SHANGHAI, Aug. 5 (SMM) –
The most active SHFE 1410 copper contract started last Friday’s night session at RMB 50,410/mt, meeting resistance at RMB 50,500/mt, and closed down RMB 180/mt at RMB 50,250/mt. During the night session, trading volumes for the most active contract were around 70,000 lots, and positions were up by 2,836 lots.
On Monday, SHFE copper prices followed LME copper prices down to RMB 50,070/mt, but recouped some losses at the tail of the trading to end down RMB 210/mt, or 0.42%, at RMB 50,220/mt. Trading volumes for the SHFE 1410 copper contract gained by 24,256 lots, and positions added by 6,194 lots.
In the Shanghai physical market, copper was offered Monday at a RMB 0-80/mt discount over the SHFE 1408 copper contract. Traded prices were RMB 50,520-50,620/mt for standard-quality copper and RMB 50,560-50,680/mt for high-quality copper. A slight rebound in SHFE copper prices gave cargo holders incentives to move goods at highs and quote prices at a premium. Nevertheless, the improving Shanghai/LME lead price ratio allowed a large quantity of imported copper to flow in the market, adding to pressure from growing supply. As a result, high-quality copper was sold at a lower premium, and overall copper traded at a discount by the midday due to oversupply. Meanwhile, downstream producers expressed limited buying interest in the first trading day of the week.
As SHFE copper prices fell further during the afternoon trading session, some middlemen entered the market to buy low-priced goods to satisfy demand from orders under long-term contract. Imported copper decreased after the SHFE/LME copper price ratio fell back, helping reduce pressure from rising supply. Physical copper was sold slightly lower at RMB 50,430-50,550/mt on Monday.
17% of industry insiders polled by SMM predict copper prices will rebound this week. The US Commodity Futures Trading Commission continued to report net long positions in Comex copper for the week ending July 29. As for fundamentals, LME copper stocks fell to 146,000 mt as of August 4, and the cash-to-three-month backwardation in LME copper held large at USD 22/mt, lending support to copper prices. In addition, the Shanghai Composite Index rallied with the government’s mild stimulus producing results, which shored up market confidence and is expected to boost futures trading. Thus, some players expect LME copper to stand above USD 7,120/mt and SHFE 1410 copper contract to rise above RMB 50,500/mt.
58% of industry participants believe LME copper prices will remain between USD 7,050-7,120/mt. The US stock prices slumped last week due to mainly to risk events, such as the Argentina default, and showed no sign of rebounding. This, plus uncertainties surrounding the US economic figures due out this week, will limit moving range for copper prices.
Timing for the Fed’s first interest rate hike garnered much attention after the employment data were released last week, and the US dollar index pulled back after rising to 81. But copper prices took limited support therefrom.
In physical markets, supply of imported copper increased after the SHFE/LME copper price ratio improved Monday. Goods holders still quoted high, but consumption was soft in offseason. The see-saw battle between sellers and buyers will leave copper prices stable.
Still, 25% of market players are bearish, expecting LME copper to slip below USD 7,040/mt and SHFE copper to fall below RMB 50,000/mt. These players based their opinions on negative technical indicators and weak demand.
Last Friday night, SHFE 1410 aluminum contract slipped to RMB 13,970/mt after starting at RMB 14,000/mt, and finished the night session at RMB 14,005/mt. Trading volumes totaled 60,200 lots, with positions up 1,374 lots to 159,306 lots.
On Monday, the most active contract inched lower before ending at RMB 13,985/mt. Trading volumes totaled 40,790 lots, with positions down 6 lots to 159,300 lots. The light metal may be vulnerable at the 20-day moving average as bearish sentiment is running rampant.
Spot aluminum largely traded at RMB 13,890-13,900/mt in Shanghai on Monday, a discount of RMB 30-40/mt over SHFE 1408 aluminum contract. Mainstream traded prices were RMB 13,900-13,910/mt in Wuxi and RMB 13,910-13,920/mt in Hangzhou. Despite rising 1408 aluminum contract, sluggish consumption sent prices down RMB 50/mt. In the afternoon, sellers held offers stable, with only a few deals completed.
SMM’s recent survey of 40 aluminum smelters and traders in China reveals the following results:
Only 10% of those surveyed are bullish that spot aluminum prices in China will rise above RMB 13,920/mt this week. They believe that LME aluminum will rebound above USD 2,000/mt on positive technical indicators. Besides, continuously falling aluminum stocks in China will also offer solid support to prices.
Another 60% expect spot aluminum prices to remain stable between RMB 13,860-13,920/mt for three reasons. First, LME aluminum is on track to move in a tight range of USD 1,950-1,990/mt. Second, SHFE 1410 aluminum contract has shown no signs of short selling, with prices expected between RMB 13,950-14,100/mt. Third, sellers in spot markets will hold back goods at lows.
The remaining 30% are bearish that spot aluminum prices might fall below RMB 13,860/mt. Negative technical indicators and disappointing US economic data may drag LME aluminum down below USD 1,950/mt. Besides, SHFE 1410 aluminum contract will face downward correction as bearish sentiment is gathering pace, with prices expected at RMB 13,850-13,950/mt. What’s worse, sellers reporting a pileup of goods will rush to sell, but consumption will remain sluggish, putting downward pressure on spot aluminum prices.
In the Shanghai physical lead market, goods from Chihong Zn & Ge, Nanfang, and Chengyuan initially traded Monday at RMB 14,800/mt, a RMB 120-130/mt discount over the most active SHFE 1410 lead contract. Traded prices for these brands later fell to RMB 14,780/mt, dipping to as low as RMB 14,760/mt. Shuanyan and Humon resources were sold at RMB 14,770/mt and RMB 14,710-14,720/mt, respectively.
Lead smelters expressed higher selling interest after lead prices leveled out, but a relatively small price gap between SHFE lead and physical lead turned traders disinclined to buy. A small number of downstream producers conducted purchases to maintain production, but overall trading activity remained light. Lead-acid battery producers are now largely depleting finished goods inventories since rising costs of raw material squeezed their profit margins.
The most active SHFE 1410 lead contract opened last Friday’s night session at RMB 14,765/mt, and rose to as high as RMB 14,930/mt before ending up RMB 95/mt at RMB 14,875/mt. During the night session, total trading volumes were 68,230 lots, and positions were up by 7,672 lots.
On Monday, SHFE lead prices hovered between RMB 14,900-15,000/mt during the morning trading session, but fell to a trough of RMB 14,765/mt subsequently before closing up RMB 60/mt at RMB 14,840/t. Trading volumes for the SHFE 1410 lead contract totaled 123,992 lots, and positions gained 6,380 lots to 43,524 lots on Monday.
SMM has recently conducted a survey of 30 market insiders on lead price movements for this week. It turns out that 50% of the surveyed are bearish, expecting LME lead prices to test support at USD 2,200/mt and physical lead prices to fall slightly to RMB 14,500-14,600/mt.
The Bank of England and European Central Bank both will this week release their respective interest rate decisions at the latest policy meetings. A series of economic reports, including eurozone July composite PMI, US June factory orders growth, and the ISM non-manufacturing PMI, will all be made public as well. Even if US economic data do come in positive, investors will interpret this as a factor to prompt the US Federal Reserve to raise interest rate sooner than expected. The resultant higher US dollar index is expected to weigh down base metals prices.
Meanwhile, several technical indicators are negative, heaping pressure on base metals prices. In addition, soft demand from downstream producers will also depress prices. Most lead smelters and traders reported that downstream producers cut back on purchases after lead prices surged last week. Some small and medium lead-acid battery producers curtailed or suspended production amid towering finished goods inventories and a spate of promotions, undermining demand for lead ingot. The improved Shanghai/LME lead price ratio also means that previous speculation on lead is about to end this week.
27% of respondents, however, project that LME lead prices will rebound to USD 2,250/mt and physical prices will rise to the RMB 14,800-14,900/mt range this week, reaching as high as RMB 15,000/mt. They hold that there is still upward room for LME lead prices given solid support at the USD 2,200/mt mark and the narrowing cash-to-three-month price spread.
SHFE lead prices have steadied after falling for a third straight trading day, with buying force and positions both rising, which has turned investors bullish.
The remaining 23% believe that lead prices will largely trade in ranges this week.
SHFE 1410 zinc contract prices opened at RMB 16,785/mt last Friday, touching RMB 16,860/mt but then dipping to RMB 16,715/mt before hovering around RMB 16,750/mt, and closing at RMB 16,735/mt, down RMB 65/mt or 0.39%. Trading volumes decreased by 115,000 to 229,900 lots, and total positions increased by 946 to 281,300 lots. SHFE 1410 zinc contract prices opened at RMB 16,735/mt on Monday, and rose to an intraday high of RMB 16,895/mt with rising LME zinc prices. But as LME zinc prices gave back early gains, SHFE 1410 zinc contract prices dropped to RMB 16,800/mt and closed at RMB 16,830/mt, up RMB 30/mt or 0.18%. Trading volumes decreased by 34,778 lots, to 255,802 lots, and total positions decreased by 6,570 lots to 274,736 lots. SHFE 1410 zinc contract prices are expected to face downward pressure and test the 20-day moving average.
#0 zinc prices were between RMB 16,820-16,850/mt, with spot discounts of RMB 0-20/mt against SHFE 1410 zinc contract prices. #1 zinc prices were between RMB 16,780-16,810/mt. SHFE 1410 zinc contract prices surged to RMB 16,895/mt, then fluctuated between RMB 16,830-16,850/mt. Spot zinc prices fluctuated with SHFE zinc prices, with spot discounts between RMB 0-20/mt. Supply was limited as smelters moved goods modestly, leading to cargo holders keeping prices firm. Traders were inactive due to unfavorable spot discounts. Despite the fact that zinc prices rose after falling, some arbitrage traders and downstream buyers were pessimistic, when combined with the high temperatures, downstream demand was soft, leaving trading muted. #0 zinc prices were as low as RMB 16,800/mt in the morning, and Shuangyan branded #0 zinc prices were RMB 16,840-16,850/mt, with RMB 16,830/mt for Yuguang and Jiulong brand zinc. Tongguan brand #0 zinc prices were around RMB 16,800/mt. SHFE 1410 zinc contract prices fell to RMB 16,780/mt in the afternoon, then rallied to RMB 16,820/mt. #0 zinc prices were between RMB 16,790-16,820/mt.
LME zinc prices surged initially before falling last week, down 2%. With regard to zinc price trends this week, SMM surveyed 30 market players and found that 30% are bearish, believing LME zinc prices will fall to USD 2,300/mt, and SHFE 1410 zinc contract prices will drop to RMB 16,500/mt. Worse-than-expected US non-farm employment data depressed market confidence. High temperatures and the slow season will dent end-user orders, when combined with contracting profits from rising raw material prices, enterprises lack interest in building stocks. As such, #0 zinc prices will fall to RMB 16,500/mt.
47% are neutral, see LME zinc prices move between USD 2,320-2,370/mt, and SHEF 1410 hover between RMB 16,680-17,050/mt. The European Central Bank and the Bank of England will announce interest rate decisions, when combined with political turmoil in the Middle East and elsewhere, as well as the new Argentinian default, zinc price volatility will be restricted. Spot discounts of #0 zinc against SHFE 1410 will be RMB 0-30/mt.
23% are bullish, anticipating LME zinc prices will rebound to USD 2,380/mt, and SHFE 1410 zinc contract prices will rise to RMB 17,100/mt. A series of economic data from Europe, US and China scheduled for release this week are mostly optimistic, which will lend a boost to the market. In addition, both official and HSBC’s PMIs for China in July hit a record high for the year, pointing to a recovery in the manufacturing, and small stimulus policies also showed results, both giving support to zinc prices. SHFE 1410 zinc contract prices found solid support from the 20 day moving average, and spot supply is tight now that contango of spot zinc against LME three-month zinc contract prices inverted to backwardation, underpinning zinc prices. spot zinc prices are expected to rise to RMB 17,000/mt.
In Shanghai spot tin market, most deals closed between RMB 140,000-142,000/mt on Monday. The decline in LME tin and anemic domestic demand sent the low-end price down RMB 800/mt. Falling prices enhanced the wait-and-see sentiment, causing trading to come to a virtual standstill.
Market players surveyed by SMM express mixed views over tin price movements in Shanghai this coming week.
45% of those surveyed anticipate little change in spot tin prices in Shanghai. They understand that prices will stabilize following Monday’s sharp losses.
Another 30% are bullish that tin prices in Shanghai will rebound following dramatic declines early in the week. LME tin is on track to stage a technical rally and return to near USD 22,700/mt, lending support to tin prices in China. In addition, most smelters held offers firm even when LME tin fell last week and will continue to do so this week.
The remaining 25% are pessimistic that tin prices in Shanghai will extend losses for two reasons. First, LME tin is likely to suffer more losses on negative technical indicators. Second, demand in China remained slack even after prices tumbled to RMB 140,000-142,000/mt on Monday, meaning that demand is unlikely to pick up anytime soon.
SMM #1 nickel prices were between RMB 128,300-128,900/mt. Spot nickel prices in Shanghai only dropped by RMB 350/mt from last week. Prices of 1408 nickel contracts on the Wuxi electronic trading were firm, moving between RMB 128,000-128,650/mt as of 5:00 pm. Spot prices were between RMB 128,300-128,900/mt in the morning, and slid to RMB 128,000-128,500/mt in the afternoon, with trading mainly made among traders. SMM learned that some stainless steel plants increased purchases for nickel, and will keep an eye on this issue.
With regard to nickel price trends this week, SMM surveyed 36 market players and found that 66% think LME nickel prices will fluctuate between USD 18,200-18,600/mt. Due to limit major economic news, LME nickel prices should level out.
28% are bearish, believing LME nickel prices will fall to move between USD 17,800-18,200/mt. LME nickel inventories had grown by 21.5% from last year’s end to 317,600 mt as of August 1, which will undermine long momentum. When combined with the slow season, nickel prices will lack ability to rise. LME nickel prices are expected to dip to USD 17,800/mt once falling below USD 18,000/mt.
6% believe LME nickel prices will rise to USD 18,700-19,000/mt. They think LME nickel prices will have little room to fall further now that they have dropped to USD 18,300/mt. Besides, spot nickel prices are more resistant to declines compared to LME nickel prices. Coupled with optimistic major economic news and sufficient capital, LME nickel prices look set to rise.