SHANGHAI, Jun 4 (SMM) – US shares rose last week across the board, boosted by the country’s positive economic data, while European shares also rebounded to the highest level in six years. A strong US dollar and massive technical resistance caused base metals prices to fall. SMMI dropped 0.47% last week against tight liquidity by the end of May, with nickel prices registering the biggest losses. LME nickel prices fell below key moving averages, down 4.07%, while SMMI.Ni crept 4.33% lower. SMMI.Cu also retreated below RMB 50,000/mt, down 0.53%, due largely to sufficient copper supply after cargo holders ramped up deliveries on tight cash flows. SMMI.Zn dropped 0.47%. Aluminum traders and smelters were actively holding prices firm, sending SMMI.Al up sharply 1.2%.
China’s stock markets rallied last week, but domestic copper prices were little boosted. Prices for the August copper contract on SHFE consolidated at RMB 48,700-49,200/mt, but at one point fell to RMB 48,400/mt. The SHFE/LME copper price ratio remained stable. Trading activity was down and holdings in SHFE copper also fell by about 10,000 lots. Trading activity during night session was subdued last week, with volumes holding below 100,000 lots. SMM expects SHFE most active copper contract will track LME copper prices and move this week between RMB 48,300-49,300/mt. Both positions and traded volumes are primed to improve following China’s Dragon Boat Festival holiday.
In China’s physical markets, end-of-month financial strains and increasing supply of imported copper narrowed copper premiums last week, particularly those for high-quality copper. Traders bought goods at lower prices.
Last week, SHFE 1408 aluminum contract prices followed rising LME aluminum prices up above RMB 13,500/mt, but then fell back slightly. Prices for the most active contract rebounded again last Friday to above RMB 13,540/mt as long buyers dominated the market. In China’s physical markets, sharply rising prices turned buyers away. Cargo holders became eager to sell due to tight liquidity at the month’s end, adding to oversupply pressure and sending prices lower. No massive restocking was reported before the Dragon Boat festival holiday in China.
SMM believes LME aluminum prices will fall back to USD 1,820-1,870/mt this week. Positions of the most active SHFE aluminum contract increased this past week, so prices are expected to move higher to between RMB 13,450-13,650/mt. In China’s spot markets, downstream demand will remain stable, but sellers will be in no rush to sell now that liquidity has improved with the start of the new month. This week, spot discounts of RMB 40-90/mt are expected over SHFE 1406 aluminum contracts.
Lead for July delivery, the most active contract, fell back last week to the RMB 13,900-14,000/mt trading range on the Shanghai Futures Exchange. The most active SHFE 1407 lead contract is forecast to swing between RMB 13,900-14,000/mt early this week and track LME lead prices up afterwards.
In China’s physical lead markets last week, there were signs that supply surplus was growing. Traded prices in the Shanghai market fell to 13,950/mt, down from the RMB 14,000/mt mark, with discounts for deliverable brands expanding to RMB 50/mt over the most active SHFE 1407 lead contract. The price decline was attributed largely to added deliveries from Guangxi Chengyuan Mining & Smelting, Nandan Nanfang Nonferrous Metals Smelting, and Anhui Tongguan Nonferrous Metals. Warehouse receipts for goods in the Guangdong market also traded at a wider discount of RMB 30-50/mt over the SHFE front-month lead contract, and traders in this region were actively moving goods. In the Tianjin market, Liaoning Haicheng Chengxin Nonferrous Metal carried out maintenance last week, but Huludao Nonferrous Metals resumed production. As oversupply conditions gradually ease this week, spot lead will trade largely between RMB 13,900-14,000/mt. Lead smelters which were forced to move goods at the end of May to improve cash flows will curtail deliveries this week. Lead-acid battery producers did not build stocks in large amounts ahead of the Dragon Boat Festival holiday and could purchase goods to need after restarting operations.
Last week was also the last trading week of May, so cargo holders were selling goods aggressively to increase cash flows. Downstream buying interest was low, however, leaving overall transactions muted.
Last week, spot zinc prices in Guangdong weakened, with prices of #0 zinc falling from RMB 40/mt below Shanghai prices to as low as RMB 50/mt below Shanghai prices. Growing zinc supply weighed down zinc prices, but downstream enterprises also purchased on an as-needed basis, keeping demand soft.
Last week, Zijin Mining restarted operations after completing maintenance, and will release goods into markets this week. #0 zinc prices in Tianjin were flat with Shanghai prices. Spot supply was tight, with supply of #0 zinc from Zijin Mining limited. Traders were holding prices firm, while downstream enterprises only purchased on an as-needed basis.
This week, spot zinc prices will remain weak. Tight month-end cash flows will improve slightly as the new month starts, and although spot supply is considered sufficient, downstream orders will begin to weaken as the summer season starts. In this scenario, spot zinc prices will weaken, with spot discounts against SHFE 1408 zinc contract prices expanding to RMB 50/mt.
In Shanghai physical tin market, mainstream traded prices were stable between RMB 139,300-140,500/mt in the week ending June 1st. Goods from Yunnan Tin Group were offered higher at RMB 141,000/mt, but such high offers dented buying interest. Small amounts of goods from Jiangxi traded at RMB 139,000/mt. Despite tightening month-end liquidity and soft downstream demand, most suppliers held offers stable.
Last week, the average SMM spot nickel price was RMB 135,560/mt, down RMB 2,630/mt on a weekly basis. However, the average price during May surged by RMB 19,255.59/mt on a monthly basis to hit RMB 136,717.5/mt.
Jinchuan Group raised ex-works prices only once by RMB 500/mt to close the week at RMB 139,000/mt. Tight month-end liquidity deterred traders from buying, but some traders made arbitrage trades between spot and futures markets. Downstream producers showed little buying interest, allowing the price gap between Russian nickel and Jinchuan nickel to expand to RMB 400-500/mt.
SMM expects LME nickel prices to move between USD 18,300-19,000/mt this coming week.