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SMM Base Metals Market Daily Review (2014-5-12)

iconMay 13, 2014 10:06
Source:SMM
The most active SHFE copper contract started last Friday’s night session at RMB 47,160/mt, and then tracked LME copper prices up to RMB 47,450/mt.

SHANGHAI, May. 13 (SMM) –

Copper
The most active SHFE copper contract started last Friday’s night session at RMB 47,160/mt, and then tracked LME copper prices up to RMB 47,450/mt. Prices for the contract stabilized around RMB 47,300/mt subsequently after encountering upward resistance, and closed up RMB 260/mt at RMB 47,340/mt. Traded volumes totaled some 130,000 lots, while positions gained 664 lots. On Monday, SHFE copper prices advanced further near to the RMB 48,000/mt mark, and finished up RMB 930/mt, or 1.98%, at RMB 48,010/mt. The SHFE 1407 copper contract crept to a high of RMB 48,500/mt, and ended up RMB 930/mt, or 2.11%, at RMB 48,470/mt. Traded volumes for the SHFE 1408 copper contract totaled 142,000 lots, and positions added 6,790 lots. Traded volumes and positions for the SHFE 1407 copper contract expanded 60,764 and 9,388 lots, respectively.

In the Shanghai physical market, copper was offered Monday at a premium of RMB 250-550/mt over the SHFE 1405 copper contract. Traded prices were RMB 50,150-50,380/mt for standard-quality copper and RMB 50,200-50,450/mt for high-quality copper. After SHFE copper prices staged a sharp rebound, cargo holders intended to push physical premiums up to RMB 450-550/mt seen last Friday in the morning trading. Trading activity, however, weakened sharply after spot copper prices rose above RMB 50,000/mt. In addition, an around RMB 500/mt rally in SHFE copper prices as well as a RMB 1,000/mt price gap between the SHFE 1405 and 1406 copper contracts gave cargo holders incentives to raise cash at lower premiums. As a result, copper premiums slid nearly RMB 200/mt, with loose supply in the market. Rising SHFE copper prices deterred hedged supply from flowing in the market, while a small number of middlemen jumped in. Downstream producers were largely on the sidelines since they regarded spot prices above RMB 50,000/mt as too high, and traded volumes were rather light Monday. SHFE copper prices continued to hover at high levels during the afternoon trading session, while the price gap between the SHFE 1405 and 1406 copper contracts also held firm at around RMB 1,000/mt. In this context, cargo holders ramped up deliveries to raise cash at lower premiums, with a variety of brands and ample supply available in the market. Physical premiums initially were quoted at RMB 200-360/mt, but fell to RMB 150-250/mt near the tail of the trading, with hydro-copper offered as low as a premium of RMB 100/mt. Copper traded largely between RMB 50,250-50,400/mt in light volumes as investors sold at high prices.

The most recent SMM survey showed that most industry insiders were optimistic about this week’s copper prices, with 71% of respondents expecting LME copper prices to stand above USD 6,780/mt to challenge USD 6,900/mt and SHFE copper to test RMB 48,500/mt. Market expectations for US housing and retail sales data due for release this week were positive, which will shore up market morale and boost US stock prices.

Technically, both LME and SHFE copper prices climbed above major short-term moving averages with support at lower levels enhanced.

As for market fundamentals, LME and SHFE copper stocks continued to fall, with inventories available at LME registered warehouses down to the lowest since October 2008. The cash-to-three-month backwardation in LME copper rose to USD 45/mt. Tax-paid copper stocks at SHFE approved warehouses were only 24,141 mt. The price gap between SHFE 1405 and 1406 copper contracts has widened to RMB 1,200/mt, while positions for the May-delivery copper held up at about 25,000 lots. In this context, market players expected another round of short squeeze in the SHFE 1405 copper contract with the delivery date approaching, which may fuel further rebound in the prices.

The remaining 29% of industry participants were cautious, predicting that LME copper prices will hold steady at USD 6,700-6,780/mt and SHFE copper prices will remain in the RMB 47,200-47,800/mt range. These investors based their opinions partly on the rebounding US dollar index powered by anticipation for a potential ECB rate cut which depressed the euro. Prices for crude oil and gold were also weak lately.

The latest CFTC report indicated that net short copper positions increased to17,453 lots for the week ending May 6, a sign of strong bearishness over copper prices.

In China, the stock market was boosted after the State Council issued a series of new rules to protect smaller investors and guarantee healthy development of its capital market, with the Shanghai Composite Index jumping 2% on Monday. However, the resumption of IPO listings will limit the increases, leaving stock prices consolidating this week.

China’s physical copper market will see imported supply increasing with April’s unwrought copper and copper semis rising sharply both on a YoY and MoM basis. In the meantime, the price gap between short-dated copper contracts on SHFE and those with longer maturities continues to expand due to selling pressure on the latter, while spot premiums over the SHFE current-month copper contract prices will narrow with SHFE copper prices bouncing back. In addition, downstream buyers will turn cautious towards new purchases after spot prices rise above RMB 50,000/mt. These factors will also limit upward room for copper prices to grow further.

Aluminum
Last Friday night, SHFE 1407 aluminum contract crept higher to RMB 13,235/mt after starting at RMB 13,135/mt, but then surrendered some gains to finish the night session at RMB 13,145/mt. Trading volumes totaled 20,116 lots, and positions gained 50 lots to 117,014 lots. On Monday, the most active contract dipped to RMB 13,125/mt before rebounding to a session high of RMB 13,215/mt. Finally, the light metal closed up RMB 55/mt or 0.42% at RMB 13,185/mt. Trading volumes totaled 20,388 lots, and positions increased 804 lots to 117,818 lots.

Spot aluminum largely traded at RMB 13,050-13,070/mt in Shanghai, a discount of RMB 20-40/mt over SHFE 1405 aluminum contract, RMB 13,060-13,070/mt in Wuxi, and RMB 13,080-13,090/mt in Hangzhou on Monday. Sellers held back goods at low prices, curbing trading activity. In the afternoon, cargo holders cut offers to RMB 13,040-13,050/mt, but consumption remained sluggish.

SMM surveyed 40 large aluminum smelters and traders in China.

An overwhelming 70% of those market players surveyed are bullish that spot aluminum prices will rise above RMB 13,100/mt this week. First, on the technical side, LME aluminum will move higher to USD 1,760-1,820/mt. Second, the most active SHFE aluminum contract has found strong support and looks set to rise to RMB 13,250-13,400/mt. Third, cargo holders in spot markets will hold offers firm out of bullish sentiment and now that delivery date of SHFE 1405 aluminum contract is approaching.

The remaining 30% see spot aluminum prices little changed around RMB 13,050/mt. First of all, growing inventories will keep LME aluminum prices in check within USD 1,740-1,780/mt. Second, in the absence of major economic data, the most active SHFE aluminum contract will fluctuate in a tight RMB 13,150-13,300/mt range. Third, pressure from downstream producers will prevent spot aluminum prices from rising.

Lead
No transactions were reported for the most active SHFE 1406 lead contract during last Friday’s night session. The Shanghai Composite Index and SHFE copper prices rallied sharply thanks to a series of reforms in China’s capital market unveiled over the weekend. In response, SHFE lead prices crept as high as RMB 14,030/mt after starting at RMB 13,905/mt, and ended up RMB 105/mt, or 0.75%, at RMB 14,015/mt. Traded volumes added 874 lots to 1,236 lots, while positions gained 368 lots to 5,946 lots. Downstream producers were reported to purchase goods in large amounts, prompting a number of investors to liquidate bear positions. SHFE lead prices are expected to test support at the RMB 14,000/mt mark for the short term.

In the Shanghai physical lead market, goods from Chihong Zn & Ge traded Monday between RMB 13,950-13,960/mt in light volumes, a premium of RMB 50-60/mt over the SHFE 1406 lead contract. Hanjiang brand was quoted at RMB 13,930/mt. Supply from Humon and Shuangyan wrapped with iron sheet was sold at RMB 13,900/mt. The leading three brands, Chihong Zn & Ge, Humon and Western Mining, experienced severe supply shortages, while quotations by traders were scarce. Trading activity among downstream producers was limited Monday.

SMM has carried out a survey of 30 industrial participants of late on lead price movements for this week. 60% of the surveyed are bullish, expecting LME lead prices to march to USD 2,220/mt and spot lead prices to rise to RMB 13,850-14,000/mt. A series of economic reports, including US April retail sales growth, PPI, industrial output MoM growth, housing starts, building permits, and the University of Michigan’s consumer sentiment index, are all expected to be released this week. In addition, Q1 GDP reports from France, Germany, and the euro zone, as well as the euro zone March industrial output MoM growth, also will be announced. In China, April industrial output, total retail sales of consumer goods, as well as fixed asset investment, will all be made public. In general, investors expect US retail sales growth, PPI, and housing data to be disappointing, but the consumer sentiment index and economic data from China and the euro zone are forecast to come in positive. Encouraging economic reports should push up base metals prices this week. A recent SMM survey projects that operating rates at lead smelters are likely to fall in May with an increasing number of them planning maintenance. The resultant shortages of lead supply should drive up spot prices. Copper and zinc inventories on the London Metal Exchange and Shanghai Metal Exchange both are declining appreciably, presaging a short squeeze, which will boost lead prices.

33.3% of these industrial participants hold that lead prices will be in range-bond trading this week, with LME lead prices between USD 2,070-2,120/mt and spot lead prices between RMB 13,800-13,950/mt. A series of new reforms in China’s capital market, unveiled over the weekend, will have limited impact on base metals markets due to the absence of concrete measures. Economic reports from the US and European countries will also fail to cheer market with sluggish recovery in these two largest economies, while the lingering Ukraine crisis will continue to stoke uncertainties. Technically, LME lead prices have found support at USD 2,080/mt, but have also encountered upward resistance at several moving averages. In China’s physical lead markets, lead-acid battery producers are curtailing output against the low consumption season and growing finished goods inventories, denting lead ingot demand. This will offset a boost from maintenance at lead smelters.

The remaining 6.7% expect a limited fall in lead prices, believing that LME lead prices will hover around USD 2,080/mt and that spot lead prices will slide to the RMB 13,800-13,900/mt range. They argue that lead supply will remain in surplus this week, a drag on lead prices.

Zinc
SHFE 1407 zinc contract prices opened at RMB 15,090/mt last Friday evening, and then moved between RMB 15,080-15,120/mt, and closing at RMB 15,095/mt, up RMB 15/mt or 0.1%. Trading volumes decreased by 12,262 lots to 4,400 lots, and total positions decreased by 6 lots to 80,028 lots. SHFE 1407 zinc contract prices opened at RMB 15,090/mt on Monday. As the State Council announced a series of reforms last weekend, the Shanghai Composite Index surged by over 2%, supporting SHFE 1407 zinc contract prices to touch RMB 15,200/mt, and closing at RMB 15,205/mt, up RMB 125/mt or 0.83%. Trading volumes increased by 620 lots, to 21,194 lots, and total positions increased by 6,004 lots, to 86,032 lots.

#0 zinc prices were between RMB 15,110-15,150/mt, with spot premiums between RMB 0-20/mt against SHFE 1407 zinc contract prices. #1 zinc prices were between RMB 15,090-15,110/mt. The Shanghai Composite Index and copper prices were firm after the announcement of a series of reforms, boosting SHFE 1407 zinc contract prices to opened at RMB 15,105/mt, and touching RMB 15,150/mt. cargo holders moved goods actively, and firm prices in Tianjin and Guangdong caused some smelters to hold back goods to Shanghai, with supply of some brands limited. Besides, smelters that had just restarted production did not deliver goods to warehouses yet, keeping supply low and cargo holders to hold prices firm. Downstream buying interest was low at high prices, but transactions mainly made among traders improved. Shuangyan branded #0 zinc prices were between RMB 15,130-15,150/mt, with RMB 15,110-15,130/mt for regular brands between RMB 15,110-15,130/mt. Prices of imported #0 zinc were between RMB 15,100-15,120/mt, with RMB 15,070-15,090/mt for Kazakhstan's #1 zinc. SHFE 1407 zinc contract prices surged in the afternoon, pushing up Shuangyan branded #0 zinc prices to RMB 15,180-15,190/mt.

Last week, LME zinc prices consolidated. Will LME zinc prices rebound this week?

SMM surveyed 30 market players and found that 50% are optimistic, believing LME zinc prices will test USD 2,080/mt. China released a series of policies last weekend to boost China’s capital market, which is expected to drive up the A-share market. China’s stock markets jumped by 2% on Monday, and both SHFE copper and zinc prices rose noticeably. The positive news will continue to affect the market. SHFE 1407 zinc contract prices are expected to surge to RMB 15,300/mt, and spot prices will rise to RMB 15,300/mt.

33% are neutral, believing LME zinc prices will level out. April CPI for the euro zone and the US, as well as euro zone Q1 GDP, value-added at China’s scale-efficient industries for April, and Chinese retail sales and fixed assets investments will all be released this week. LME zinc prices should move between USD 2,020-2,060/mt. SHFE 1407 zinc contract prices will move between RMB 15,050-15,250/mt. Spot supply increased recently, but downstream buying interest was low due to firm zinc prices, with spot zinc prices expected to move between RMB 15,100-15,200/mt.

The remaining 17% see LME zinc prices falling to USD 2,000/mt, and SHFE 1407 zinc contract prices will fall to test RMB 15,000/mt. they base their opinion on ongoing Ukraine crisis. Market concerns from sluggish China’s economic data will weigh on base metals prices. Besides, as some smelters restart from maintenance, goods supply will grow, which will drag down zinc prices to RMB 15,000/mt.

Tin
In Shanghai physical tin market, mainstream traded prices were RMB 139,000-140,000/mt on Monday. Supply of goods from Jiangxi increased. Bearish sentiment is growing since the off-season is approaching.

60% of the market players surveyed by SMM are worried that spot tin prices in Shanghai may fall this week. They believe that growing supply of goods from Jiangxi and persistently weak downstream demand will drag prices down to RMB 138,000/mt.

The remaining 40% expect spot tin prices to remain stable. These market players understand that last week’s sharp price decline was largely the result of heavy discounting by some cargo holders. Despite soft demand, sellers in general are expected to hold offers little changed this week.

Nickel
SMM #1 nickel prices were between RMB 147,200-147,400/mt. Jinchuan raised nickel prices by RMB 3,000/mt, to RMB 146,000/mt. Spot transactions were brisk, with Russian nickel traded prices around RMB 145,600/mt. Jinchuan nickel prices were between RMB 145,700-147,400/mt in the morning, and dropped to RMB 146,200/mt in the afternoon.

SMM surveyed 36 market players and found that 72% believe LME nickel prices will maintain upward track, moving between USD 20,200-21,200/mt. Investors are interested in stocks of Jien Nickel, Xinxin Mining Industry Company and Taigang Stainless Steel Company. Unless there is significantly negative news reported, nickel prices will follow upward trend in the near term.

The remaining 28% believe LME nickel prices will hover at high levels between USD 19,500-20,000/mt. Capital has overflowed to the nickel market, but there are some investors cautious or pessimistic toward nickel prices this week.
 

SHFE copper
SHFE aluminum prices
lead prices
zinc prices
tin prices
nickel prices

For queries, please contact Michael Jiang at michaeljiang@smm.cn

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