SHANGHAI, Apr. 1 (SMM) –

Copper
Boosted by a rally in LME copper prices, SHFE copper prices rebounded to a high of RMB 46,930/mt after starting at RMB 46,650/mt, and ended up RMB 660/mt at RMB 46,830/mt during last Friday’s night session. During the trading hours, trading volumes maintained at around 220,000 lots, and positions gained by 6,186 lots for the most active SHFE copper contract. Positions for the SHFE 1407 copper contract fell sharply by 10,260 lots. On Monday, SHFE copper prices fell back slightly after testing resistance at the RMB 47,000/mt mark, and closed up RMB 620/mt, or 1.34%, at RMB 46,790/mt. Trading volumes contracted by 96,716 lots, and positions shrunk by 14,354 lots.

In the Shanghai physical market, copper was offered on Monday at a premium of RMB 100-150/mt. Traded prices were RMB 46,30-47,030/mt for standard-quality copper and RMB 46,970-47,070/mt for high-quality copper. As SHFE copper prices hovered at lows after starting higher, cargo holders moved goods at high prices, with limited spot supply in the market. Middlemen and downstream producers, however, had little buying interest in the last trading day at the end of March due to tight liquidity. As SHFE lead prices were subdued during the afternoon trading hours, a larger amount of spot copper flowed in the market, but still traded at firm prices. Spot copper prices later rose slightly to the RMB 46,950-47,100/mt range.

SMM’s latest survey showed that 63% of participants in copper market believe copper prices will extend gains this week, with LME copper crossing above USD 6,700/mt and SHFE copper prices standing above RMB 47,000/mt. European countries and the US continued to exert pressure on Russia over the country’s annexation of Crimea. Russian Foreign Minister Sergei Lavrov and the US Secretary of State John Kerry met for four hours to talk about the Ukraine crisis, but no concrete progress was reported. However, the tension between the US and Russia eased somewhat, helping reducing market risks.

The US economic data , including the durable goods orders for February, GDP growth in Q4 2013, initial jobless claims and Markit composite PMI for March, all turned out positive, increasing risk appetite and giving a boost to riskier assets.

This week, the PMI data for several major economies and US nonfarm payrolls will be released. Investors were more optimistic about nonfarm payroll data due to improving weather, expecting the payrolls to be 170,000-200,000. Citigroup predicted the nonfarm payrolls will hit 240,000. The resultant buying support will help bolster copper prices, and US stocks may also remain the strong momentum, benefiting copper prices.

Technically, both LME and SHFE copper prices have risen above the 20-day moving average, with support at lower levels enhanced. Positive technical indicators may help with a rebound in copper.

In China, the improving liquidity conditions in early April will enliven trading activity in stock and futures markets. In physical markets, downstream producers reported noticeable growth in order books with the arrival of the high demand season. In this context, many investors expected copper prices to rise further this week.

37% of market players expected LME copper prices to hold steady this week between USD 6,560-6,680/mt, with SHFE copper prices at RMB 46,300-47,000/mt. The US dollar index has been less influenced by the US economic conditions lately, with non-US currencies strengthening. Thus, copper prices will be less affected by the dollar, but any sharp movements were not expected.

The latest CFTC report showed net short positions on copper increased to 32,975 lots for the week of March 25. Meanwhile, gold and crude oil prices showed diverged trends, with the oil prices climbing above USD 100 per barrel while the gold saw a pullback.

In China, April will see a large amount of shares unlocked – 10.43 billion shares worth about RMB 121.41 billion. During the first week of the month, 1.9 billion (RMB 16.6 billion) will be unlocked, putting pressure on stock markets, which may in turn limit moving range of copper prices. In addition, many investors closed positions last week, limiting impetus for copper prices. In China’s spot market, cargo holders became less firm on prices, with spot premiums over the SHFE 1404 copper contract prices narrowing. The above factors may place a ceiling on any copper price increase, leaving prices in the current range.

Aluminum
Last Friday night, SHFE 1406 aluminum contract inched up to RMB 13,090/mt after starting at RMB 13,075/mt. Prices, however, fell back to RMB 13,035/mt afterwards to end the night session at RMB 13,045/mt. Trading volumes totaled 10,802 lots, and positions gained 1,692 lots to 119,064 lots. On Monday, June aluminum on the SHFE drifted lower to RMB 12,970/mt before rebounding to RMB 13,020/mt, closing the daytime session up RMB 20/mt at RMB 13,015/mt. Trading volumes totaled 12,042 lots, and positions were up 1,294 lots to 118,666 lots.

Spot aluminum largely traded at RMB 12,590-12,610/mt in Shanghai on Monday, RMB 12,590-12,600/mt in Wuxi, and RMB 12,600-12,610/mt in Hangzhou. Traders were cautious about buying after SHFE 1404 aluminum contract dipped to RMB 12,790/mt, but became more willing to buy once SHFE aluminum rebounded. In the afternoon, offers remained little changed. A few traders increased purchases out of optimism.

SMM surveyed 45 large aluminum smelters and traders in China.

 33% of market players have painted a gloomy picture of this week’s spot aluminum prices, believing prices will fall below RMB 12,550/mt. First, on the technical side, LME aluminum will lack upward momentum, with prices expected between USD 1,730-1,750/mt. Second, the recent rally in SHFE 1406 aluminum contract was driven by technical support rather than an improvement in market fundamentals, so prices for the most active contract may fall back to RMB 12,800-13,100/mt. Third, downstream consumption has yet to fully recover. The uptick in spot aluminum prices was the result of market speculation, so the price rebound will prove only transitory.

Another 29% expect spot aluminum prices to hold largely stable between RMB 12,550-12,650/mt. 1. LME aluminum will fluctuate in a tight USD 1,750-1,780/mt range. 2. SHFE aluminum prices have shown signs of fallback, which will keep buyers in physical markets cautious. 3. Increased liquidity at the start of the new month will put a floor under spot aluminum prices.

The remaining 38% are bullish that spot aluminum prices will break through RMB 12,650/mt.  1. KDJ indicator of LME aluminum is pointing upward, so prices may drift higher to USD 1,750-1,800/mt. 2. Optimism over US non-farm payrolls will boost base metals prices. 3. Expectations are running high that the Chinese government will unleash stimulus measures to fuel economic growth, which will lend support to SHFE aluminum prices. 4. Cargo holders will hold offers firm now that SHFE aluminum prices have rebounded. 

Lead
The most active SHFE 1405 lead contract price reached a high of RMB 13,860/mt after starting at RMB 13,800/mt, and later fell back to the range of RMB 13,800-13,830/mt during last Friday’s night session, dragged down by declining LME lead prices. The metal closed down RMB 20/mt, or 0.14%, at RMB 13,805/mt. Trading volumes were only 68 lots, while positions gained 14 lots to 7,212 lots. SHFE 1405 lead contract prices fell Monday to around the 5-day moving average, hovering between RMB 13,760-13,785/mt, and then dipped to RMB 13,755/mt before ending at RMB 13,765/mt. Trading volumes were merely 500 lots, while positions shed 42 lots to 7,212 lots. SHFE lead prices have found support at the 10-day and 20-day moving averages on Monday.

In the Shanghai physical lead market, goods from Chihong Zn & Ge, Nanfang, and Chengyuan traded Monday between RMB 13,690-13,700/mt, a discount of RMB 80/mt over the most active SHFE 1405 lead contract price. Shuangyan resources wrapped with iron sheet were sold lower at RMB 13,650/mt. Lead smelters significantly cut deliveries after tight liquidity eased, but spot lead supply was rather ample in the market on Monday. Downstream purchases were restricted by tight cash flows at the end of the first quarter, with trading volumes down from last Friday.

A recent SMM survey of 30 industrial participants shows that they are divided over lead price movements this week. 44% of the surveyed expect LME lead prices to hover between USD 2,050-2,100/mt and spot lead prices to hold flat between RMB 13,600-13,750/mt. Investors are concerned over China’s official manufacturing PMI due this week given the weak HSBC’s China March manufacturing PMI released earlier. In addition, it is still uncertain whether the European Central Bank will introduce easy monetary policies or not despite lingering deflationary risks. US nonfarm payrolls report, however, is agreed to come in positive. LME lead positions are rather steady, while LME spot lead discount also hovers around USD 23/mt. Declines in LME lead inventories also are slowing down. In China’s physical lead markets, lead smelters will increase maintenance in late March and April, while downstream lead-acid battery producers will have slower demand for lead ingot due to mounting inventories and the seasonally low demand period. Therefore, lead supply and demand will be basically in balance this week.

40% of them hold that LME lead prices will fall to USD 2,000/mt, and spot lead prices will slide slightly to the RMB 13,600-13,700/mt range for two reasons. First, the rebound in base metals prices based on oversold conditions is unlikely to stay for a long period due to macroeconomic uncertainties. Second, no concrete investment volumes or targets have been put forward with regard to SOE and financial reforms, boding ill for base metals prices.

The remaining 16% are rather bullish on lead prices this week, expecting LME lead prices to test resistance at the USD 2,100/mt mark and spot lead prices to fluctuate between RMB 13,650-13,800/mt. They argue that unlike HSBC’s manufacturing PMI released earlier, China’s official manufacturing PMI, a measurement of medium and large enterprises, is forecast to be positive. Expectations for easy monetary policies by the ECB should give a boost to base metals markets before the release of final minutes of its latest interest rate meeting. In addition, US nonfarm payrolls data will possibly rise above 200,000, lending support to markets. Lead smelters will curtail deliveries with the end of the first quarter, while downstream producers will have higher buying interest as liquidity eases, pushing up lead prices. Large traders are also driving up spot copper and aluminum premiums by purchasing in large amounts, which should boost sentiment in base metals markets this week. 

Zinc
SHFE 1406 zinc contract prices opened high at RMB 14,880/mt last Friday evening, and then touched RMB 14,895/mt. As LME zinc prices lacked ability to rise further, a large number of longs left the market after profit-taking. SHFE 1406 zinc contract prices closed at RMB 14,865/mt, up RMB 25/mt or 0.17%. Trading volumes increased by 1,274 lots to 7,390 lots, and total positions decreased by 124 lots to 73,794 lots. SHFE 1406 zinc contract prices opened low at RMB 14,860/mt on Monday, inching down to RMB 14,820/mt at one point due to strong short momentum, dipping to RMB 14,790/mt, and closing the day at RMB 14,800/mt, down RMB 40/mt or 0.27%. Trading volumes increased by 5,346 lots, to 30,972 lots, and total positions decreased by 342 lots, to 73,576 lots.

#0 zinc prices were between RMB 14,680-14,710/mt, with spot discounts between RMB 120-140/mt against SHFE 1406 zinc contract prices. #1 zinc prices were between RMB 14,640-14,660/mt. SHFE 1406 zinc contract prices opened at RMB 14,860/mt on Monday, and then inched down to last Friday's levels. Spot zinc prices were firm, with discounts narrowing RMB 20-30/mt from last Friday. Traders lacked interest in transactions due to quarter and month's end cash flow problems, and smelters moved goods modestly, with some brands still in short supply. Downstream enterprises purchased on an as-needed basis, with transactions muted. Shuangyan branded #0 zinc prices were between RMB 14,700-14,710/mt, with RMB 14,690/mt for Qinxin, Jiulong and Feilong branded #0 zinc.

LME zinc prices inched up by 1.2% last week. Will LME zinc prices continue to rebound this week?

SMM surveyed 30 market players and found that 53% take a neutral attitude, believing LME zinc prices will level out between USD 1,960-2,000/mt, and SHFE 1406 zinc contract prices will hover between RMB 14,700-14,900/mt, with spot discounts between RMB 100-150/mt. The European Central Bank (ECB) will announce its decision on interest rates this week, with many ECB officials saying they would consider negative interest rates and assets purchases to prevent deflation. The ongoing Ukraine crisis is also the focus of markets. Besides, spot supply is limited, with some brands in short supply. Given stable downstream demand, zinc prices will not fall further, resisting both increases and declines.

30% are optimistic, thinking LME zinc prices will rise to test USD 2,020/mt, and SHFE 1406 zinc contract prices will test RMB 15,000/mt. a series of sluggish economic data from China triggered market expectations that China will announce new stimulus policies to prevent economy sliding, which will boost market confidence and give solid support to zinc prices. SMM statistics shows total inventories in Shanghai, Guangdong and Tianjin fell for four straight weeks. As the Canton Fair will be held April 15, downstream enterprises are producing actively, which will push up zinc prices to RMB 14,850/mt.

The remaining 17% believe LME zinc prices will fall to test support from USD 1,940/mt, and SHFE 1406 zinc contract prices will fall to RMB 14,600/mt, with spot zinc prices down to RMB 14,600/mt. Major economic data, including March PMIs from China, the US, and Europe will be released this week. Investors are pessimistic due to downbeat initial data, which will help weigh down LME zinc prices. However, US non-farm employment data is expected to be positive since the weather is improving, which may boost market confidence and raise expectations that the US Federal Reserve will raise interest rates sooner than later. A rising US dollar index will weigh on zinc prices as well. Contango against LME three-month zinc contract prices expanded to RMB 11/mt, with LME zinc prices meeting strong resistance at USD 2,000/mt. Should LME copper prices fall, LME zinc prices will drop to a near-term low.

Tin
In Shanghai physical market, most transactions were between RMB 137,500-139,500/mt on Monday morning. Small amounts of Yunxi brand tin traded higher at RMB 140,000/mt. Nanshan brand tin was offered as low as RMB 137,000/mt in the afternoon, but lower prices did not stoke buying. Quarter-end cash squeeze and bearish sentiment deterred buyers from jumping in.

60% of the market players surveyed by SMM are bearish that spot tin prices in China will fall further this week. Sharp price declines last week were largely the result of tightening liquidity at the end of the quarter and month. Although liquidity crunch will ease at the start of the new month, demand looks set to remain anemic, which will drag prices down.

The remaining 40% expect spot tin prices to come to stabilize this week. These market participants believe that last week’s price fall was due in large part to tightening cash at the quarter’s end and that demand will pick up once liquidity increases with the arrival of the new month.  This will help arrest the drop in tin prices.

Nickel
In Shanghai, SMM #1 nickel prices were between RMB 101,500-102,500/mt. Jinchuan raised nickel prices by RMB 1,000/mt to RMB 102,800/mt. The market lacked cash flows at the end of the month, but traders purchased goods at lower prices due to market optimism and rising spot prices, with transactions made in small volume. Spot prices rose to RMB 102,100-103,100/mt in the afternoon. But transactions were muted.

SMM surveyed 36 market players and found that 50% believe LME nickel prices will rise to USD 15,900-16,250/mt this week. They base their opinion on Indonesian ban on the exports of unprocessed ore, which will cause nickel ore supply shortages and boost end-user demand for nickel plate; the Crimea issue affected Russian nickel exports, which will positively affect international nickel prices. Spot demand improved modestly, but a large number of bargain hunters entered the market.

42% believe LME nickel prices will move between USD 15,700-15,950/mt. LME nickel prices found solid support at USD 15,700/mt, but failed to stabilize at USD 15,900/mt. Before the US Federal Reserve announces March non-farm employment data this Friday, prices will level out.

Only 8% think LME nickel prices will fall below USD 15,700/mt. Given sluggish consumption in global manufacturing and expectations that China’s economy will face downturn pressure, nickel prices should fall.