SHANGHAI, Aug. 26 (SMM) – US shares continued to stage a strong rebound last week, boosted by a series of positive economic data. The US Federal Reserve’s minutes from its July policy meeting, published last week, revealed that some policy makers held a hawkish stance towards monetary policy, sending the US dollar index up sharply.
Market participants were increasingly expecting the Chinese government to unveil more stimulus measures after HSBC’s China manufacturing PMI for August came in well below expectations and July’s reading. The Shanghai Composite Index hovered at highs, while base metals prices bottomed out.
Physical copper supply decreased last week as middlemen bought in quantity and cargo holders were disinclined to sell, with SMMI.Cu up 3.92% from a week ago. Zinc supply also tightened last week since goods from dominant zinc smelters were limited, while traders were holding prices firm, sending SMMI.Zn up 2.48%. China physical zinc market remained dominated by speculative middlemen.
Aluminum supply in east China continued to tighten, with deliveries in east China little changed from a week earlier. Market participants turned more bullish towards aluminum prices after SHFE and LME aluminum prices both bounced back significantly. In response, SMMI.Al rose 2.46%
SMMI.Pb, however, only inched up 0.89% due to the lack of buying force. SMMI.Ni edged up 0.43%. The rise in LME nickel prices was largely attributable to shorts liquidating positions as other base metals leveled out. Jinchuan Group raised prices only to a small degree since orders at downstream producers failed to improve appreciably. Meanwhile, tin prices in China and overseas hovered largely at low levels. SMMI was up 2.95% last week, with further gains expected for foreseeable future.
SHFE copper prices increased 4% to RMB 50,800/mt last week, from RMB 48,800/mt, outdoing LME copper. The SHFE/LME copper price ratio was around 7.18 as a result. Distant-month SHFE copper contracts climbed above all short-term moving averages and bounced back to the levels seen in early August. Traded volumes of SHFE copper contracts grew by roughly 500,000 lots, and positions increased about 35,000 lots. Activities for night sessions rose markedly in the latter half of the week after copper prices rebounded.
In China’s spot copper markets, traders went bargain hunting on bullish outlook last week. Cargo holders refrained from selling and raised quotations, causing spot supply to fall. Copper premiums thus rose above RMB 400/mt.
Copper prices are expected to rise further this week.
SHFE 1410 aluminum contract fell below RMB 14,000/mt early in the week, but then followed LME aluminum up to a 10-month high of RMB 14,385/mt, with positions on the rise. In China’s physical markets, sellers held back goods at lows, tightening supply and reversing spot discounts in east China into premiums at one point. However, cargo holders rushed to sell after prices rose sharply, while buyers watched from the sidelines. This left supply in surplus and caused spot discounts to expand.
The most active SHFE aluminum contract may face downward correction following sharp gains, with prices expected between RMB 14,200-14,400/mt this coming week. In China’s spot markets, spot discounts are likely to narrow to RMB 20-40/mt over SHFE 1409 aluminum contract since the rise in SHFE aluminum prices will slow down.
The most active SHFE 1410 lead contract underperformed LME lead last week, up only 0.9%, and with positions down by more than 3,000 lots as a result of bulls heading for the exit. Meanwhile, LME lead will find support from the cash-to-three-month backwardation which has reached the loftiest level since the start of the year. Nevertheless, positions are dwindling in the process of price rally, indicating relatively weak buying force. As such, LME lead prices should move largely between USD 2,230-2,280/mt this week.
In China’s physical lead markets, traded prices rose last week by RMB 125/mt, with prices at 14,300-14,500/mt in Shanghai and RMB 14,100-14,250/mt in Guangdong, Tianjin, Henan, Hunan, and Jiangxi. Pressured by month-end tight liquidity and growing inventories, lead smelters rushed to move goods last week. As the price gap between SHFE and physical lead was widening, traders ramped up purchases following active selling. Meanwhile, lead-acid battery producers turned slightly more willing to buy as lead prices steadied.
The most active SHFE 1410 lead contract is expected to fluctuate between RMB 14,500-14,750/mt, weighed down by bulls liquidating positions and weak spot prices.
Spot lead prices are set to trade between RMB 14,350-14,550/mt this week. Lead smelters will become more willing to move goods against tight cash flows and towering finished goods inventories. Traders will be reluctant to buy this week after building large stocks due to the wide price gap between SHFE and physical lead last week. Meanwhile, lead-acid battery producers are expected to buy in an extremely small volume against the backdrop of tight liquidity and low operating rates.
Premiums of #0 zinc against SHFE 1410 zinc contract prices expanded from RMB 0-40/mt two weeks ago to RMB 20-80/mt last week. Goods available were limited due to modest supply from some primary smelters, with the price spreads between different zinc brands expanding slightly. This allowed traders to hold back goods and keep prices firm, which led to high spot premiums and depressed speculative activities. Downstream buyers took a wait-and-see posture given high zinc prices during the slow season, leaving transactions muted.
Zinc prices found some support last Thursday as LME zinc inventories fell 2,650 mt to 735,200 mt. Previously, LME zinc prices have found solid support between USD 2,280-2,300/mt and are expected to regain momentum with this week's macroeconomic indicator releases. Nevertheless, investor caution and the strengthening US dollar index will constrain gains in LME zinc prices. LME zinc should consolidate around USD 2,330/mt this week before pointing towards USD 2,400/mt. SHFE 1410 zinc contract prices should test RMB 17,000/mt as LME zinc prices rise.
In China's spot markets, goods availability will remain tight since supply from smelters is expected to be limited, which will keep cargo holders unwilling to sell. In the meantime, downstream buyers should lack buying interest due to month-end cash flow problem, keeping trading muted. #0 zinc prices will rise with SHFE zinc prices this week, with spot premiums against SHFE 1410 zinc contract prices expected to be RMB 20-80/mt and RMB 0-50/mt against SHFE1411 zinc contract prices.
In Shanghai physical tin market, mainstream traded prices held stable between RMB 140,500-142,000/mt following a slight rise last Monday, but followed LME tin down to RMB 140,000-142,000/mt last Friday. Smelters held back goods at lows, while downstream producers showed little buying interest against falling orders. Sales of leading brand goods were especially poor.
Last week, nickel prices on Wuxi electronic trading fell at first before moving higher. Nickel for delivery in September on the exchange swung wildly, giving traders incentive to buy spot nickel in Shanghai for arbitrage. Jinchuan Group raised prices three times by a total of RMB 200/mt. Supply of Russian nickel remained tight as the impact of metal financing scam in Qingdao lingers. This allowed the price spread between Russian nickel and Jinchuan nickel to shrink to RMB 200/mt at one point. End-user consumption showed signs of recovery.
Nickel prices in domestic spot market are expected between RMB 129,500-132,000/mt this coming week.