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SMM Base Metals Weekly Price Review and Forecast (Mar. 17-21, 2014)
Mar 19,2014 08:39CST
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Last week, copper prices plunged by 10% to a nearly four-year low due to sell-offs, with other base metals also down significantly.

SHANGHAI, Mar. 19 (SMM) – Last week, copper prices plunged by 10% to a nearly four-year low due to sell-offs, with other base metals also down significantly. SMMI.Cu staged a decline of 9.54%, SMMI.Zn was down 1.6%, SMMI.Al dropped 1.55%, and SMMI.Sn fell 1.43%. SMMI.Pb only edged down 0.72% supported by low selling interest. Notably, LME nickel prices were driven up by 4% due to continued impact from Indonesia’s ban on raw ore exports. Jinchuan Group adjusted prices four times last week, with ex-works prices for #1 nickel plate up RMB 1,000/mt to RMB 97,000/mt. SMMI.Ni thus increased 0.25%. SMMI dropped 6% last week. Most market players were on the sidelines fearing further declines.

SHFE copper prices fell by the daily limit last Monday and again during Wednesday after LME copper tumbled, losing 10.7% for the week, while the SHFE/LME copper price ratio also fell below 6.8. Total traded volumes soared by 6 million lots and positions increased by 200,000 lots. The SHFE 1406 copper contract became the most active contract, with trading volumes at one point rising above 1.3 million lots, a level rarely seen in the past year. SHFE copper prices are expected to test RMB 44,000/mt repeatedly this week, given strong selling pressure. Prices may rebound to RMB 48,000/mt if solid support forms at RMB 44,000/mt, but without support prices will fall further.

In China’s spot copper markets, traders bought spot goods and sold futures since SHFE 1403 copper prices were lower than April-delivery SHFE copper prices. However, most trading remained subdued due to previous panic selling caused by plunging prices.

SHFE 1406 aluminum contract prices opened lower early last week at RMB 13,095/mt, but then rebounded from technical support. Industrial value-added for the first two months of 2014, urban fixed-asset investment, and retail sales data from China all missed forecasts, fanning concerns over metal demand in China and prevented prices for the most active SHFE aluminum contract from rising above RMB 13,280/mt. In China’s physical markets, falling spot aluminum prices gave cargo holders little incentive to sell. Although SHFE aluminum prices rebounded, downstream producers still bought on an as-needed basis.

In the coming week, LME aluminum prices should move lower to USD 1,710-1,770/mt, while SHFE 1406 aluminum contract prices should fluctuate in a RMB 13,100-13,300/mt range. In China’s spot markets, downstream producers will continue to purchase as needed. Weak SHFE aluminum prices and an increase in deliveries will leave spot discounts of RMB 200/mt over SHFE current-month aluminum contract prices.

Despite a stronger rebound than other base metals prices, the most active SHFE lead contract price still fell last week to a low of RMB 13,495/mt since trading began for the contract, with the loss due mainly to strong bearish sentiment. Positions shed nearly 2,000 lots. Any declines in SHFE lead prices will be limited now that buying support is increasing since investors believe prices have bottomed out. SHFE lead prices will move between RMB 13,400-13,600/mt.

In China’s physical lead markets last week, lead smelters held back goods after lead prices fell to levels close to costs. Downstream producers were active bargain-hunting early last week, but demand gradually waned as lead prices continued to fall. Traded prices for lead ingot varied between regions. Spot lead prices in the Shanghai market held firm above RMB 13,600/mt due to tight supply and traded at a premium over the most active SHFE lead contract price. Lead ingot prices in Guangdong and Hunan provinces, as well as some north China regions, all fell last week to between RMB 13,500-13,600/mt since supply was considered as ample. China’s physical lead markets will experience considerable pressures this week. First, outflows of deliverable goods will keep spot lead prices in check. Second, lead smelters will be reluctant to move goods if lead prices continue to fall, but downstream producers will still express little buying interest, providing limited support to lead prices. In addition, even though lead smelters should actively sell as lead prices rise this week, downstream producers are expected to stay on the sidelines, limiting any price gains.

The spot zinc market improved last week. As SHFE zinc prices fell in early week trading, spot discounts against SHFE 1405 zinc contract prices narrowed from RMB 200/mt two weeks ago to RMB 100/mt, causing traders to sell goods and increase market supply. Some downstream enterprises entered the market at lower prices, but smelters began holding back goods due to falling zinc prices. #0 zinc prices stabilized between RMB 14,700-14,800/mt later in the week, with spot discounts against SHFE 1405 zinc contract prices around RMB 100/mt, and with discounts over RMB 100/mt for Jiulong and Qinxin branded #0 zinc. Downstream buyers remained cautious, however, leaving transactions relatively stable.

Trading in Guangdong province was steady last week, with #0 zinc prices RMB 10-30/mt below Shanghai prices, but on par with Shanghai prices from two weeks ago. Spot demand in Tianjin remained soft, with downstream enterprises mostly purchasing on an as-needed basis. Some smelters were holding back goods due to falling zinc prices, causing supply to decrease. The price spread for #0 zinc between Tianjin and Shanghai markets narrowed from RMB 80/mt two weeks ago to RMB 60/mt, since prices in Tianjin were down less than losses in Shanghai. Prices for Huludao branded zinc produced on the older production lines fell by RMB 220/mt, to RMB 15,280/mt.

Domestic smelters will hold back goods as zinc prices move lower, and when combined with low imported zinc volumes, spot supply will decrease. Downstream buyers will purchase more actively as zinc prices bottom out, with spot discounts against SHFE 1405 zinc contract prices expected around RMB 100/mt.

In Shanghai’s physical tin market, prices followed LME tin down to RMB 138,000-140,000/mt last Monday. Lower prices lured downstream producers and traders to enter the market the next day, improving trading slightly. Most smelters were reluctant to sell at low prices, allowing the low-end price to rebound to RMB 138,800/mt Thursday afternoon. Prices of first-tier brand goods had little upward momentum, though. Most transactions were between RMB 139,000-141,000/mt by Friday. The price rise was driven largely by falling supply of second- and third-tier brand goods, rather than by a pickup in demand.

In the Shanghai nickel spot market last week, #1 nickel averaged RMB 94,860/mt, up RMB 240/mt. Jinchuan Group adjusted ex-works prices four times, closing the week at RMB 97,000/mt, up by a total of RMB 1,000/mt. Spot trading turned brisk due to increased downstream buying interest, and traders purchased large amounts of Russian nickel for arbitrage trading.

This week, SMM expects LME nickel prices to maintain the present upward momentum, with prices moving between USD 15,800-16,300/mt. Prices for Jinchuan nickel will range between RMB 96,500-98,000/mt, creating a price difference with Russian nickel of RMB 1,000/mt.


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