SMM Base Metals Weekly Price Review and Forecast (Feb. 24- 28, 2014)

SHANGHAI, Feb. 26 (SMM) –

Copper:
SHFE copper prices fluctuated widely last week. Trading for SHFE copper contract was more brisk in night sessions, with a trading range at one point expanding to RMB 3,000/mt. SHFE copper prices mainly moved around RMB 45,000/mt, and were more resistant to declines than LME copper prices. Positions for SHFE copper plunged by nearly 40,000 lots. SHFE 1406 copper contract prices are expected to move between RMB 44,800-46,500/mt this week. The SHFE/LME copper price ratio may also recover slightly.

Traders in spot copper markets purchased at lows last week and downstream buyers also went bargain hunting, but later held back after copper prices rebounded. As a result, spot trading showed limited improvements. Speculators continued to buy spot goods and sell futures. High-quality copper was favored by dealers, while downstream buyers mainly purchased standard-quality copper.
 
Aluminum:
SHFE 1406 aluminum contract prices were down for six straight days to RMB 12,635/mt and led losses among SHFE base metal prices due to weak demand in physical markets. In China's physical markets, although firm SHFE 1404 aluminum contract became the current-month contract, spot aluminum prices felt no support and remained soft. Last Thursday, SMM spot aluminum prices fell below RMB 12,400/mt, causing downstream producers to turn cautious and buy only on an as-needed basis.     

This week, LME aluminum prices should move lower, testing support at USD 1,671.3/mt, while SHFE 1406 aluminum contract prices will test support at RMB 12,600/mt due to recent RMB depreciation and growing concerns over tight liquidity and slowing economic growth in China. In China's spot markets, downstream producers will likely show little buying interest due to tight cash flows and general market pessimism, leaving spot discounts of RMB 300/mt over SHFE 1404 aluminum contract prices.   
 
Zinc:
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.

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.
 
Lead:
The most active SHFE 1405 lead contract price rebounded last week to RMB 13,750/mt, up from RMB 13,750/mt, and rising above the 5-day and 10-day moving averages. Positions gained over 100 lots.SHFE lead prices are expected to move between RMB 13,650-13,800/mt after rising for a four straight trading days last week.

Spot lead prices rose by around RMB 50/mt in the Guangdong, Shanghai, and Henan markets, but rose by over RMB 100/mt in Tianjin due to shortages caused by cuts in output at Liaoning Haicheng. Rising lead prices encouraged lead smelters to move goods, but downstream producers still purchased on an as-needed basis out of fears that lead prices would soon fall. Trading activity in the physical market was up slightly last week.In China's physical lead markets, traded prices will be mostly between RMB 13,650-13,800/mt. Lead smelters will be forced to increase sales due to bank loan repayments at the end of the first quarter. However, lead-acid battery producers will have low buying interest since their cash flows are also tight and since they have sufficient finished goods inventories.
 
Tin:
In Shanghai physical tin market, prices were little changed from the previous week at RMB 139,000-141,500/mt last week, with most transactions concluded between RMB 139,000-140,500/mt. LME tin fluctuated closely around USD 23,000/mt, offering no clear guidance for tin prices in China. Supply and demand waned in tandem, with most market players holding to the sidelines.

Nickel:
Last week, the average price of #1 SMM was RMB 100,160/mt, up RMB 5,300/mt. Jinchuan Group raised ex-works prices by a total of RMB 5,500/mt to end the week at RMB 102,500/mt, Downstream producers generally stood on the sidelines and made only limited purchases. Hedging trading dominated market transactions.

This week, SMM expects LME nickel prices to fall back, with low and high-end expected at USD 15,400/mt and USD 16,000/mt, respectively. In China's domestic nickel spot market, ample supply has cooled speculation over prices. With nickel prices in Wuxi's electronic trading falling, traded prices for Russian nickel this week are expected to be RMB 99,000-101,000/mt, creating a gap of RMB 1,000/mt with Jinchuan nickel. Downstream buying interest will be low, with most deals made mainly among traders.