SMM Base Metals Weekly Price Review and Forecast (Jun. 9-13, 2014)

SHANGHAI, Jun. 10 (SMM) –

Copper
In China last week, the Shanghai Composite Index lost 0.8% and SHFE copper prices followed LME copper down. The SHFE/LME copper price ratio recovered to 7.12 as SHFE 1408 copper contract prices pared some losses after moving to RMB 48,000/mt. Technical indicators for SHFE copper were also negative. Traded volumes for SHFE copper contracts were down by 450,000 lots last week, with positions falling by over 10,000 lots as well. SHFE copper prices may move lower to RMB 47,000-47,300/mt.

China’s bonded zones were negatively affected after Qingdao launched a probe into loan irregularities involving port stocks. Several foreign banks, including Standard Chartered, have reportedly suspended new metal financing to some customers in China, which may cause imported copper to flood into China’s domestic markets, resulting in significant surpluses. Meanwhile, copper demand should weaken in June. Spot premiums are also likely to narrow before the delivery date, accelerating price declines.

Aluminum
Prices for the most active SHFE aluminum contract continued to underperform LME aluminum prices, falling below the RMB 13,500/mt mark, but finding solid base support. Most investors stayed on the sidelines due to trading suspension for the three-day Dragon Boat Festival holiday and the ongoing probe at Qingdao port. Traded volumes were down sharply last week by 300,000 lots. The most active SHFE aluminum contract is set to test support this week at the 60-day moving average and move largely between RMB 13,300- 13,500/mt, with negative technical indicators.

In China’s physical aluminum markets, cargo holders did not move goods in large amounts even after SHFE aluminum prices moved lower, limiting the downside room for spot aluminum prices. Downstream producers were still reluctant to purchase goods, but some middlemen entered the market at prices below RMB 13,200/mt. Trading in general was quiet. Downstream producers continued to purchase goods only on an as-needed basis following the Dragon Boat Festival holiday early last week, while cargo holders also confronted difficulties in raising prices. Physical aluminum should trade this week at a discount of RMB 20-70/mt over prices for the SHFE front-month aluminum contract despite the arrival of the delivery date.

Lead
Lead for August delivery became the most active contract on the Shanghai Futures Exchange last week, with trading activity slower than that for the SHFE 1406 lead contract. Traded volumes and positions for the SHFE 1406 lead contract were both down sharply due to shorts establishing positions and longs liquidating positions. The most active SHFE 1408 lead contract moved mostly between RMB 14,000-14,100/mt last week, but will likely fall to a RMB 13,900-14,000/mt range this week, with prices weighed down by lower LME lead prices.

In China’s physical lead markets last week, traded prices were largely in the RMB 13,850-13,950/mt range, with supply exceeding demand. A variety of lead brands were available in the Shanghai market, and prices fell sharply in the region since Yunnan Chihong Zinc & Germanium, Nandan Nanfang Nonferrous Metals Smelting, Guangxi Chengyuan Mining & Smelting, and Anhui Tongguan Nonferrous Metals (Chizhou) were all moving goods. In the Guangdong market, prices for Gejiu brand were around RMB 13,800/mt, and warehouse receipts for goods in the market traded at a discount of around RMB 20/mt over the SHFE 1406 lead contract. Although lead supply increased slightly in Henan, Hunan, and Jiangxi provinces, downstream producers expressed little buying interest due to soft orders, growing inventories, as well as tight liquidity. Lead-acid battery producers will confront not only growing finished goods inventories and soft demand in June, but also tight liquidity at the mid-year point. Physical lead is expected to trade this week largely between RMB 13,800-13,900/mt given current oversupply.

Zinc
In China's spot markets, spot discounts of #0 zinc against SHFE 1408 zinc contract prices narrowed from RMB 0-40/mt to RMB 0-20/mt. Some cargo holders were actively selling due to tight mid-year cash flows, increasing market supply. However downstream buying interest was low due to soft end-user demand and tight cash flows.

#0 zinc prices in Guangdong fell from RMB 50/mt below to RMB 60/mt below Shanghai prices. Spot supply in Guangdong was sufficient since most cargo holders were actively selling goods, but downstream buyers were still purchasing on an as-needed basis, which kept prices soft.

Zinc prices in Tianjin fell slightly, with #0 zinc prices on par with Shanghai prices. Goods supply increased as Zijin Mining restarted production following maintenance prior to the Chinese Dragon Boat Festival and since other smelters were actively selling goods. Traders were also active and negotiated on prices, but end-users only purchased on an as-needed basis.

Tin
In Shanghai physical tin market, mainstream traded prices were between RMB 139,000-140,500/mt last week. Goods from Yunnan Tin Group were offered higher at RMB 141,000/mt, but such high offers undermined buying interest. Yunxiang, Nanshan and Jinlong brand tin traded between RMB 139,000-139,500/mt. Most smelters held offers firm. Downstream producers were little interested in buying since the off-season has arrived.

Nickel
Last week, the average price of SMM #1 refined nickel was RMB 133,837.5/mt, down RMB 1,722.5/mt from a week ago and with traded prices ranging between RMB 132,600-135,500/mt.Jinchuan Group adjusted ex-works prices a total of three times over this past week to finally close at RMB 134,000, down RMB 5,000/mt. Spot trading was light, and prices on the Wuxi electronic trading market fluctuated in a narrow range, with a few hedge trades made. Traders generally kept prices firm, leaving few low-priced goods available. Some NPI producers were heard to plan to sell previously-stocked nickel plate due to tight liquidity after being forced to cut output since Indonesia’s export ban on unprocessed ores.

SMM expects LME nickel to range between USD 18,700-19,100/mt this coming week. In China’s domestic spot markets this coming week, nickel prices are expected to trade in the RMB 130,000-135,000/mt range.