SMM Base Metals Weekly Price Review and Forecast (Jul. 28-Aug. 1, 2014)

SHANGHAI, Jul. 29 (SMM) – Although market risk aversion sentiment remained strong amid the unresolved geopolitical crisis in Ukraine last week, buying forces for base metals increased. US stocks extended gains after China’s manufacturing PMI hit a refreshed 18-month high and US major companies’ financial reports came in positive. Inflows of speculation capital sent LME aluminum and zinc prices to new highs. In response, SMMI.Zn, Al, and Pb rose 3.37%, 2.08%, and 1.09%, respectively, from the previous week. SMMI.Cu, however, was up only 0.93%, due to ample supply. LME tin and nickel prices saw a worse showing, while SMMI.Sn edged up 0.9% and SMM. Ni was down 1.08% as a result of soft demand at home.

Copper
Chinese A-shares rose 3.0% last week due to upbeat data from China which indicated China’s pro-growth measures have produced fruits. SHFE 1409 copper contract price tracked LME copper last week, hitting a low of RMB 49,200/mt before bouncing back to RMB 51,000/mt, posting a 2.2% gain. Trading activities in night sessions sagged with shorts leaving the market and watching from the sidelines. Both trading volumes and holdings in SHFE copper contracts declined. SHFE copper prices will move higher to RMB 51,000/mt this week and test a high of RMB 51,500/mt aided by momentum from LME copper and shorts’ profit-booking.

Cargo holders in China’s physical copper market only sold at higher prices last week, with most transactions made at about RMB 50,000/mt. Some traders were seeking cheaper goods, especially those offered at large discounts.

Aluminum
SHFE 1409 aluminum contract’s advance above RMB 14,000/mt sparked a bout of buying, turning SHFE 1410 aluminum contract into the most active one last Tuesday. More investors jumped in after SHFE 1410 aluminum contract punched through RMB 14,000/mt, driving prices up further to RMB 14,250/mt. October aluminum on the SHFE fell back in the second half of the week, but still found strong support at the 5-day moving average.

In China’s physical markets, prices followed SHFE aluminum up. Higher prices, however, scared downstream buyers away. Transactions were concluded largely among traders. More goods flowed in after spot aluminum prices rose above RMB 14,000/mt. This situation was compounded by the retreat in SHFE aluminum, forcing cargo holders to cut offers. Buying interest of traders diminished.

This coming week, the most active SHFE aluminum contract may rise further to RMB 14,000-14,300/mt as investors did not exit and since inventories continued to fall. In China’s spot markets, although some sellers rushed to sell, offers remained firm. Spot aluminum prices look set to challenge resistance at RMB 14,000/mt, with spot discounts expected to shrink to RMB 10-60/mt over SHFE 1408 aluminum contract.

Lead
Total trading volumes and positions both increased nearly 2% last week on the Shanghai Futures Exchange, with lead for October delivery, the most active contract, up by RMB 500/mt. The SHFE 1410 lead contract looks set to maintain a rising momentum this week and trade in a wide range, reaching as high as RMB 15,200 /mt.

In China’s physical lead markets, traded prices rose last week above the RMB 14,000/mt mark. Downstream producers were willing to buy early last week, but later moved out of the market as prices continued to rise, with trading activity slowing down. Meanwhile, lead smelters held back goods from sale, resulting in tight supply in the market. Physical lead prices will range between RMB 14,200-14,500/mt this week. Lead smelters will express higher selling interest at the end of July, while downstream producers will be disinclined to buy due to tight liquidity and after building some raw material previously. Traders are set to buy actively at a discount above RMB 300/mt, helping support prices.

Zinc
In China's spot markets, #0 zinc prices rose in tandem with SHFE zinc prices, with spot discounts narrowing from RMB 100/mt two weeks ago to RMB 0/mt against SHFE 1409 zinc contract prices. Modest supply from smelters and arbitrage traders unwilling to sell led to supply tightness. Nevertheless, downstream buyers were cautious now that zinc prices have risen above RMB 17,000/mt, with trading brisk but mainly made among traders.

Cargo holders will be eager to sell this week to generate cash, while downstream buying interest will be low due to cash flow tightness and shrinking orders. Spot discounts of #0 zinc against SHFE 1410 zinc contract prices will expand to RMB 80-120/mt.

Tin
In Shanghai physical tin market, prices moved higher due to rising LME tin and tight supply in the week ending July 25. Mainstream traded prices rose to RMB 139,500-141,000/mt last Friday. Major smelters raised offers. For example, Yunxi brand tin was offered at RMB 142,000/mt, while Yunheng brand tin was quoted at RMB 142,500/mt. Downstream demand remained weak, though.

Nickel
Last week, prices for SMM #1 refined nickel dropped RMB 2,500/mt. Jinchuan Group was eager to sell and cut nickel prices three times by a total of RMB 1,000/mt. Downstream consumption of spot nickel plate/sheet remained sluggish in the offseason, with transactions largely done by traders. Russian nickel supply was a little bit tight, trading RMB 500-600/mt below Jinchuan nickel.

This coming week, spot nickel prices in Shanghai will be kept in check within RMB 129,000-132,000/mt. Downstream demand will remain lackluster. Deals will be done largely by traders.