SMM Base Metals Weekly Price Review and Forecast (Jun. 23-27, 2014)

SHANGHAI, Jun. 24 (SMM) – Last week, positive news came out of China and the US. China’s central bank announced reserve requirement ratio (RRR) cuts to more banks. Chinese Premier Li Keqiang reaffirmed that China will be able to accomplish the 7.5% growth target for this year. The US Federal Reserve stayed the course on rates during its latest policy meeting, sending the US dollar index down. As a result, base metals prices drifted higher, with SMMI up 1.07% last week. Sellers in spot copper and aluminum markets held offers firm, with SMMI.Cu and SMMI.Al up 1.22% and 1.19%, respectively. Zinc smelters in China cut production for maintenance, pushing SMMI.Zn up by 1.57%. SMMI.Ni climbed 0.25%. SMMI.Sn held flat since supply and demand were both weak.   

Copper
Shanghai Composite Index tumbled by 2.5% last week following the resumption of IPO listings. SHFE 1408 copper contract prices moved between RMB 47,700-48,400/mt, but also met resistance at the 20-day moving average. Traded volumes were down by over 1 million lots, while positions fell by more than 30,000 lots. SHFE copper met strong resistance last week, but rallied on Thursday to rise to RMB 48,400/mt, which also helped improve the SHFE/LME copper price ratio. SHFE most active copper contract prices will track LME copper price trends and challenge RMB 48,800-49,000/mt, with support expected to form at RMB 47,300-47,500/mt.

In China’s physical copper markets, consumption will be dampened by tight financing and since many enterprises will focus on account settlements in June. Large traders will continue to keep prices firm, and increases in spot premiums will be limited in the latter half of the week as financial pressure grows. Speculative activity is expected to remain brisk. 

Aluminum
Last week, SHFE 1408 aluminum contract prices fluctuated within a RMB 13,380-13,510/mt band. In China’s physical markets, cargo holders held offers firm, keeping spot discounts around RMB 100/mt over SHFE 1407 aluminum contracts. Some downstream producers showed buying interest, while traders were more willing to buy.

This coming week, prices for the most active SHFE aluminum contracts should come under selling pressure at highs after rising to RMB 13,575/mt last Friday, with prices expected between RMB 13,400-13,650/mt. In China’s spot markets, sellers will hold back goods at lows and a wait-and-see sentiment among downstream producers will fade, allowing spot discounts to narrow to RMB 70-120/mt over SHFE 1407 aluminum contracts.
 
Lead
Prices for the most active SHFE 1408 lead contract hovered mostly below the RMB 14,000/mt mark before last Thursday, but rose above RMB 14,050/mt on Friday. SHFE lead prices are set to move this week largely between RMB 14,000-14,100/mt, and are likely to swing in a wider range.
 

In the Shanghai physical lead market last week, traded prices were largely in the RMB 13,800-13,870/mt range ahead of Thursday, but crept up above RMB 13,900/mt on Friday, boosted by higher LME and SHFE lead prices. Gejiu branded lead in the Guangdong market traded at around RMB 13,800/mt, with other leading brands sold between RMB 13,850-13,900/mt. Prices for Lingbao and Anyang brands in the Henan market were slightly lower at RMB 13,750-13,800/mt, and lead prices in the Jiyuan region were RMB 13,850-13,900/mt. Overall trading activity last week was sluggish. Physical lead prices will meet strong resistance as they move higher, and will fluctuate this week mostly between RMB 13,850-14,000/mt. Lead smelters are likely to increase deliveries to raise cash at the mid-year point. Downstream producers could show little buying interest, given slowing production, tight liquidity, and ample finished goods inventories.

Zinc
In China's spot markets, spot discounts of mainstream registered #0 zinc brands remained between RMB 50-90/mt against SHFE 1408 zinc contract prices. After SHFE zinc prices jumped on Friday, spot discounts expanded further to RMB 100-140/mt. Goods arriving were limited since some smelters had conducted maintenance, but imported zinc supply was ample. Volatile zinc prices stimulated traders to sell aggressively, but downstream buying interest was low due to high zinc prices, environmental protection inspections, weak downstream orders, and tight cash flows. As a result, overall transactions were muted.

Last week, zinc price gains in Tianjin were not as strong as those in Shanghai market, with #0 zinc prices in Tianjin turning from RMB 40/mt below Shanghai prices early in the week to RMB 80/mt below. The price spread narrowed from the previous week, but was still greater than the average of RMB 40/mt since May. Supply from Zijin Mining was limited, but other cargo holders sold goods actively due to continuously rising zinc prices. Downstream buying interest, however, was weak due to sluggish downstream orders and environmental protection inspections in Hebei province, which weighed on zinc prices and left transactions muted.

Zinc prices in Guangdong continued to move higher last week, but with the price spread between Guangdong and Shanghai remaining between RMB 40-80/mt. Inventories in Guangdong grew due to sufficient supply and the inflow of imported zinc. Some smelters were actively selling goods due to rising zinc prices, and sharp zinc price fluctuations gave incentives to traders, but downstream buyers mainly took a wait-and-see attitude, leaving transactions mainly among traders.

On the spot side, goods arriving will be limited due to ongoing maintenance at producers of Yuguang and Qinxin branded zinc, but production restarts at producers of Shuangyan branded zinc, combined with the inflow of imported zinc, will keep spot supply sufficient. Spot demand will unlikely improve due to the onset of low-demand season for zinc and high zinc prices, with spot discounts of #0 zinc against SHFE 1409 zinc contract prices expanding to RMB 200/mt.

Tin
In Shanghai physical tin market, mainstream traded prices were stable between RMB 138,000-140,000/mt last week. Downstream consumption was sluggish in the off-season. However, prices resisted declines since suppliers refrained from selling at lower prices.

Nickel
Last week, the average SMM #1 spot nickel price was RMB 128,160/mt, down RMB 1,490/mt from the previous week. Jinchuan Group raised ex-works prices a total of four times by RMB 700/mt to close the week at RMB 128,500/mt. Traders went bargain hunting, with traded prices reported between RMB 126,000-128,300/mt. Downstream producers took a wait-and-see stance, with no plans of buying raw materials in significant amounts.

Volatile nickel prices on the Wuxi Electronic Trading will create arbitrage opportunities between spot and futures markets. Demand will remain weak since June is normally a low-demand month for nickel consumption. In this context, spot nickel prices are expected to move between RMB 127,000-132,000/mt this week.