SHANGHAI, Nov. 19 (SMM) –
SHFE 1401 copper contract prices opened RMB 120/mt lower at RMB 50,280/mt on Monday. SHFE 1402 copper contract stabilized after dipping to RMB 50,120/mt due to rising Shanghai Composite Index, and followed LME copper up in the afternoon. The contract, however, fell again at the tail of the session before ending RMB 110/mt or 0.22% lower at RMB 50,290/mt. Trading volumes for the most active SHFE copper contracts were off 35,070 lots, but positions were up 18,084 lots. Total traded volumes for SHFE copper dropped 163,000 lots and total open interest fell 11,730 lots. With wait-and-see sentiment ruling the market, the red metal is expected to continue moving in a tight range.
Spot copper in Shanghai was quoted at a premium of RMB 60-180/mt over SHFE 1312 copper contract on Monday. Traded prices were RMB 50,480-50,580/mt for standard-quality copper, and RMB 50,530-50,680/mt for high-quality copper. Cargo holders hiked premium now that SHFE 1312 copper contracts have become the new current-month contract. A few traders went bargain hunting, while most downstream producers stood on the sidelines at the beginning of the week. In the afternoon, goods available in spot copper market declined, and holders of standard-quality copper held prices firm, narrowing its prices gap with high-quality copper. Spot copper was mainly quoted at a premium of RMB 100-160/mt, and traded prices were RMB 50,600-50,700/mt. Downstream buyers rarely entered the market.
SMM’s latest survey shows that 30% of industry insiders expected LME copper prices to bounce back to USD 7,080/mt and SHFE copper to return to RMB 50,800/mt this week. The mixed US economic data lately cooled anticipation for Fed’s exit from QE, and the US dollar weakened following continuous rebound, lending some support to commodities markets. The US stocks remained perky and kept hitting new highs, and with more increases expected in the near term. This may also help bolster copper prices. Meanwhile, copper stocks on LME, COMEX, and SHFE have fallen by about one third since June 24, down to their lowest since February. In China, domestic A-shares soared driven by the party plenary, and may rise further after specific policy rules are rolled out. In this context, many investors believed copper prices will rise this week.
50% of market participants believed copper prices will remain stable this week, with LME copper prices hovering at USD 7,000/mt and SHFE copper between RMB 50,000-50,800/mt. The Ministry of Finance and People’s Bank of China held an auction to bid RMB 30 billion of fiscal deposits at the arte of 6% last Thursday, up 177 bp from the previous one conducted on September 12, 2013. The rising rate mirrored liquidity crunch for banks and prediction of tight cash at year’s end. This may attenuate trading in stock and futures market, leaving prices in the current moving band. Meanwhile, backwardation in spot copper market remained high, especially when appetite for arbitrage weakened given limited declines in SHFE copper. However, many downstream buyers refused accept the high quotes, and the resultant stalemate between sellers and buyers restricted further rise in backwardation. Under such circumstances, copper prices may remain in a lack of clear direction.
The remaining 20% of market players predicted that copper prices will fall this week, with LME copper dipped below USD 6,950/mt and SHFE copper falling below RMB 50,000/mt. The strengthening resistance at higher price levels will weigh copper prices down. Report of CFTC also showed net short positions for copper spiked to 18,968 lots as of the week ending November 12, the highest level since mid-August, and suggesting that hedge funds and money managers were bearish to copper market outlook. In China’s domestic markets, copper smelters kept operating rates high by year’s end and shipped goods out aggressively, leaving greater oversupply pressure in copper market, which may in turn drag down prices.
Janet Yellen’s dovish stance boosted base metals markets. January aluminum on the SHFE, the most active one, opened at RMB 14,195/mt on Monday. The light metal broke through the 5-day moving average to RMB 14,230/mt before closing the day RMB 15/mt higher at RMB 14,215/mt. Trading volumes decreased 4,408 lots to 5,478 lots, and positions also contracted 966 lots to 44,690 lots.
SHFE 1312 aluminum contract, the new current-month contract, moved in a RMB 14,295-14,300/mt range after opening higher at RMB 14,290/mt on Monday. Spot aluminum prices were RMB 14,360-14,370/mt in Shanghai, RMB 14,360-14,370/mt and Wuxi, and RMB 14,350-14,370/mt in Hangzhou. Suppliers insisted on higher offers, deterring downstream producers from buying. In the afternoon, cargo holders became anxious to sell, but consumption was sluggish.
SMM surveyed 27 large aluminum producers and traders in China.
22% of companies covered in SMM’s survey believe spot aluminum prices will rise above RMB 14,370/mt this week. First, Janet Yellen’s remarks hinted that the US Fed is in no rush to bring QE3 to an end, boosting market sentiment. Second, social and economic details approved during the Third Plenary Session of the 18th CPC Central Committee suggest that China remains the world’s top metal consumer, which will lift aluminum prices. Third, aluminum arrivals have been dropping for weeks. Transportation problems in Xinjiang will not be solved for the immediate term, meaning there is little chance that aluminum stocks will grow significantly for the near future. This will also push aluminum prices up.
30% of the market participants are bearish that spot aluminum will retreat to near RMB 14,300/mt. First of all, sluggish consumption will weigh aluminum prices down. Second, technically, SHFE aluminum is still under downward pressure, which will drag spot aluminum down as well.
The remaining 48% expect spot aluminum to remain little changed at RMB 14,340-14,370/mt this coming week. First, although SHFE aluminum has shown signs of stopping falling, it lacks upward momentum necessary to rebound. Second, lackluster demand will act as a brake against any rise in aluminum prices.
The most active SHFE 1401 lead contract prices started at an intraday high of RMB 14,115/mt, but fell to around RMB 14,050/mt from RMB 14,100/mt on Monday. SHFE lead underperformed with sluggish transactions and finally ended at RMB 14,045/mt, down RMB 50/mt or 0.35%. Trading volumes shrank 696 lots to 382 lots, while positions grew 62 lots to 9,722 lots.
In Shanghai spot lead market, goods of Chihong Zn & Ge were offered at RMB 14,000/mt, flat with the most active SHFE lead prices, but barely traded on Monday. Yuguang resources were sold at RMB 13,980/mt, while Nanfang and Chengyuan were quoted at a discount of RMB 30-40/mt over SHFE 1312 lead contract prices and traded between RMB 13,950-13,970/mt. Humon was traded at RMB 13,940/mt. Spot lead prices failed to rise further and fluctuated narrowly. At present, most industrial participants expect lead prices to keep consolidating. Cargo holders moved goods as usual, while downstream producers purchased on an as-needed basis, leaving transactions light. Spot lead prices in Shanghaiwere basically in line with those in Guangdong and Henan provinces on Monday.
SMM conducted a survey of 30 industrial participants on lead prices this week. All of them hold that lead prices are consolidating for the time being and spot lead still faces weak demand despite that the macro economy and technical indicators picked up a little. They believe LME lead prices will move between USD 2,080-2,120/mt and China’s spot lead will be traded at RMB 14,000/mt. Market sentiment was neutral during the Third Plenary Session of the 18th CPC Central Committee, but failed to improve upon release of the final communiqué. Investors were concerned that due to strong resistance to economic reforms, reform policies would not materialize and that any economic restructuring would depress GDP in near term. The pessimistic sentiment was characterized by consecutive drops in the Shanghai Composite Index and in metals prices. However, frequent speeches delivered by Chinese leaders boosted hopes that economic reforms would be carried out as planned, alleviating market concerns to some degree. Combined with Fed Chairman nominee Janet Yellen’s strong support of the US Federal Reserve’s easy monetary policy and maintaining stable financial markets, metal markets turned more optimistic. There will be few market risk events this week, with the exception of the Fed’s latest interest rate meeting minutes due for release on Thursday. A string of economic reports will be released, including US housing data, the euro zone climate index and PMIs. Investors will lower expectations that the Fed will exit its current QE program despite recent upbeat US real estate results since US employment was still far below forecasts. Metals prices will be volatile this week due to surprisingly downbeat economic data from the euro zone. Based on China’s current economic conditions, the November manufacturing PMI should be positive. LME lead prices are expected to stabilize and rebound due to encouraging technical data, but will meet strong resistance at the average price level.
In China’s spot lead market, lead smelters will trade more actively as they are confronting tight liquidity, but a surge in deliverable goods from futures markets will put downward pressure on spot lead prices. Meanwhile, downstream producers will only purchase on an as-needed basis, leaving transactions sluggish.
After China announced economic reform policies and due to Jenet Yellen's statement, SHFE 1402 zinc contract prices opened high at RMB 14,840/mt, and then leveled out. The Shanghai Composite Index soared 3%, SHFE zinc prices were resistant to increases, moving between RMB 14,850-14,870/mt, and closing at RMB 14,865/mt, up RMB 60/mt. Trading volumes decreased by 6,186 lots, to 24,056 lots, and total positions increased by 5,336 lots, to 104,000 lots.
#0 zinc prices were between RMB 14,930-14,960/mt, with spot premiums between RMB 80-110/mt against SHFE 1402 zinc contract prices. Lida branded #1 zinc prices were around RMB 14,880/mt, and Kazakhstan #1 zinc prices were around RMB 14,840/mt, with KZ and SMC #0 zinc prices between RMB 14,920-14,930/mt. SHFE zinc prices opened high then moved between RMB 14,830-14,860/mt, but lacking ability to rise further. Cargo holders were moving goods normally, and downstream buyers mostly purchased goods on an as-needed basis, with transactions muted.
In Shanghai spot tin market, mainstream traded prices were between RMB 144,000-146,500/mt on Monday. Fewer resources were offered below RMB 144,000/mt, but prices showed no significant rise given weak demand.
SMM’s most recent survey revealed that 45% of market players believed LME tin prices will hold steady this week at USD 22,800-23,000/mt, noting that the declining LME tin stocks caused by fewer supplies from Indonesia will continue to support tin prices, and introduction reform policies from China may also benefit market. Nonetheless, concerns over recovery at major economies and poor consumption in tin markets will continue to weigh on prices. Therefore, spot tin prices will remain stable between RMB 143,500-147,000/mt given the directionless LME tin prices.
30% of market players expected tin prices to edge higher, with LME tin prices climbing above USD 23,000/mt but meeting resistance at USD 23,300/mt. Spot tin prices may also move higher driven by LME tin. Remarks of Fed’s nominee chairwoman Janet Yellen suggested that the US recovery was still not strong enough to support the QE taper, appeasing market concerns over the issue. Besides, reform policies introduced at China’s party plenary will also give a boost to the market.
The remaining 25% of industry insiders were bearish, expecting LME tin prices to fall below USD 22,800/mt, due mainly to poor economic data and lower forecasts for several economies. In this context, China’s spot tin prices will be dragged down given sluggish consumption should LME tin prices fall.
In Shanghai, SMM #1 nickel prices were between RMB 95,600-96,600/mt. Transactions were brisk as downstream buyers purchased modestly and since traders were holding back goods due to low profit. Jinchuan nickel prices were between RMB 96,600-96,700/mt, with the price spread with Russian nickel around RMB 1,000/mt.
SMM surveyed 36 market players and found that 28% believe LME nickel prices will move between USD 13,900-14,150/mt this week. Jenet Yellen expressed untimely taper off of QE3 will harm US economy, which will weigh on the US dollar index. PMIs from many countries will be released this week, which are optimistic and will boost base metals prices.
66% think LME nickel prices will hover between USD 13,650-13,850/mt. With the lack of solid macroeconomic news, LME nickel prices will be subject to fundamentals. Nickel prices will lack impetus to rise due to sluggish demand and high inventories, but find support from cost.
The remaining 6% think LME nickel prices will fall below USD 13,650/mt.