SHANGHAI, Mar. 25 (SMM)--
SHFE copper prices started last Friday's night session at RMB 45,650/mt, helped by a rebound in LME copper prices. The red metal hovered between RMB 45,350-45,550/mt after finding support at RMB 45,300/mt, and ended up RMB 190/mt at RMB 45,340/mt. During the trading hours, trading volumes totaled around 370,000 lots, while positions were barely changed. SHFE copper prices pulled back slightly after opening on Monday, and then fluctuated between RMB 45,050-45,150/mt after gaining support at RMB 44,900/mt. The red metal tested a low of RMB 44,860/mt during the afternoon trading session, and later followed LME copper prices up to finish up RMB 270/mt, or 0.6%, at RMB 45,420/mt on Monday. Trading volumes for the most active SHFE copper contract decreased by 231,000 lots, and positions gained 4,120 lots.
Copper was offered on Monday at a premium of RMB 50-130/mt in the Shanghai market. Traded prices were RMB 45,270-45,370/mt for standard-quality copper and RMB 45,330-45,450/mt for high-quality copper. Cargo holders continued to move goods to generate cash as SHFE copper prices lacked impetus to bounce back. There was some buying interest since last Friday, with prices for standard-quality copper rising on increasing demand. Copper prices remained firm due to shortages of goods, while downstream producers merely hunted for bargains, with transactions done mostly by speculators on Monday. As SHFE copper prices remained relatively low during the afternoon trading session, spot copper traded mostly at a premium of RMB 70-150/mt. Standard-quality copper was sold between RMB 45,300-45,430/mt with tight supply in the market.
SHFE 1406 aluminum contract started last Friday's night session at RMB 12,785/mt before drifting lower to RMB 12,700/mt, and closed at RMB 12,750/mt. Trading volumes totaled 13,682 lots, and positions gained 2,464 lots to 122,154 lots. On Monday, the most active contract climbed to RMB 12,775/mt, but retreated to RMB 12,700/mt on the heels of disappointing economic data. HSBC's China March manufacturing PMI hit an 8-month low, fuelling worries over slowdown in the world's second largest economy. The light metal finally ended the day down RMB 25/mt at RMB 12,750/mt. Trading volumes totaled 12,686 lots, while positions were down 2,022 lots to 442 lots. SHFE 1406 aluminum contract will continue to be capped under the 5-day moving average for the immediate future.
Spot aluminum largely traded at RMB 12,280-12,290/mt in Shanghai on Monday, RMB 12,270-12,280/mt in Wuxi, and RMB 12,310-12,320/mt in Hangzhou. Downstream producers in general stayed out of the market out of pessimism, while traders bought in small amounts. In the afternoon, offers remained unchanged, with few deals reported.
SMM surveyed 23 large aluminum smelters and traders in China.
22% of those surveyed expect spot aluminum prices to hold steady at RMB 12,250-12,300/mt this week. First, LME aluminum has found strong support at USD 1,700/mt following weeks of declines, but will meet resistance at the moving averages, with prices expected to move in a tight USD 1,710-1,740/mt range. Second, SHFE 1406 aluminum contract is now in “overbought territory”, and KDJ indicator is pointing upward, meaning a price rally is on the horizon. Prices for the most active SHFE aluminum contract will fluctuate between RMB 12,600-12,750/mt. Third, some cargo holders will become unwilling to sell at low prices. Traders will stockpile in small amounts. In this scenario, spot aluminum prices will stabilize at RMB 12,250-12,300/mt.
The remaining 78% have painted a gloomy picture of this week's spot aluminum prices, believing prices will fall below RMB 12,250/mt. First, the US dollar index, whose gains have been tempered somewhat, remains high. Uncertainty over the Crimea issue will prevent LME aluminum from rising. LME aluminum will vacillate between USD 1,670-1,730/mt. Second, the decline in HSBC's China manufacturing PMI in March has fuelled worries over a slowdown in the world's second largest economy, which will drag the most active SHFE aluminum contract down to RMB 12,700-12,800/mt. Third, tepid demand and eagerness to sell against tightening cash will weigh spot aluminum prices down.
SHFE 1406 zinc contract prices opened low at RMB 14,695/mt on Tuesday evening, but then inched up to RMB 14,770/mt as LME zinc prices rebounded, and finally closing at RMB 14,760/mt, up RMB 20/mt or 0.14%. Trading volumes increased by 768 lots to 11,936 lots, and total positions increased by 1,228 lots to 73,860 lots.
SHFE 1406 zinc contract prices opened at RMB 14,765/mt on Wednesday, then leveled out between RMB 14,740-14,780/mt since LME zinc prices hovered within a narrow band, and closing the day at RMB 14,755/mt, up RMB 15/mt or 0.1%. Trading volumes decreased by 9,266 lots, to 21,378 lots, and total positions increased by 2,852 lots, to 75,458 lots.
#0 zinc prices were between RMB 14,620-14,650/mt, with spot discounts between RMB 120-150/mt against SHFE 1406 zinc contract prices. #1 zinc prices were between RMB 14,600-14,610/mt. SHFE 1406 zinc contract prices opened at RMB 14,765/mt on Wednesday, and leveled out. Traders lacked interest in operation as zinc prices fluctuated in a narrow band, and smelters continued to move goods modestly, with some forced to undertake maintenance in advance. Downstream enterprises purchased goods at lower prices, who had replenished goods on Tuesday, when combined with market pessimism, downstream buying interest was low, leaving trade muted. Shuangyan branded #0 zinc prices were between RMB 14,640-14,650/mt, with RMB 14,620-14,630/mt for Qinxin, Jiulong and Feilong branded #0 zinc.
Last week, LME zinc prices continued to fall, down as much as 1.66%. With regard to zinc price trends this week, SMM surveyed 30 market participants and found that 40% believe LME zinc prices will fall further, testing support from USD 1,900/mt, and SHFE 1406 zinc contract prices will test support from RMB 14,600/mt, with spot prices dropping to RMB 14,550/mt. They base their opinion on negative macroeconomic news. HSBC's March PMI fell to an eight-month low to 48.1, falling short of the 48.5 in February and the 48.7 expected. Deflation and outdated capacity elimination negatively affected economic growth. Besides, March PMIs from European countries and the US are also pessimistic, which will continue to weigh down LME zinc prices. RMB depreciation has reached nearly 3%, which will cause massive selloffs of finance-driven copper imports and push down LME copper prices. LME zinc prices will hence be dragged down.
50% believe LME zinc prices will level out between USD 1,925-1,965/mt and SHFE 1406 zinc contract prices will hover between RMB 14,650-14,850/mt, with spot prices between RMB 14,600-14,700/mt. Smelters have been holding back goods as zinc prices hovered at low levels, while imported zinc arrivals were low due to falling SHFE/LME zinc price ratio, which will help stabilize zinc prices. Domestic zinc prices have been resistant to declines recently.
The remaining 10% are optimistic, seeing LME zinc prices rising to test USD 1,980/mt, and SHFE 1406 zinc contract prices will test support from RMB 14,900/mt. Spot zinc prices are expected to climb to RMB 14,750/mt. As a large number of shorts leave the market, zinc prices will rebound. Inventories in Shanghai, Guangdong and Tianjin have been falling for three weeks on end, reflecting downstream enterprises ramped up production. When combined with the onset of high demand season for zinc, zinc prices should rebound.
The most active SHFE 1405 lead contract price hovered essentially around RMB 13,765/mt after starting at RMB 13,785/mt, and ended down RMB 15/mt, or 0.11%, at RMB 13,760/mt during last Friday's night session. During the trading hours, trading volumes totaled only 74 lots, while positions gained merely 6 lots to 7,356 lots. Dampened by falling LME lead prices and prevailing bearish sentiment, SHFE 1405 lead contract prices moved most of Monday between RMB 13,720-13,750/mt, and closed down RMB 20/mt, or 0.15% at RMB 13,740/mt. Trading volumes rose 82 lots to 450 lots, and positions shed 66 lots to 7,284 lots. SHFE lead prices have found support at the 5-day moving average, but face resistance at the 20-day moving average.
In the Shanghai physical lead market, goods from Chihong Zn & Ge and Chengyuan traded on Monday between RMB 13,700-13,710/mt, a discount of around RMB 20-40/mt over the most active SHFE 1405 lead contract. Shuangyan resources were sold at RMB 13,680/mt. No Humon supply was found in the market, with a majority of transactions for Chihong Zn & Ge and Chengyuan goods. Downbeat China's manufacturing PMI depressed the market, and trading activity was modest on Monday since downstream producers had low buying interest.
SMM surveyed 30 industrial participants on lead price movements for this week. 60% of the surveyed believe lead prices will remain volatile, with LME lead prices moving between USD 2,050-2,090/mt and spot lead prices fluctuating between RMB 13,600-13,800/mt. The US Federal Reserve has announced planned moves on its monetary policies and is expected to raise interest rates in 2015 despite the lack of significant improvement in economic data. The US dollar index is highly likely to trend higher and exerts downward pressure on base metals prices. In addition, the flash HSBC's China manufacturing PMI for March surprised markets by falling to a 8-month low and missing February's level, in a sign that orders at small and medium-size enterprises were disappointing following the Chinese New Year holiday. Market concerns about China's long-term demand for base metals thus will be unlikely to ease in the near term. The crisis on the Crimean peninsula remains unresolved, and when combined with Russia's strong posture on European and US economic sanctions will fuel risks in markets. As the yuan depreciation is accelerating, the forex receipt has contracted during February to USD 128.6 billion, down from January's USD 309.1 billion, while the Shibor is also going up. Tight cash flows will be bearish for lead prices. Nevertheless, spot lead prices in China have fallen to a low last seen in August 2009, providing solid base support, so any further price declines will be limited.
The rest 40% are bearish, expecting LME lead prices to fall to USD 2,050/mt and spot lead prices to trade between RMB 13,600-13,700/mt this week. LME zinc has shifted to cash-to-three month contango of USD 8/mt from a backwardation of USD 45/mt due to soft demand, presaging lower prices for lead, extracted from lead-zinc ores. In addition, copper prices will fall on copper concentrate oversupply, weaker copper financing trade restrained by the yuan depreciation, and soft consumption in China, depressing base metals market. Lead smelters will be forced to increase sales, pressured by banking loan repayment at the end of the first quarter. Meanwhile, lead-acid battery producers will have low buying interest for raw material lead since their cash flows are squeezed by growing finished goods inventories. In this context, spot lead prices will fall further this week.
In Shanghai physical tin market, SMM #1 tin ingot traded at RMB 139,000-141,500/mt on Monday. Prices were RMB 141,500/mt for Yunxi brand tin, and RMB 139,000-139,500/mt for Yunxiang and Yunheng brand tin. Supply of goods from Jiangxi was limited.
55% of the market players surveyed by SMM are bearish over tin prices this week. LME tin is expected to lose support at USD 22,800/mt or even USD 22,500/mt due to negative macro economic data. Spot tin prices in Shanghai will follow LME tin down on tepid demand. Smelters are little interested in selling against low prices, so any downside space should be limited, with spot tin prices expected at RMB 138,000/mt.
The remaining 45% see little change in this week's tin prices. On the one hand, persistent dry weather will interrupt tin supply in Indonesia, putting a floor under LME tin prices. On the other hand, negative macro economic data and depressed base metals prices will weigh on LME tin prices. Two factors combined will keep LME tin within a narrow band. In Shanghai physical market, smelters have been holding back goods at lows recently, cutting market supply. Anemic demand persists, acting as a brake against any rise in tin prices. As such, spot tin prices in China will also hold largely stable.
In Shanghai, SMM #1 nickel prices were between RMB 102,000-103,000/mt. Jinchuan raised nickel prices by RMB 300/mt to RMB 102,800/mt, with transactions mainly made among traders. Downstream buying interest was low.
SMM surveyed 36 market players and found that 42% believe LME nickel prices will continue to rise to USD 16,200-16,500/mt. Indonesian ban on the exports of unprocessed ore will continue to affect the market. Despite steel plants cut output, nickel ore and NPI supply tightness will worsen as NPI producers restrict production due to environmental protection inspections. Scrap stainless steel and nickel plate prices will rise.
36% believe LME nickel prices will hover between USD 15,800-16,200/mt. Sluggish demand from China's manufacturing and Ukraine crisis will allow a large number of longs to leave the market after profit-taking before pushing up nickel prices again as raw materials supply becomes tighter.
22% believe LME nickel prices will fall below USD 15,800/mt. Major economic data from the US are optimistic, when combined with accelerating RMB depreciation, the US dollar index will strengthen, which will weigh on base metals prices.