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SMM Base Metals Weekly Price Review and Forecast (Jul. 14-18, 2014)
Jul 15,2014 16:52CST
price review forecast
SHFE copper prices underperformed LME copper and moved between RMB 50,500-51,500/mt last week, losing 1.7%.

SHANGHAI, Jul. 15 (SMM) –

SHFE copper prices underperformed LME copper and moved between RMB 50,500-51,500/mt last week, losing 1.7%. The SHFE/LME copper price ratio fell to 7.1 as a result. Traded volumes for the most active SHFE copper contract generally held above 200,000 lots during night session, down from the previous level. The most active SHFE copper contract is expected to trade at RMB 50,400-51,500/mt this week.

The price gap between SHFE 1407 and 1408 copper contracts narrowed from RMB 800/mt to RMB 300/mt last week. Cargo holders in spot markets attempted to raise quotations, but downstream buyers refrained from buying. Spot copper was mainly offered between a discount of RMB 150/mt to a premium of RMB 30/mt to SHFE 1407 copper contract prices. Supply of imported copper increased with price spread between different brands widening. Some middlemen purchased spot goods at lows while selling futures.
Last week, SHFE 1409 aluminum contract moved higher before surrendering gains due to profit-taking, a sign that investors see no sustainable price rise in the near term. The most active contract did find support at medium- and long-term moving averages, though. In China's physical markets, goods did not arrive in large quantity and inventories continued to fall, but cargo holders did not hold offers firm out of bearishness. Besides, buyers held to the sidelines, also forcing sellers to cut offers. 

This coming week, poor market sentiment will keep the most active SHFE aluminum contract within a RMB 13,550-13,750/mt range. In China's spot markets, consumption will remain sluggish in the offseason, with spot discounts of RMB 40-90/mt expected over SHFE front-month aluminum contract.
Spot discounts on #0 zinc against the SHFE 1409 zinc contract price narrowed from RMB 130-180/mt to RMB 100/mt last week. New shipment arrivals were limited by maintenance at smelters and transportation disruptions. Some arbitrage traders sold actively as spot discounts narrowed, raising the number of zinc brands available. In the meantime, some optimistic traders were buying aggressively. Downstream buyers, though, remained in a wait-and-see posture. Trading was brisk, but mostly among traders.

In China's spot markets, high zinc prices will encourage smelters to increase sales, but some brands will remain in short supply due to maintenance. Traders are expected to enter the market as big price volatility proffers them trading opportunity, but downstream buying interest will be weak since high temperatures are negatively affecting operating rate to some extent Nevertheless, brisk orders from the shipbuilding, galvanized steel tower and power sector will give support to spot zinc consumption. Spot discounts against SHFE 1409 zinc contract prices are expected to narrow to RMB 50-150/mt.
The most active SHFE 1408 lead contract last week tracked LME lead prices down after rallying to a high, hovering between several major moving averages, with trading volumes and positions both down. Despite positive technical indicators, the most active SHFE 1408 lead contract is likely to fall back for the near term and is set to fluctuate largely between RMB 14,000-14,200/mt this week.

In China's physical lead markets, traded prices last week were largely in the RMB 13,800-13,950/mt range, with trading activity better than the previous week. Physical lead prices in Shanghai and Guangdong were high due to tight supply. Lead smelters in the two regions were little interested in selling. The unfavorable spread between futures and physical prices also meant that little material flowed into either market under arbitrage. Supply in lead ingot production bases, Henan, Hunan, and Jiangxi, however, were ample last week. Trading activity in China's physical lead markets should continue to pick up this week, with traded prices mostly at RMB 13,850-14,000/mt. Lead smelters will move goods at firm prices on bullish sentiment, helping support prices. Downstream producers began showing buying interest last week since they considered downside room in prices limited. However, only those large companies will build raw material stocks due to the severe cash squeeze, and this condition should continue through this week.
In Shanghai physical tin market, prices followed LME tin down in the week ending July 11. Mainstream traded prices fell to RMB 138,500-140,000/mt last Friday, a drop of RMB 500/mt from early last week. Falling LME tin fueled bearish sentiment among downstream producers in China, pushing prices down. However, limited supply prevented prices from dropping sharply.
Last week, Last week, the average SMM #1 spot nickel price was RMB 130,980/mt, down RMB 460/mt on a weekly basis. Jinchuan Group cut ex-works prices four times by a total of RMB 3,000/mt to close the week at RMB 132,000/mt. Traders held mixed views over the market outlook, with trading being modest. A few traders had trouble in obtaining L/Cs due to the metal financing fraud in Qingdao, constraining imports of Russian nickel. The price spread between Jinchuan nickel and Russian nickel held between RMB 500-600/mt.     

This coming week, spot nickel prices are expected between RMB 130,000-134,000/mt. July is a low-demand month for stainless steel industry, so transactions will be made largely by traders. Downstream producers will exhibit low interest.


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