SMM Base Metals Weekly Price Review and Forecast (Apr. 8-11, 2014)

SHANGHAI, Apr. 9 (SMM) – SMMI was up 1.4% last week with mixed showing in the base metals complex. LME nickel prices accelerated to rebound following corrections, up 4.4% to a new high in a year. Jichuan Group raised prices by a total of RMB 4,200/mt, and trading activity among traders was also brisk, pushing SMMI.Ni up 4.69%. An over 6% rebound in LME aluminum prices gave a boost to SHFE aluminum and physical lead prices in China. Cargo holders ramped up purchases to reduce physical premiums and drive up prices, with SMMI.Al up 2%. China’s aluminum prices are likely to rise further should strength in LME aluminum prices be sustained. Domestic cargo holders raised physical copper premiums, contributing to a 1.4% rise in SMMI.Cu. LME lead prices fared the worst among base metals, subdued by all moving averages. As the lead-acid battery industry gradually entered a seasonally low consumption period, SMMI.Pb was down 0.34% last week. SMMI.Sn led the decline, down 0.73%, since domestic smelters cut prices to generate cash against tight liquidity at the end of first quarter.

Copper
HSBC’s March manufacturing PMI for China turned out weaker than expected, but growing expectations that the Chinese government would introduce new stimulus measures allowed Chinese stocks to bottom out. Prices for SHFE 1407 copper contracts, which are now the new most active contract, also rebounded last week from buying support, briefly hitting a high of RMB 47,200/mt but falling back to RMB 46,000/mt after meeting resistance. Positions for the most traded contract increased by 50,000 lots, but trading volumes during night trading were down sharply. The SHFE/LME copper price ratio also fell below 7.0 last week. SHFE copper prices may move this week between RMB 46,200-47,800/mt.

Traders in China’s spot copper markets purchased goods actively early last week, and downstream producers increased purchase volumes later in the week due to market optimism toward copper prices and the approach of China’s Qingming holiday.

Aluminum
Last week, the difference in PMI readings for March between China’s official figure and that released by HSBC caused SHFE 1406 aluminum contract prices to rise less than the previous week, with prices fluctuating between the 5-day and 30-day moving averages for most of last week. Prices for the most active contract moved lower last Thursday after a high opening, dampening market sentiment and prompting investors to close positions. In China’s physical markets, cargo holders held back goods at lower prices and traders were actively buying, pushing prices up. However, the decline in SHFE aluminum prices in the second half of the week turned buyers cautious and left suppliers anxious to sell.

This coming week, prices for the most active SHFE aluminum contracts should move in a RMB 13,000-13,300/mt range due to profit taking at highs. In China’s spot markets, market fundamentals remain poor. Should SHFE aluminum prices move lower, spot aluminum prices will follow, with spot discounts of RMB 100-200/mt expected over SHFE 1404 aluminum contract prices.

Lead
The most active SHFE 1405 lead contract price also fell last week to RMB 13,700/mt due to bearish technical indicators. Positions were down by 520 lots as the delivery date for the current-month contract neared. SHFE lead prices should initially test resistance at RMB 13,750/mt, but hover most of the week between RMB 13,650-13,800/mt based on negative technical indicators.

In China’s physical lead markets, no restocking activity was reported last week ahead of the upcoming Qingming holiday. Traded prices in the Shanghai market were mostly in the RMB 13,650-13,700/mt range. Chihong Zn & Ge, Nanfang, and Chengyuan branded lead supply was extremely limited, and warrants also fell to around 4,000 mt, with many traders holding back warrants. Lead warrants were offered in the Guangdong market at discounts of RMB 20-40/mt over the SHFE current-month contract prices due to ample supply, which helped boost transactions for low-priced Gejiu lead. Lead smelters are expected to slow deliveries this week due to low prices and improved cash flows, but since an increasing number of smelters are conducting maintenance as well, most supply will be supplemented by lead warrants. Purchasing by lead-acid battery producers will not improve significantly given low battery sales, so spot lead is expected to trade between RMB 13,600-13,750/mt. Humon and Shuangyan branded lead supply will be sufficient, but goods from Chihong Zn & Ge, Nanfang, and Chengyuan will be relatively limited in the Shanghai market, with a slight increase in warrants expected. Spot lead in the Guangdong market is expected to be sufficient.

Zinc
Last week, spot zinc prices hovered in a narrow range, with spot discounts for #0 zinc against SHFE 1406 zinc contract prices narrowing by RMB 20/mt, to RMB 100-140/mt, and with #0 zinc prices moving between RMB 14,680-14,730/mt. Smelters were unwilling to sell goods, causing shortages of some brands. A limited amount of imported zinc also added to tight conditions and caused traders to restrict sales, keeping zinc prices firm. Downstream buying interest was also low due to firm prices, despite the easing of tight cash flows at the start of the new month.

Last week, the price spread between Guangdong and Shanghai narrowed to RMB 10/mt since maintenance at some smelters caused supply to tighten, which also caused Tianjin and Shanghai prices to narrow. Prices for Huludao branded #0 zinc produced on older production lines were raised by RMB 40/mt, to RMB 15,310/mt.

Spot discounts of #0 zinc against SHFE 1406 zinc contract prices should narrow to RMB 100/mt.

Tin
In Shanghai physical tin market, prices fell to RMB 136,500-138,500/mt last Wednesday, but rebounded to RMB 137,000-139,000/mt the next day thanks to rising LME tin in the previous day and growing downstream demand. Mainstream traded prices rose further to RMB 137,500-139,500/mt last Friday as LME tin showed signs of upward momentum on Thursday night, but prices for top brand tin were resistant to rises. Second- and third-tier brand tin gained favor. Overall, downstream demand remained weak, and the price increase was largely the result of rising LME tin prices.

Nickel
Last week, the average price for SMM #1 nickel was RMB 103,960/mt, up RMB 2,100/mt from the previous week. Jinchuan Group adjusted ex-works prices four times, with prices closing the week at RMB 106,000/mt, up by a total of RMB 4,200/mt. Spot trading in China’s domestic nickel markets was sluggish due to tight month-end liquidity and low selling interest. Prices for Russian nickel were RMB 800-900/mt below Jinchuan nickel, down from the previous week’s price.

No major positive economic news is expected to be announced this week. SMM believes LME nickel prices will find solid support at USD 15,700/mt. In China’s domestic nickel markets, prices this week for Russian nickel are expected between RMB 104,000-106,000/mt, and between RMB 105,000-107,000/mt for Jinchuan nickel.