SHANGHAI, Jun 4 (SMM) –

Copper
The night session was suspended last Friday due to the Dragon Boat Festival holiday. SHFE copper prices started significantly higher at RMB 48,730/mt on Tuesday, aided by a rebound in LME copper prices, but later fell after briefly touching a high of RMB 48,890/mt. The red metal hovered narrowly around RMB 48,650/mt during the afternoon trading session and closed up RMB 230/mt, or 0.47%, at RMB 48,690/mt. Traded volumes for the most active SHFE copper contract decreased 190,000 lots, while positions shed 2,672 lots on Tuesday.

In the Shanghai physical market, copper was quoted Tuesday at a RMB 260-380/mt premium over the SHFE front-month copper contract. Traded prices were RMB 50,000-50,050/mt for standard-quality copper and RMB 50,060-50,160/mt for high-quality copper. Proportions of imported copper fell in the market after the northeastern Chinese port of Qingdao halted shipments of aluminum and copper due to an investigation by authorities. Some cargo holders of imported copper rushed to generate cash by cutting premiums slightly, while speculators expressed lower buying interest. Meanwhile, downstream producers largely stayed on the sidelines after physical copper prices rebounded above RMB 50,000/mt on Tuesday.

After SHFE copper prices stopped declining during the afternoon trading session, some speculators entered the market to purchase goods, with high-quality copper brands gaining their favor. Meanwhile, downstream producers took the buy-the-dips strategy, and standard-quality copper supply decreased. Physical copper was largely quoted at a RMB 300-400/mt premium and traded between RMB 50,030-50,200/mt.

SMM’s latest survey showed 24% of industry insiders remain bullish towards this week’s copper prices, saying that LME copper prices may rise above USD 6,950/mt, and SHFE copper prices will stand above RMB 49,000/mt. Optimism about non-farm payroll figures and jobless data, as well as positive manufacturing PMI in China are behind their forecast.

In addition, although market showed lukewarm reaction to PBOC’s statement about RRR cuts for some qualified rural banks, the news is believed to benefit copper market for the long run.

The CFTC report indicated that speculators cut net short positions in copper to 5,593 lots for the week ending May 20. LME copper stocks continued to fall below 170,000 mt, while the ratio of canceled warehouse receipts remained above 40%, indicating limited physical copper supply. The combination of these factors led some industry participants to believe copper prices will rise this week.

52% of the respondents expect copper prices to move sideways this week, partly considering the mixed technical indicators. As to macroeconomic front, despite favorable news about China’s monetary policies and improving manufacturing PMI in May, China’s stock market failed to stage a strong rally on June’s first trading day, leaving limited support to copper prices.

In China’s money market, interest rate moved lower on Tuesday after the news about RRR cuts for selected banks. Besides, RMB 23 billion of 3-year Central Bank Bills are due to mature today, and the PBOC suspended open market operation yesterday. The resultant ample money supply may boost dip-buying, but selling pressures will also exist, trapping copper prices in the current trading band.

In China’s physical copper market, buyers will hold back after spot prices rise above RMB 50,000/mt. In this context, most market players surveyed expect LME copper prices to move between USD 6,850-6,950/mt and SHFE copper prices to consolidate within the RMB 48,200-49,200/mt range.

The remaining 24% of market players, however, are pessimistic. As the euro zone manufacturing grew more slowly than expected in May and anticipation rose that the ECB would introduce further stimulus at this week’s policy meeting, the euro weakened, driving a rebound in the US dollar index, which will weigh down commodities.

At the meant time, reports on the suspension of shipments at China’s Qingdao port caused Yangshan copper premiums to fall by USD 17.5/mt on Tuesday, the biggest single-day loss since March 2013. The resultant panic and concerns over copper financing deals will leave cargo holders in a rush to sell, pushing up supply in copper market, and in turn dragging down copper prices. Thus, some industry insiders predict LME copper prices will fall to USD 6,850/mt and SHFE copper prices will test support at RMB 48,200/mt.

Aluminum
The night session was suspended last Friday due to the Dragon Boat Festival holiday. The most active SHFE aluminum contract initially advanced to RMB 13,545/mt Tuesday, but later sank to RMB 13,450/mt before finishing up RMB 15/mt at RMB 13,480/mt. Traded volumes gained 28,976 lots to 135,078 lots, while positions shed 604 lots to 135,078 lots on Tuesday. SHFE aluminum prices should fluctuate around the RMB 13,500/mt mark for the short term with significant upward resistance.

Spot aluminum traded mostly between RMB 13,310-13,320/mt in Shanghai, a discount of RMB 50-60/mt over the SHFE 1406 aluminum contract. Mainstream traded prices were RMB 13,300-13,310/mt Wuxi and RMB 13,350-13,360/mt in Hangzhou. Cargo holders held prices firm with low intention of raising cash, but downstream producers built stocks in light volumes on uncertainties over aluminum price movements. Market participants largely stayed on the sidelines on Tuesday, causing thin transactions. Cargo holders held prices firm at RMB 13,310/mt in the afternoon, but few purchases were reported.

SMM’s survey of 48 aluminum enterprises and traders showed that 33% of them expect spot aluminum prices in China to rise to RMB 13,320-13,360/mt this week for three major reasons.

First, positive expectation for the US nonfarm payroll data will drive LME aluminum prices to rise further to USD 1,850-1,900/mt.

Second, ample money supply for long investors in Chinese market may allow prices for the most active SHFE aluminum contract to test a high of RMB 13,660/mt.

Third, an easing of financial pressure at the beginning of the month will enable cargo holders to quote higher prices. Besides, spot discounts against the SHFE front-month aluminum contract prices will narrow before the delivery date.

25% of enterprises predict that spot aluminum prices will fall below RMB 13,250-13,280/mt this week for the followings:

First, LME aluminum prices may come under great pressure and fall to USD 1,810-1,850/mt after two failed attempts to break above USD 1,860/mt.

Second, SHFE 1408 aluminum contract prices will also face downside risk given a lack of any encouraging news and move between RMB 13,320-13,450/mt.

Third, softening consumption will drag spot prices below RMB 13,280/mt.

Finally, it was reported that Qingdao’s authorities were conducting investigation into financing trades, which will cause foreign banks to limit loans issued to Chinese commodity traders, in turn weighing down aluminum market.

42% of enterprises surveyed believe prices in China’s physical aluminum market will hold steady at RMB 13,280-13,320/mt, and here are the three major reasons behind their projection:

First, base metals on London Metal Exchange mostly dropped, which will negatively affect aluminum, leaving the prices between USD 1,820-1,870/mt.

Second, SHFE most active aluminum contract prices met strong resistance, but support at lower levels was also solid, meaning prices may consolidate between RMB 13,400-13,520/mt this week.

Third, although cargo holders in physical markets held quotations firm, buyers refused to purchase at highs.

Lead
The most active SHFE 1407 lead contract started RMB 60/mt higher at RMB 14,045/mt Tuesday, boosted by a USD 30/mt rise in LME lead prices last Friday. LME lead prices fell afterwards, while HSBC’s China final manufacturing PMI for May was reported at 49.4, missing April’s figure and the estimated 49.7. In response, SHFE lead prices dipped as low as RMB 13,970/mt, but rebounded to 13,995/mt during the afternoon trading session before ending up RMB 15/mt at RMB 14,000/mt. Traded volumes totaled 504 lots, while positions lost 280 lots to 4,748 lots.

In China’s physical lead market, traded prices for Chihong Zn & Ge brand initially were RMB 13,950-13,960/mt, a discount of around RMB 20/mt over the most active SHFE 1407 lead contract, but later fell to RMB 13,930/mt on Tuesday. Goods from Nanfang brand were barely traded due to high quotes. Traded prices were RMB 13,930/mt for Humon resources and RMB 13,910-13,920/mt for Shuangyan and Hanjiang supply. Lead smelters continued to move goods normally to alleviate pressure from bank loans repayment, leaving relatively ample supply in the market. Nonetheless, lead-acid battery producers expressed rather low willingness to build stocks due to poor orders, tight liquidity, as well as mounting inventories.

Recently, SMM has conducted a survey of 30 industry insiders on lead price movements for the first week immediately after the Dragon Boat Festival holiday. It turns out that 57% of the surveyed expect LME lead prices to hold steady at USD 2,120/mt and spot lead prices at RMB 13,900-14,000/mt. On the macro front, a series of mini-stimulus policies unveiled by the Chinese government will help boost base metals markets, while declining home prices, fixed asset investment, as well as tight liquidity in July could hurt investor sentiment.

Meanwhile, positive expectations for US economic data will not give a significant boost to the markets. The European Central Bank is expected to launch accommodative monetary policy at this week’s interest rate meeting, which, however, will have limited impact due to the declining euro for a straight month. LME present lead inventories and cash-to-three-month contango also provide no clear guidance. China’s lead smelters should increase deliveries slightly this week, pressured by raw material shortages and tight cash flow. With the approach of the high consumption period in summer, output at lead-acid battery producers looks set to grow progressively.

33% of respondents believe that LME lead prices will fall to USD 2,100/mt and spot lead prices will drop to RMB 13,850-13,950/mt this week. They argue that the high consumption season for base metals has already disappeared and that the price rally starting from March was due mostly to speculation. In addition, lead smelters in maintenance cycles will gradually restart operations in June, helping inflate market supply, while current lead consumption is also soft, presaging a fall in lead prices.

The remaining 10%, however, hold an optimistic stance on lead prices this week, with LME lead prices up to USD 2,150/mt and spot lead prices up to RMB 13,900-14,050/mt. They hold that China’s mini-stimulus programs are beneficial for base metals markets and that US ADP jobs report and nonfarm payrolls both will come in encouraging this week. In addition, the European Central Bank is also more than expected to unveil easy monetary policy. In China’s physical lead markets, lead ingot supply will be unlikely to increase by large amounts due to shortages of lead concentrate. Lead-acid battery producers should gradually accelerate production as the brisk consumption season draws near.

Zinc
The SHFE market remained closed on Monday evening due to the Chinese Dragon Boat Festival. SHFE 1408 zinc contract prices opened at RMB 15,200/mt on Tuesday, then fell to RMB 15,190/mt. in the afternoon, LME zinc prices edged up, but SHFE 1408 zinc contract prices lacked impetus to rise, and closing at RMB 15,185/mt, up RMB 50/mt or 0.33%. Trading volumes decreased by 496 lots, to 12,184 lots, and total positions increased by 2,498 lots, to 71,208 lots.

#0 zinc prices were between RMB 15,160-15,190/mt, with spot prices ranging from RMB 20/mt below to RMB 10/mt against SHFE 1408 zinc contract prices. #1 zinc prices were between RMB 15,120-15,130/mt. SHFE zinc prices dropped from high levels, weighing down spot zinc prices. With cash flow tightness, market players are actively moving goods, and downstream enterprises control inventories, leaving transactions muted. Shuangyan branded #0 zinc were between RMB 15,180-15,190/mt, with RMB 15,160-15,170/mt for Yuguang, Qinxin and Jiulong branded #0 zinc. Tianlu and AZ branded #0 zinc prices were RMB 15,140-15,150/mt. SHFE 1408 zinc contract prices consolidated in the afternoon, with #0 zinc prices between RMB 15,160-15,190/mt.

LME zinc prices leveled out last week. With regard to zinc price trends this week, SMM undertook a survey of 30 market players and found that 44% believe LME zinc prices will consolidate this week. China's official PMI in May continued to rebound for three consecutive months, boosting base metals prices. But euro zone PMI dropped to a six-month low, with Germany's May PMI falling for a seven-month low. The European Central Bank's (ECB) interest rates decision, as well as US May non-farm employment figures will be the focus of markets. The euro zone inflation rate for April was 0.7%, and was well below the target 2%. This news caused market expectations to grow that the ECB would lower interest rates, but will negatively affect the euro, push up the US dollar index, and weigh down base metals prices. LME zinc prices are expected to move between USD 2,050-2,090/mt, and SHFE 1408 zinc contract prices will hover between RMB 15,090-15,250/mt, with spot prices expected to be RMB 15,090-15,210/mt.

43% are pessimistic, thinking LME zinc prices will fall to USD 2,030/mt, and SHFE 1408 zinc contract prices will drop to RMB 15,050/mt. Traders will move goods to generate cash due to growing cash flow tightness, and smelters will also deplete stocks to complete mid-year target, both causing supply to increase. But orders will weaken as the summer set in, with spot zinc prices expected to fall to RMB 15,000/mt.

13% are bullish toward zinc prices. The State Council announced last Friday it will lower deposit reserve ratio for rural, mini and small enterprises as well as financing institutions that meet requirements. A series of slightly stimulus policies will curb economy from sliding. This was interpreted by improving official and HSBC's PMI for China. Besides, LME and SHFE zinc inventories continued to fall. With an exodus of shorts on the LME and spot discounts turning to premiums of USD 5/mt, LME zinc prices will find support, soaring above USD 2,100/mt, and SHFE 1408 zinc contract prices will rise to RMB 15,300/mt, with spot prices up to RMB 15,250/mt.

Tin
Spot tin prices in Shanghai were between RMB 139,000-140,500/mt, with RMB 139000/mt for Yunxiang, Nanshan and Jinlong branded tin. Due to sluggish demand, transactions were quiet. Smelters mostly held goods, leaving supply limited, while downstream consumption did not improve due to the low-demand season for tin.

SMM undertook a survey with regard to tin price trends this week and found that 60% believe spot tin prices will fall to RMB 138,500/mt, and LME tin prices will consolidate. Falling spot tin prices on Tuesday reflected soft demand. Besides, smelters will increase goods supply this week, which will weigh on tin prices.

40% believe tin prices will level out to move between RMB 139,000-141,000/mt. they think tin prices will not fall further given stable LME tin prices and market sentiment. Besides, smelters will not move goods in large amount as cash flow tightness eased at the beginning of the month, while downstream buying interest will improve, which will help stabilize tin prices.

Nickel
SMM #1 nickel prices were quoted between RMB 135,100-135,500/mt. Jinchuan lowered nickel prices by RMB 2,000/mt to RMB 137,000/mt. Transactions were muted as traders lacked arbitrage opportunities on the Wuxi electronic trading, and due to soft demand from tight cash flows.

SMM surveyed 36 market players and found that 22% believe LME nickel prices will edge up to USD 19,700-20,200/mt. Nickel ore and high-grade NPI supply is tight due to ongoing Indonesian ban on the export of unprocessed ore, so steel plants generally use low-grade nickel ore with nickel to produce #304 plate, which will drive nickel consumption and boost nickel prices.

50% market players believe LME nickel prices will hover between USD 18,800-19,600/mt. total positions did not surge or fall sharply, with nickel prices expected to resist both increases and declines. When combined with market caution before the release of European Central Bank’s interest rate decision and US non-farm employment data, nickel prices should rise initially before falling this week.

28% think LME nickel prices will fall to USD 18,300-18,800/mt. Cash flow tightness, combined with inspections on finance-driven iron ore imports, downstream demand will not improve. In this context, nickel prices will lack support.