SHANGHAI, Jan. 21 (SMM) –
SHFE 1404 copper contract prices started higher at RMB 52,010/mt during night session last Friday, but fell quickly to RMB 51,800/mt as LME copper met technical resistance. The prices finally ended RMB 140/mt higher at RMB 51,850/mt. Positions fell slightly during the night hours. This Monday, the most active SHFE copper contract prices hovered at RMB 51,850/mt during the day trading before meeting resistance at RMB 51,900/mt. In the afternoon, copper prices moved lower to test RMB 51,700/mt and finished the session at RMB 51,770/mt, up RMB 90/mt or 0.17%. Holdings in the most active SHFE copper contracts increased by 2,956 lots while traded volumes declined by 37,730 lots.
In the Shanghai spot market, copper was offered at discounts of RMB 0-100/mt against the SHFE 1402 copper contract prices on Monday. Traded prices were RMB 51,850-51,900/mt for standard-grade copper and RMB 51,880-52,000/mt for high-grade copper. Cargo holders were eager to sell goods, driving spot discounts to exceed RMB 100/mt. Some traders bought spot goods and sold in futures, while downstream buyers rarely entered the market. Some enterprises downstream have already closed for holiday, leaving trading modest and supply ample in spot market. In the afternoon, spot discount expanded to RMB 50-150/mt, and traded prices edged lower to RMB 51,720-51,850/mt.
SMM’s most recent survey showed that 24% of participants in copper industry expected rebound in copper market this week, with LME copper up to USD 7,350/mt and SHFE copper returning to RMB 52,000/mt. In the US, falling initial jobless claims and easing inflation pressure as well as positive manufacturing and sales data enhanced market confidence in the US recovery. The higher-than-expected CPI for the euro zone eased concerns over deflation. The resulting stronger risk appetite will benefit copper prices. The US stock market also remained bullish, which may lend support to base metals. Elsewhere in China, the sunny GDP and industrial data will provide impetus for price hikes.
LME copper stocks have fallen to 330,000 mt last Friday, and cash-to-three-month spread for LME copper spread has moving into backwardation since December 10, also helping with further rises in copper prices.
47% of market players believed that LME copper prices will hold steady between USD 7,280-7,350/mt and SHFE copper prices may move at RMB 51,600-52,000/mt. The latest CFTC report indicated a decline in net long positions for copper to 7,037 lots, a sign of caution among investors towards copper market outlook. Technical indicators showed that copper prices may possibly pare increase, but support at lower levels remained solid. In China, money rates mostly increased last week with the approach of the Chinese New Year and the absence of open market operation by the People’s Bank of China. This has ignited concerns over another liquidity crunch. The tight cash will remain a constraint to trading in stock and futures market, curbing price volatility.
The remaining 29% of market players expected copper prices to fall this week. Encouraging economic data from the US allowed the US dollar index to stand above 81, in turn placing pressure on copper prices. The Shanghai Composite Index fell below 2,000 on Monday, with trading volumes shrinking significantly. Weak Chinese stock market will weigh on copper prices. In China’s spot copper market, smelters reduced supplies before the holiday and mainly fulfilled long-term contracts, leaving limited goods available in spot market. However, as urgent needs for cash will continue to push up copper imports, copper supply in the market will remain ample. At the mean time, many downstream producers have already closed for the holiday, with consumption unlikely to improve. The resulting glut in copper market will drag down prices. Thus, nearly one third investors surveyed by SMM anticipated that LME copper will drop below the 30-day moving average and SHFE copper may test RMB 51,500/nt this week.
SHFE 1404 aluminum contract followed LME aluminum up to RMB 13,850/mt after starting last Friday’s night session at RMB 13,775/mt. 5,076 lots were traded during the night hours, and positions increased to 61,390 lots. The most active contract hovered above RMB 13,825/mt during Monday’s morning trading on better-than expected Chinese Q4 GDP. However, prices retreated to RMB 13,795/mt in the afternoon after the Shanghai Composite Index dropped to 1,984.82 points, closing the day session at RMB 13,825/mt. 7,338 lots were traded during the day session, and positions dropped to 60,802 lots. Prices may rise further since technical indicators are now pointing upward.
SHFE 1402 aluminum contract rose to RMB 13,775/mt on Monday morning. This allowed spot aluminum suppliers to raise offers. Mainstream traded prices were RMB 13,700-13,720/mt in Shanghai, RMB 13,650-13,660/mt in Wuxi, and RMB 13,710-13,720/mt in Hangzhou. Those who have not completed stock building for the upcoming weeklong holiday entered the market, but any increase in volumes traded was contained by higher prices. In the afternoon, SHFE 1402 aluminum contract prices slipped to near its opening price. Spot aluminum prices followed SHFE aluminum down to RMB 13,660-13,700/mt. Trading was light.
SMM surveyed 37 large aluminum producers and traders in China.
41% of the companies surveyed believe spot aluminum prices will rise above RMB 13,750/mt this week. First, LME aluminum prices will move higher to challenge resistance at USD 1,839/mt since technical indicators are pointing upward. This will push SHFE aluminum prices up as well. Second, SHFE 1404 aluminum contract is poised for a rally following continuous declines. Third, those who held to the sidelines earlier will begin to build up stocks.
Another 24% are bearish that spot aluminum prices will fall below RMB 13,600/mt. 1. SHFE 1402 aluminum contract prices will face downward correction following previous gains, which will drag spot aluminum prices down. 2. LME aluminum prices are under great downward pressure. 3. SHFE 1404 aluminum contract prices are facing strong resistance at the moving averages and may also give back earlier gains.
The remaining 24% expect spot aluminum prices to stabilize at RMB 13,650/mt. 1. There is little room for LME aluminum prices to rise, but support at the moving averages is strong, so prices will probably move sideways. 2. Demand will remain weak, which will act as a brake against any uptick in spot aluminum prices.
No trading was reported for the most active SHFE lead contract prices during the night trading hours. SHFE 1402 lead prices opened at RMB 14,085/mt on Monday, and moved higher with positive results of Chinese economic data, touching RMB 14,130/mt at the midday. Finally, the contract SHFE closed at RMB 14,100/mt, up RMB 60/mt, with the support at the 5-10 day moving averages, and resistance at RMB 14,150/mt. Total trading volumes were 1,348 lots, twice than last Sunday’s level. Trading for SHFE 1403 lead prices was also up, mainly because that a narrower price gap promoted the rollover. Positions were down 956 lots to 8,906 lots.
In China’s domestic lead spot market, goods of Chihong Zn & Ge were quoted between RMB 14,080-14,090/mt, at a discount of RMB 10-20/mt over the most active SHFE lead prices. Quotes for Nanfang and Chengyuan were RMB 10/mt lower than those for resources of Chihong Zn & Ge. Prices were RMB 14,040-14,050/mt for Hengbang. Domestic lead smelters increased sales, but traders showed little interest in moving goods due to no incentives for hedging goods, with sparse quotes reported at a delayed time. As downstream producers gradually close for the Chinese New Year holiday, trading sentiment was sluggish on Monday.
SMM’s survey of 30 industry insiders indicated that 53% of them believed lead prices will rise this week, with LME lead up to USD 2,260/mt and spot lead prices in China touching a high of RMB 14,200/mt. Industrial added value, retail sales and 2013 GDP growth in China all exceeded forecast. The ZEW German and euro zone economic indicators are also expected to be positive. In addition, LME lead stocks have been declining, and cash-to-three-month contango for LME lead has narrowed from USD 28/mt to USD 20/mt. These factors will help underpin LME lead prices. Technical indicators also pointed upward. In China’s domestic spot lead markets, downstream buyers with tight cash flow will increase purchases after some banks begin issuing loans for 2014. Meanwhile, downstream enterprises that have not yet replenished stocks will also start building stocks as cargo transportation will be generally suspended next week. In this context, lead demand will be lifted, in turn pushing up spot prices.
47% of industry participants expected LME lead prices to hover at USD 2,200-2,230/mt and spot lead prices to hold steady at RMB 14,000-14,150/mt this week. Despite encouraging economic indicators in China, most enterprises will cease production for the Chinese New Year holiday this week, and outdoor works will also be suspended due to cold weather, dampening demand for base metals. In the US, although the University of Michigan Consumer Confidence Index was significantly below the forecast, the US dollar index presented strong momentum, closing 0.42% higher last Friday. This may place pressure on base metals. Positions for LME lead have fallen by nearly 8,000 lots since last Wednesday, meaning many investors opted to leave the market. As for China’s spot lead prices, these industry participants held that most downstream buyers have finished pre-holiday stocking and will close for holiday this week, which will leave spot trading muted. Smelters, however, will continue to supply goods to spot markets. Thus, further price hike is not expected in spot markets.
SHFE 1404 zinc contract prices opened at RMB 15,280/mt last Friday night, touching RMB 15310/mt, then leveling out at RMB 15,290/mt. At the end of trading, SHFE 1404 zinc contract prices closed at RMB 15,255/mt. SHFE 1404 zinc contract prices opened at RMB 15,280/mt on Monday, with transactions extremely muted, hovering between RMB 15,245-15,270/mt, and finally closing at RMB 15,250/mt, down RMB 5/mt or 0.03%. Trading volumes decreased by 10,662 lots, to 29,204 lots, a record low for the year, and total positions increased by 2,756 lots, to 97,482 lots.
#0 zinc prices were between RMB 15,130-15,170/mt, with spot discounts between RMB 90-130/mt against SHFE 1404 zinc contract prices. #1 zinc prices were between RMB 15,050-15,090/mt. SHFE 1404 zinc contract prices opened at RMB 15,245/mt, then leveled out at RMB 15,260/mt, with transactions muted. Smelters were actively moving goods, but traders lacked interest in operating before holiday, and many downstream buyers suspended production, with those remaining in production replenishing stocks on an as-needed basis, leaving transactions quiet. Shuangyan branded #0 zinc prices were around RMB 15,170/mt, with RMB 15,150/mt for Yuguang branded #0 zinc. Qinxin and Jiulong branded #0 zinc prices were between RMB 15,130-15,140/mt. Baohui branded new #0 zinc prices were around RMB 15,090/mt, with RMB 15090/mt for imported goods.
LME zinc prices leveled out last week and edged up to previous highs. With regard to zinc prices trends, SMM undertook a survey 30 market players and reports that 40% are optimistic, believing LME zinc prices will breach USD 2,108/mt, and SHFE 1404 zinc contract prices will test resistance at RMB 15,450/mt, with spot prices breaking through RMB 15,200/mt. The US Federal Reserve (Fed) will hold its policy meeting next week, with market confidence toward US economic recovery growing as Fed’s officials stated to support QE3 wind-down last week. China’s Q4 GDP, December retail sales and industry output released Monday morning all topped expectations, with China’s Q4 GDP growing at a 7.7% rate in 2013, which boosted market confidence toward China’s economy and base metals demand.
40% are relatively cautious, believing LME zinc prices will resist both increases and declines, moving between USD 2,050-2,100/mt, and SHFE 1403 zinc contract prices will hover between RMB 15,150-15,350/mt, with spot discounts between RMB 90-130/mt. US major economic data had been released last week, and the market will keep a watchful eye on China’s and European economic figures coming out this week. December PMIs from Euro zone and many European countries released this week are optimistic, but a series of downbeat economic data from France will distress market players.
The remaining 20% are bearish, anticipating LME zinc prices will test support from USD 2,020/mt, and SHFE 1404 zinc contract prices will test support at the 60-day moving average, with spot prices finding support at RMB 15,000/mt. they base their opinion on sluggish demand for spot goods as most downstream enterprises will halt production before the Chinese New Year holiday. Most producers maintaining production lacked orders, when combined with yearend cash flow problems, they are unwilling to replenish stocks, which will drag down spot demand. Inventories in Shanghai, Tianjin and Guangdong have been growing for five weeks in a row, also reflecting the sluggish demand. Rising interest rates, yearend cash flow tightness and some investors leaving the market will cause hemorrhage in the base metal market.
In Shanghai spot tin market, most offers were reported at RMB 142,000-144,000/mt on Monday. Trading was lackluster. Most tin smelters and processors are beginning to close for the Chinese New Year holiday. Many traders will remain in business until this weekend.
75% of market players surveyed by SMM expect spot tin prices to remain stable this week. Supply and demand will dwindle in tandem, which will prevent any sharp rise or decline in tin prices. Should LME tin prices move in a tight range, spot tin prices in China may hold steady till the weeklong holiday.
The remaining 25% believe that tin suppliers in China will hike offers if LME tin prices rise further. However, trading is expected to be sluggish.
In Shanghai, SMM #1 zinc prices were between RMB 95,500-96,600/mt. Jinchuan lowered nickel prices by RMB 1,200/mt, to RMB 96,800/mt. Transactions were brisk, with some steel plants purchasing modestly. Traders were actively moving goods in the morning, with some bargain hunters entering the market in the afternoon. Russian nickel was ample, and traders believe that is a result of investors purchasing spot goods whilst selling futures. Nickel prices were between RMB 95,400-96,500/mt in the afternoon, with the price spread between Jinchuan and Russian nickel prices around RMB 1,100/mt.
SMM undertook a survey of 36 market players and found that 44% believe LME nickel prices will move between USD 14,300-14,600/mt this week. The market will lack solid news, but end-users demand for purchasing before holiday and Indonesian ban on ore exports will bolster nickel prices, with nickel prices expected to rise in the latter half this week.
56% believe LME nickel prices will fall to USD 14,000-14,250/mt. with the lack of positive news, LME nickel prices threaten to drop, and effects from Indonesian ban on ore exports were undermined due to sufficient nickel ore in China. The US dollar index rebounded due to upbeat economic data, which weighed on LME nickel prices.