SHANGHAI, Nov. 26 (SMM) –
Rising LME copper helped SHFE 1402 copper contract open RMB 460/mt higher at RMB 50,990/mt on Monday. The contract fell back after a brief touch of RMB 51,020/mt due to selloffs, and went all the way down to RMB 50,480/mt in the afternoon before closing the day RMB 30/mt or 0.06% lower at RMB 50,500/mt. Trading volumes were off 2,604 lots, while positions increased 9,674 lots. Market caution will preclude any appreciable uptick in the red metal for the near term.
Spot copper in Shanghai was quoted at a premium of RMB 90-180/mt over SHFE 1312 copper contract on Monday. Traded prices were RMB 51,020-51,100/mt for standard-quality copper, and RMB 51,080-51,160/mt for high-quality copper. Cargo holders were anxious to sell for cash, causing premium to narrow. Traders were wary of stepping in, with some buying spot copper while selling SHFE copper. Downstream producers watched from the sidelines at the beginning of the week. In the afternoon, supply increased, causing premium to narrow. Spot copper was offered at a premium of RMB 80-170/mt over SHFE current-month copper contracts. Traded prices edged lower to RMB 50,950-51,070/mt. Suppliers became even more anxious to sell later in the day, with Jinchuan copper quoted at a premium of RMB 120/mt.
61% of market participants surveyed by SMM expect LME copper to move in a USD 7,000-7,080/mt price band and SHFE 1402 copper contract to fluctuate between RMB 50,400-50,900/mt this coming week. 1. US housing and employment data were upbeat, but consumer confidence index was disappointing. Mixed economic data will keep investors on guard. Meanwhile, markets will stay cautious ahead of more US economic figures due this coming week, holding copper prices in check. 2. On the technical side, LME copper will face strong resistance. 3. More investors will pull out of the market as the month-end liquidity crunch is biting in, precluding any rise in SHFE copper. 4. The Shanghai Composite Index will encounter strong resistance at 2,200 points, also keeping a lid on SHFE copper. 5. Short sellers will also close positions, lending support to the low-end SHFE copper price.
Another 21% of market players are bearish that LME copper will retreat below USD 7,000/mt and that SHFE 1402 copper contract will be vulnerable at RMB 50,300/mt. 1. Net short positions surged to 33,898 lots in the week ending November 19, the highest level since early March, a sign of growing downward pressure on SHFE copper prices. 2. Smelters will continue to liquidate inventories against the year-end capital strains, compounding oversupply pressure. 3. Tightening cash will erode downstream producers’ buying interest, exacerbating pressure from oversupply.
The remaining 18% believe that LME copper will climb above USD 7,100/mt and that SHFE 1402 copper contract will regain RMB 51,000/mt mark. 1. Germany’s Finance Minister said last Saturday that the euro zone is facing no systematic risks. Greek Prime Minister emphasized that Greece needs no further aid. These facts indicate that economic problems in euro zone members are being solved smoothly. In this context, the euro rose and is expected to extend gains this week. A stronger euro will help copper prices rebound. 2. Investors will continue to bet that the US Federal Reserve will keep QE3 in place for now, offering upward impetus to US stock markets. US shares will rise further after Eclectica CEO Hugh Hendry reverses its pessimism over US stocks, thus lifting copper prices. 3. LME copper inventories have dropped 28,500 mt so far this month, with the proportion of cancelled warrants remaining high at above 60%. SHFE copper inventories also fell 18,791 mt, injecting rising momentum to copper prices.
SHFE 1402 aluminum contract, the most active one, opened higher at RMB 14,165/mt on Monday. The contract slid to RMB 14,120-14,130/mt after a brief advance to RMB 14,170/mt, and fell further to RMB 14,075/mt in the afternoon before ending RMB 55/mt or 0.39% lower at RMB 14,085/mt. Trading volumes contracted 830 lots to 4,368 lots, while positions surged 2,784 lots to 49,838 lots.
Spot aluminum mainstream traded prices were RMB 14,350-14,360/mt in Shanghai on Monday, a premium of RMB 60-70/mt over SHFE 1312 aluminum contract. Prices were RMB 14,350-14,360/mt in Wuxi, and RMB 14,330-14,340/mt in Hangzhou. The month-end liquidity crunch deterred downstream producers and traders from entering the market, leaving trading muted. In the afternoon, spot aluminum prices did not follow SHFE 1312 aluminum contracts down, but trading was sluggish.
SMM surveyed 30 large aluminum producers and traders in China.
40% of companies covered in SMM’s survey are bearish that spot aluminum will retreat below RMB 14,330/mt this week. First of all, the continuous decline in SHFE aluminum has prompted investors to close positions, leaving trading activity in SHFE aluminum market sluggish. Second, downstream producers will purchase only to order against tightening liquidity, weighing aluminum prices down. Third, traders will also be little inclined towards buying, exerting downward pressure on aluminum prices.
The remaining 60% expect spot aluminum to remain little changed at RMB 14,330-14,370/mt this coming week. On the one hand, spot aluminum stocks continued to drop, which will lend support to aluminum prices. On the other hand, the month-end liquidity crunch will undermine buying interest, keeping aluminum prices in check.
The most-traded SHFE 1401 lead contract price started higher at RMB 13,995/mt and later fluctuated narrowly above the settle price of RMB 13,950/mt on last Friday. The price touched a high of RMB 14,000/mt by the midday. LME lead price fell below USD 2,100/mt in afternoon trading, while the Shanghai Composite Index also dropped below the 2200 milestone. In response, SHFE lead price drifted lower to RMB 13,930/mt and finally ended at a second intraday low of RMB 13,935/mt, down RMB 15/mt or 0.11%. Trading volume shed 316 lots to 528 lots, while open interest was off 176 lots to 10,578 lots on Monday.
In Shanghai spot lead market, traded price was restrained by limited gains by SHFE lead price on Monday. Resources of Chihong Zn & Ge were offered at RMB 13,910/mt, but traded at RMB 13,900/mt, a discount of RMB 70/mt over the most active SHFE lead price. Nanfang and Chengyuan goods were quoted flat with SHFE 1312 lead price and sold at a range of RMB 13,890-13,900/mt. Humon was traded between RMB 13,850-13,860/mt. Lead smelters moved goods at firm prices, while downstream producers were immersed in a wait-and-see mode, leaving trading volume fairly light on Monday.
SMM has conducted a survey of 30 industrial participants on lead price this week. 53% of them are bullish, expecting LME lead price to push through USD 2,120/mt after standing firm at USD 2,100/mt and spot lead price to average back to the range of RMB 13,950-14,000/mt. Markets have basically digested minutes released last week from the US Federal Reserve’s October policy meeting, while no major news are expected this week. The readings of the US housing data, European unemployment rates and climate index are not expected to underperform. Macro factors restraining metal prices virtually have dissipated.
As to capital flows, the Standard & Poor’s and the Dow Jones both set fresh highs, while Citi’s Panic/Euphoria model, used to monitor the US stock market, is sending a clear warning sign of substantial complacency. In this case, The US stock market is much likely to drop, leading to the outflow of capital to metal markets which has fallen to a low level. Due to positive technical indicators and solid support at USD 2,070-2,080/mt, LME lead looks set to rise. Fundamentally, some industrial participants signal that lead price will benefit from a drop in lead ingot supply as some small lead smelters were forced to shut down against rigorous inspections over environmental protection.
The rest 47% believe that lead price will remain volatile this week, with LME lead fluctuating around USD 2,100/mt and the average spot lead price moving between RMB 13,900-13,950/mt. Despite that they agree to the absence of major news and upbeat technical indicators, they still do not expect lead price to climb on tight cash flows and weak market sentiment at present. In addition, lead consumption has not improved for the time being. As the end of November approaches this week, purchases from lead-acid battery producers will be even sluggish, while lead smelters will step up trading to generate liquid capital.
SHFE 1402 zinc contract prices opened higher at RMB 14,900/mt, as LME zinc prices rose by 1% last Friday, but then rolled back early gains, touching as high as RMB 14,920/mt, with strong resistance at the 60-day moving average. Both LME zinc prices and the Shanghai Composite Index fell later the day, dragging down SHFE zinc prices to fall, closing the day at RMB 14,830/mt, up RMB 10/mt. Trading volumes increased by 1,920 lots, to 19,732 lots, and total positions decreased by 430 lots, to 115,000 lots.
#0 zinc prices were between RMB 14,930-14,970/mt, with spot premiums between RMB 60-100/mt against SHFE 1402 zinc contract prices. Lida branded #1 zinc prices were around RMB 14,890/mt, with Belgian and Mexican #0 zinc prices around RMB 14,900/mt, and spot premiums of KZ and SMC branded zinc RMB 60/mt against SHFE 1402 zinc contract prices, trading between at RMB 14,930/mt. SHFE 1402 zinc contract prices opened high at RMB 14,900/mt, but lacking ability to rise, meeting resistance at the 60-day moving average. Traders busy with settling watched on the sidelines, and downstream purchasing was modest, while smelters were moving goods normally, leaving transactions muted.
With regard to zinc price trends this week, SMM found that 67% market players believe LME zinc prices will level out, moving around USD 1,900/mt. European economy continued to recover, but concerns over negative interest rate execution by European Central Bank remains. The Standard & Poor's 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index hit record highs, but the US dollar index has been hovering at high levels due to expectations that the Fed will scale back QE3 this year, weighing down LME zinc prices. Besides, PMI reading from China and the US was mixed. As LME zinc prices leveled out and due to cash flow tightness, transactions will be muted. The Shanghai Composite Index will consolidate, dragging down SHFE 1402 zinc contract prices to move around RMB 14,850/mt. cargo holders will actively move goods. SMM sources report operating rates at galvanizers, die-casting zinc alloy and zinc oxide producers slid recently, with downstream buyers purchasing on an as-needed basis, with spot premiums between RMB 60-110/mt against SHFE 1402 zinc contract prices.
33% are optimistic, believing European and US stocks continued to rise with strong economic data, and the Fed will unlikely taper off QE3 this year, which will support zinc prices. LME zinc prices will touch USD 1,930/mt, and find support at USD 1,900/mt. SHFE 1402 zinc contract prices will move between RMB 14,860-14,960/mt, boosted by LME zinc prices, with spot premiums narrowing to RMB 40-90/mt. When combined with stable SHFE zinc prices, downstream consumption will increase.
In the Shanghai tin spot market, prices were virtually unchanged between RMB 143,300-146,000/mt on Monday. Trading was anemic as the range-bound trading in LME tin market weakened the already soft trading sentiment. A small amount of goods were traded at RMB 143,000/mt in the afternoon session, with no improvement reported in trading.
With regard to price outlook this week, 65% of market players expect tin prices to hold stable this week. The continuous improvement in US economy increasingly triggered market concerns over the QE tapering. The minutes of the US Federal Reserve October meeting showed a possible tapering at one of its next meetings. This Thursday is the Thanksgiving Day, and trading is expected to be light, with sideways trading expected to continue in the tin market.
25% of them believe that tin prices will fall this week. An overall bearish sentiment and unfavorable technical indicators led to their pessimism. If LME tin falls below USD 22,600/mt, domestic spot tin market sentiment will also be hurt. Besides, growing supply from smelters at the year-end to generate cash will further weigh down on spot prices.
The rest 10% of participants expect prices to edge higher this week. The optimists believed that LME tin prices would advance, and constant declines in LME tin inventories will also strengthen their confidence. Refined tin exports from Indonesia have fallen significantly since the introduction of its new export policy. Such conditions are expected to continue for the foreseeable future as no signs show that Indonesian government will ease its regulations on exports. This will serve a positive factor on tin prices. If LME tin rises above USD 23,000/mt, domestic tin prices will also be buoyed up.
In Shanghai, transactions were muted and mainly made by plants. SMM #1 nickel prices were between RMB 94,100-95,000/mt, down RMB 150/mt. Russian nickel supply was tight, with Jinchuan nickel prices between RMB 94,900-95,000/mt. Trades were more brisk in the morning, with end-users actively purchasing goods.
SMM surveyed 36 market players and found that 17% believe LME nickel prices will rebound to break through USD 13,650/mt as prices have bottomed out. It was reported the State Reserves Bureau will build nickel reserves, and Indonesia's policy will also give support to nickel prices as 2014 nears.
50% market players believe LME nickel prices will move between USD 13,500-13,650/mt. They think due to tight credit loans in China, commodity prices will be dragged down. But Indonesia's ban on ore exports will lend strong support at USD 13,500/mt.
33% think LME nickel prices will fall below USD 13,500/mt to hit a new low. They believe the US Federal Reserve's policy meeting minutes hinted they will scale back QE3, when combined with positive US economic data, the US dollar index will rebound this week, weighing on nickel prices.