SHANGHAI, Jun. 24 (SMM) –

Copper
Helped by a surge in LME copper prices, the most active SHFE copper contract started last Friday’s night session at RMB 48,690/mt, and then rose to a high of RMB 49,360/mt. Prices for the contract dipped to RMB 48,670/mt at one point and closed up RMB 740/mt at RMB 49,200/mt. During the night session, trading volumes for the most active contract spiked to 160,000 lots, and positions gained by 4,848 lots. Meanwhile, trading volumes for the SHFE 1409 copper contract rose sharply to 100,000 lots.

On Monday, SHFE copper prices continued to track LME copper prices up to RMB 49,610/mt during the afternoon trading session, and ended up RMB 1,090/mt, or 2.25%, at RMB 49,550/mt. Trading volumes for the most active contract added by 124,000 lots, and positions expanded by 1,650 lots. The rising momentum in SHFE copper prices is expected to continue in the near term due to positive technical indicators.

In the Shanghai physical market, copper was offered Monday at a RMB 600-800/mt premium over the SHFE front-month copper contract. Traded prices were RMB 50,550-50,700/mt for standard-quality copper and RMB 50,700-50,800/mt for high-quality copper. Some hedged copper supply was tied up in the futures market after SHFE copper prices surged by around RMB 1,000/mt. The resultant decreasing supply further pushed up physical premiums. As SHFE copper prices extended gains later, middlemen stayed essentially on the sidelines amid sluggish trading activity. Downstream producers regarded copper prices above RMB 50,000/mt as too much high, and cargo holders increased deliveries at high prices, with physical premiums narrowing slightly. Most market participants continued to hold a wait-and-see attitude on Monday, leaving light transactions.

As SHFE copper prices extended gains during the afternoon trading session, physical premiums failed to rise further, with significantly higher deliveries. Copper was largely quoted at a RMB 400-750/mt premium, and traded at RMB 50,520-50,820/mt. Trading activity was extremely sluggish, and cargo holders showed markedly lower willingness to hold prices firm on Monday.

Half of the market players surveyed by SMM this week expect copper prices will rise, as the upbeat data from China released on Monday led to positive anticipation of economic indicators from Europe and the US. As a result, European and US shares are expected to continue climbing, boosting the market confidence. Besides, the US dollar index has been weak after the Fed said it would keep low interest rate for quite some time, and tended to remain weak this week, leaving support to copper prices.

At the meantime, escalating geopolitical crises in Ukraine and Iraq allowed crude oil and gold prices to surged, offering directions to copper prices.

With respect to market fundamentals, LME copper stocks fell below 160,000 mt, with the cash-to-three-month backwardation in LME copper holding at USD 10/mt. SHFE also reported continued decline in copper inventories. In addition, technical indicators showed positive signs.

In China’s physical markets, supply of imported copper declined as Qingdao’s probe into metal financing resulted in a delay in customs declaration, pushing up spot premiums in China. All the factors above are believed to send LME copper prices to a high of USD 6,950/mt, with SHFE copper prices expected to test RMB 49,800/mt.

The other half of industry insiders predict that copper prices will hold steady at current highs. Despite a series of positive news, these respondents say resistance at higher price levels may limit any rises in copper prices.

Moreover, the CFTC report indicates a 9,740-lot increase in net short positions in Comex copper as of June 9, offering little impetus for copper prices to rise further.

As for liquidity conditions, although the interbank rates remained low at mid-year, enterprises will withdraw capital from stock and futures markets, which may exert a drag on copper prices.

These factors, combined with sagging trades in China’s spot copper market arising from high copper prices, lead 50% of industry participants to believe LME copper prices will remain at USD 6,770-6,870/mt, and SHFE copper prices may move between RMB 48,500-49,500/mt this week.

Aluminum     
Last Friday night, SHFE 1408 aluminum contract slipped to RMB 13,475/mt after starting at RMB 13,535/mt , and finished the night session at RMB 13,505/mt. Trading volumes totaled 35,770 lots, with positions off 2,150 lots to 136,276 lots. On Monday, HSBC’s flash China manufacturing PMI for June rose unexpectedly to 50.8, driving the most active contract up to RMB 13,550/mt. Finally, the light metal closed at RMB 13,510/mt. Trading volumes totaled 25,538 lots, with positions off 7,644 lots to 130,782 lots.

 Spot aluminum largely traded between RMB 13,360-13,370/mt in Shanghai and Wuxi on Monday, a discount of RMB 90-100/mt over SHFE 1407 aluminum contract. Mainstream traded prices were RMB 13,380-13,390/mt in Hangzhou. Sellers held offers firm, while downstream producers held to the sidelines. Traders showed high buying interest. In the afternoon, offers remained stable, with sparse transactions reported.
SMM surveyed 40 large aluminum smelters and traders in China.

75% of the market players surveyed are bullish that spot aluminum prices will rise above RMB 13,400/mt this week for two reasons. First, Chinese Premier Li Keiang’s confidence over the Chinese economy and upbeat flash HSBC’s China manufacturing PMI for June will drive the most active SHFE aluminum contract up to RMB 13,500-13,650/mt. Second, fewer aluminum ingot arriving will allow cargo holders to hold offers firm.

The remaining 25% expect spot aluminum prices to remain stable between RMB 13,340-13,390/mt. On the supply side, shipments into China’s four major trading regions are limited, putting a floor under aluminum prices. On the demand side, rising prices will drive buyers away, preventing aluminum prices from rising.

Lead
The most active SHFE 1408 lead contract swung between RMB 14,085-14,130/mt after starting last Friday’s night session at RMB 14,100/mt, and ended up RMB 40/mt at RMB 14,110/mt. During the night session, trading volumes for the contract totaled 122 lots, and positions added 10 lots to 6,316 lots.

On Monday, SHFE lead prices initially sank to RMB 14,075/mt, but advanced to an intraday high of RMB 14,075/mt during the afternoon trading session before finishing up RMB 60/mt at RMB 14,130/mt. Trading volumes amounted to 1,498 lots, and positions gained 572 lots to 6,878 lots. The most active SHFE 1408 lead contract has found base support at RMB 14,100/mt.

In the Shanghai physical lead market, goods from Chihong Zn & Ge traded Monday at RMB 13,940-13,950/mt, a RMB 150/mt discount over the most active SHFE 1408 lead contract. Small quantities of supply from Chengyuan were offered at RMB 13,950/mt. Traded prices were RMB 13,930/mt for Humon brand and RMB 13,900/mt for Hanjiang and Shuangyan brands. Despite higher selling interest at lead smelters overall, lead supply in the Shanghai market failed to increase significantly at the mid-year point. Meanwhile, traders turned less willing to move goods due to unfavorable physical discounts and extremely weak downstream buying interest. Market insiders expect purchases at downstream producers to become slower at the end of June.
SMM has carried out a survey of 30 market insiders of late on lead price movements for this week. It turns out 63% of the surveyed expect LME lead prices to hold flat at USD 2,120-2,160/mt and physical lead prices at RMB 13,850-14,000/mt.

On the macroeconomic front, base metals markets seem to have digested a boost from the Chinese Premier Li Keqiang’s statements of ensuring a 7.5% GDP growth for 2014. HSBC’s China flash manufacturing PMI for June, however, far exceeded the reading in May and stood above the 50 mark that separates expansion from contraction. Meanwhile, the US PCE price index, as a measurement for the US Federal Reserve in deciding on the timing of an interest rate hike, will be released this week. Nevertheless, impacts from the index on base metals markets remain uncertain. Lead-acid battery consumption has entered a seasonal low-demand period as temperatures in Europe and the US are rising, not boding well for lead fundamentals. Technically, lead prices are likely to trade in ranges with both upward resistance and base support.

In China, production at lead smelters is still restrained by decreasing raw material on account of low lead concentrate output at home and the persistently unfavorable Shanghai/LME lead price ratio. In addition, purchases by downstream producers are also not expected to improve in the last week of June.

The remaining 37% of the respondents are bullish, believing LME lead prices will rise to USD 2,160/mt and physical lead prices will advance to the RMB 13,950-14,050/mt range this week. They hold base metals prices will take heart from a series of Chinese economic stimulus measures as well as steadily recovering European and US economies. On a fundamental point of view, data from the National Bureau of Statistics show China’s refined lead output fell by 6.26% YoY in the first five months. This, combined with positive demand from downstream producers, is forecast to help drive up lead prices this week. 

Zinc
SHFE 1409 zinc contract prices opened at RMB 15,765/mt last Friday evening, then hovered around RMB 15,760/mt, dipping to RMB 15,710/mt and closing at RMB 15,770/mt, up RMB 40/mt or 0.25%. SHFE 1409 zinc contract prices opened at RMB 15,770/mt. HSBC's June PMI for China rose above 50, reflecting a series of easing monetary policies implemented by the State Council begins to show results, and boosting SHFE 1409 zinc contract prices to rise after dipping to RMB 15,705/mt in the morning, and breaking through RMB 15,800/mt. But as a large number of longs left the market at the end of trading, SHFE 1409 zinc contract prices closed at RMB 15,765/mt, up RMB 35/mt or 0.22%. Trading volumes decreased by 16,690 lots, to 53,080 lots, and total positions increased by 3,824 lots, to 126,160 lots.
 
#0 zinc prices were between RMB 15,550-15,610/mt, with spot discounts of RMB 120-100/mt against SHFE 1408 zinc contract prices. #1 zinc prices were between RMB 15,500-15,530/mt. SHFE 1409 zinc contract prices inched down to RMB 15,665/mt after opening, with spot discounts of #0 zinc narrowing slightly to RMB 100/mt, leaving investor interest in operations weak. Shuangyan branded #0 prices were between RMB 15,570-15,580/mt, and RMB 15550-15560/mt for regular brands. SHFE 1409 zinc contract prices touched RMB 15,745/mt later the day, and spot discounts of #0 zinc expanded to RMB 120-100/mt. Smelters were mostly actively selling, but downstream buying interest was low since they do not think zinc prices will continue to rise further and due to month-end cash flow problems, with overall transactions muted. Shuangyan branded #0 zinc prices were RMB 15,570-15,610/mt, and RMB 15,570-15,600/mt for Yuguang branded #0 zinc. AZ branded #0 zinc prices were between RMB 15,550-15,560/mt, and RMB 15,490-15,520/mt for other imported zinc. Baohui and Tongguan brands were between RMB 15,550-15,570/mt. trading for deliverable brand zinc was relatively brisk, but demand for undeliverable goods was weak. SHFE 1408 zinc contract prices climbed to RMB 15,810/mt in the afternoon, but registered #0 zinc prices were around RMB 15,590-15,610/mt.

LME zinc prices soared and touched a 16-month high. Will LME zinc prices continue to rise this week?

According to an SMM survey of 30 market players, 43% believe LME zinc prices are expected to break through USD 2,200/mt. Negative effects from China's probe into financing fraud at the Port of Qingdao have been absorbed by the market, and Chinese Premier Li's statement predicting China's GDP growth for the year would be at least 7.5% also boosted market confidence. Besides, HSBC's June PMI for China rose above 50 for the first time in 2014, reflecting that China's a series of easing monetary policies implemented by the State Council begins to show results. In this context, LME zinc prices will get a boot. SHFE 1409 zinc contract prices will test RMB 16,000/mt, and spot zinc prices will be dragged down by soft demand, with spot discounts expanding to RMB 200/mt.

40% think LME zinc prices will hover between USD 2,150-2,190/mt. LME zinc prices will met resistance at USD 2,200/mt mark, but find support at the 5-day moving average. Spot prices in China will resist both increases and declines due to the onset of low-demand season for zinc, despite falling zinc inventories in Shanghai, Guangdong and Tianjin. SHFE 1409 zinc contract prices will move between RMB 15,600-15,850/mt, with spot discounts between RMB 80-140/mt.

The remaining 17% are pessimistic, believing LME zinc prices will test support from USD 2,140/mt. escalating turmoil in Iraq will cause selling pressure for base metals. Besides, contango of spot zinc against LME three-month zinc contract prices depressed market optimism. Although SHFE zinc prices hit a record high for the year, the onset of low-demand season for zinc and sluggish orders left downstream enterprises cautious, which maintain zinc inventories at extremely low levels. SHFE 1409 zinc contract prices are expected to test support from RMB 15,450/mt, with spot zinc prices down to RMB 15,450/mt.
 
Tin
In Shanghai physical tin market, mainstream traded prices remained stable between RMB 138,000-140,000/mt on Monday. Buyers bought on an as-needed basis out of bearishness and against the off-season.

70% of the market players surveyed by SMM expect spot tin prices in Shanghai to hold stable between RMB 138,000-140,000/mt this week. On the one hand, demand will remain tepid, dampening any chance for a rise in tin prices. On the other hand, smelters will hold back goods at lows, preventing prices from falling.

Another 20% are bearish that spot tin prices in Shanghai may follow LME tin down below RMB 138,000/mt this week.

The remaining 10% believe that spot tin prices in Shanghai will break through RMB 140,000/mt for two reasons. First, HSBC’s flash China manufacturing PMI for June came in positive. Chinese Premier Li Keqiang reaffirmed his confidence that China will be able to accomplish the 7.5% GDP growth target for this year, boosting confidence over demand in the world’s top metals consumer. Second, smelters will refrain from selling at low prices, keeping supply limited.  
 
Nickel  
SMM #1 nickel prices were quoted between RMB 127,000-127,900/mt. Jinchuan lowered nickel prices by RMB 700/mt to RMB 127,800/mt. Spot transactions were made between RMB 126,900-128,100/mt and mainly made among traders.

SMM surveyed 36 market players and found that 14% believe LME nickel prices will rise to USD 18,600-19,200/mt. HSBC's June PMI was upbeat on Premier Li's statement that China's GDP growth for the year will be above 7.5%. Besides, other base metals prices are also strong. But given sluggish demand, any rebound will be limited.

53% believe LME nickel prices will hover between USD 18,400-18,700/mt. Due to the off-season and since end-users have built stocks, demand for nickel will be soft. But support from USD 18,400/mt will be strong due to ongoing Indonesia's ban on the export of unprocessed ore.

33% think LME nickel prices will fall to USD 18,000-18,400/mt this week. High inventories on the LME and soft demand will both weigh on nickel prices. When combined with the exodus of speculative capital from the LME nickel market, prices will face downward pressure.