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SMM Base Metals Weekly Price Review and Forecast (Mar. 3-7, 2014)
Mar 4,2014 08:59CST
price review forecast
US stock markets hit new highs on positive European and US economic data.

SHANGHAI, Mar. 4 (SMM) – US stock markets hit new highs on positive European and US economic data. However, worries grew over China’s housing market on the heels of news that some banks in China have suspended property-related lending. This was compounded by sharp depreciation of the Chinese yuan. In this scenario, base metals markets languished amid heavy selloffs, with SHFE copper prices leading the losses. Eagerness to sell in spot markets sent copper prices down, with SMMI.Cu losing 2.5%. Aluminum and nickel prices rebounded after initially rising, but still ended the week down. SMMI.Al and SMMI.Ni shed 1.5% and 1.09%, respectively. SMMI.Zn and SMMI.Pb were down a mere 0.53% and 0.54%, respectively, thanks to firm LME zinc prices. Tin proved the outlier among base metals, with SMMI.Sn gaining 0.33%, helped by rising LME tin prices. 

The Shanghai Composite Index slumped early last week due to speculation surrounding a bursting of the Chinese property market bubble. SHFE 1405 copper contract prices fell from RMB 50,500/mt, to hit RMB 49,000/mt, and tested a low of RMB 48,980/mt before ending the week down by 2.97%. The SHFE/LME copper price ratio slipped to 7.0. Total traded volumes for SHFE copper contracts surged by 1 million lots and positions also grew by110,000 lots. Night trading for SHFE copper became more brisk. SHFE 1405 copper contract prices may move between RMB 48,800-50,200/mt, but prices are expected to stabilize later, helping the SHFE/LME copper price ratio recover.

In China’s physical markets, standard-quality copper was mainly offered last week at discounts of RMB 280-380/mt against SHFE 1403 copper contract prices, while high-quality copper was quoted at discounts of RMB 180-280/mt. Smelters showed stronger enthusiasm toward exports given the depreciating RMB, and sourced goods from domestic spot markets to fulfill long-term contracts. Losses for copper imports grew to RMB 3,000/mt after SHFE/LME copper price ratio fell to 7.0, causing less imported copper to enter the market. Some downstream buyers went bargain-hunting after spot copper prices fell below RMB 49,000/mt, and although spot discounts narrowed to RMB 130-300/mt ahead of the weekend, demand was still short of supply.

Early last week, SHFE 1405 aluminum contract prices fell along with the Shanghai Composite Index to RMB 13,310/mt in response to the People’s Bank of China’s (PBOC)’s repurchase operations, as well as tightening credit availability for mortgages. Prices for the most active contract, however, rebounded to near RMB 13,400/mt later in the week. 24,532 lots were traded during last week, and positions added 7,740 lots to 92,684 lots. In China’s spot markets, spot aluminum prices fell below RMB 13,000/mt early last week. Cargo holders became less anxious to sell after SHFE aluminum prices rebounded. Downstream producers did not purchase in large amounts, but traders showed greater interest in buying.     

On the technical side, LME aluminum prices should face downward pressure this week and fluctuate in a USD 1,700-1,770/mt band. Prices for the most active SHFE aluminum contracts were relatively stable after recent sharp declines, but lacked any upward momentum, so investors may take profits at current highs. In this context, prices should move between RMB 13,300-13,500/mt. In China’s spot markets, spot aluminum prices are showing signs of an upturn. Suppliers will be in no rush to sell, and downstream producers are expected to increase raw material purchases due to the arrival of the high-demand season in March, as well as from increased liquidity at the start of the new month. This improved demand will help spot discounts over SHFE 1403 aluminum contract prices narrow to RMB 150-250/mt.   

SHFE 1404 lead contract prices underperformed LME lead prices and fell below RMB 13,900/mt, down from RMB 14,000/mt. Contract prices were also held back by resistance at all moving averages. Trading volumes and positions both fell as well, indicating a lack of market confidence. Gaining momentum from LME lead prices, SHFE lead prices are expected to test resistance at the RMB 14,000/mt mark this week due to strong buying support.

In China’s physical lead markets, #1 lead prices traded mostly between RMB 13,750-13,850/mt throughout last week. Although lead smelters moved goods normally, supply still exceeded demand since downstream producers had little buying interest due to tight liquidity and out of fears that lead prices would fall. Lead smelters will continue to trade normally and buying interest from downstream producers should show signs of improvement due to easing liquidity at the start of the new month. Transactions should also improve and traded prices are expected to rebound to RMB 13,900/mt.

Spot zinc markets were sluggish due to soft demand. Spot discounts of #0 zinc against SHFE 1405 zinc contract prices expanded from RMB 140-170/mt to RMB 190-240/mt, with discounts of nearly RMB 200/mt for Shuangyan branded #0 zinc, and discounts over RMB 200/mt for Jiulong and Qinxin branded zinc. Spot supply was ample, but some traders suspended moving goods due to high spot discounts. Downstream buyers purchased on an as-needed basis, leaving trading quiet.

Guangdong market was more optimistic than Shanghai market, with #0 zinc prices level with Shanghai prices. The Tianjin zinc market remained quiet, with zinc demand sluggish since downstream orders did not return to normal levels during the ongoing environmental protection inspections conducted in the Beijing, Tianjin and Hebei regions. #0 zinc prices were RMB 120/mt below Shanghai prices early in the week, but then fell as low as RMB 150/mt below Shanghai prices. Prices for Huludao branded zinc produced on older production lines were cut by RMB 100/mt, to RMB 15,500/mt. As enterprises restart production in March, spot demand will improve slightly, but spot discounts remain high given sufficient supply, but may narrow to RMB 180/mt.

In Shanghai spot tin market, prices dropped to RMB 139,500/mt on lackluster demand last Monday, but followed LME tin up the next day. Mainstream traded prices rose to RMB 142,000-144,000/mt Thursday morning, though demand remained slack. However, the low-end price drifted lower to RMB 141,500/mt last Friday as gains in LME tin prices slowed down last Thursday. Goods available on the market were limited in the first half of the week and consisted largely of primary brands. Lower-priced goods began to flow in during the second half of the week, but consumption remained sluggish. Smelters in Jiangxi have brought idled capacity back online since environmental protection inspections there have ended.  

In the Shanghai spot nickel market last week, the price for SMM #1 nickel averaged at RMB 93,560/mt, down RMB 1,380/mt. The monthly average price was RMB 94,540.62/mt, also down RMB 673.66/mt. Jinchuan Group adjusted ex-works prices three times last week, with prices closing the week at RMB 95,500/mt, down by a total of RMB 1,000/mt. With the month’s end, transactions among traders turned quiet, while downstream enterprises also expressed little buying interest.  
SMM expects LME nickel prices to hover between USD 14,200-14,600/mt this coming week. In China’s domestic nickel market, trading is expected to remain among traders due to weak demand. Traded prices for Jinchuan nickel will range between RMB 93,500-95,000/mt, creating a gap of RMB 1,000/mt with Russian nickel.



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