. Despite optimism toward the result from the Third Plenary Session of the 18th CPC Central Committee, LME nickel prices will level out.
28% believe LME nickel prices will drop below USD 14,500/mt. increasing LME nickel inventories and canceled warrants mirrored sluggish downstream demand, keeping traders out of the market. When combined with the poor market fundamental and tight liquidity in China, LME nickel prices will test support from the 10-day moving average this week.