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SMM Base Metals Weekly Price Review and Forecast (Oct. 27-31, 2014)
Oct 28,2014 17:42CST
price review forecast
Upbeat housing data and better-than-expected company earnings allowed the US dollar index and stocks to rise last week.

SHANGHAI, Oct. 28 (SMM) – Upbeat housing data and better-than-expected company earnings allowed the US dollar index and stocks to rise last week. It was reported the European Central Bank (ECB) may buy corporate bonds in secondary market. European stocks rose across the board in response. However, metal prices in China increased only slightly, with the SMMI posting a 0.64% weekly growth.

Improving demand for zinc alloy and limited supply from smelters allowed SMMI.Zn to rise 2.08%, while SMMI.Cu and SMMI.Al rose by merely 0.73% and 0.74%, respectively. SMMI.Pb increased 0.35%. Nickel and tin prices in China continued to slip, with the SMMI.Ni down 2.97%. As LME nickel remained weak at USD 15,000/mt, Jinchuan Group lowered its prices three times last week by a total of RMB 3,200/mt, to RMB 103,300/mt. SMM.Sn lost 0.37%.

Caution prevailed in Chinese market around the Fourth Plenary Session of 18th CPC Central Committee. SHFE copper prices rose from RMB 46,600/mt to RMB 47,500/mt before pulling back to RMB 47,000/mt as Chinese stocks slipped 1.7% and as LME copper fell, presenting a slight increase of 1.6%. The SHFE/LME copper price ratio stayed around 7.08. Trading volumes and holdings in SHFE copper declined noticeably. SMM expects SHFE copper to trade between RMB 46,500-47,750/mt this week.

SMM survey shows the operating rate at China’s copper smelters rose to its highest this year in September, presaging greater oversupply pressure in China’s copper market. At the same time, production in downstream sectors failed to improve. Furthermore, cash-strapped cargo holders will be eager to sell by the end of the month. Thus, spot discounts may be reported from China’s copper market this week.

SHFE 1412 aluminum contract rose early last week before falling back to fluctuate between RMB 13,640-13,800/mt later. Investors closed positions out of bearishness. In China’s spot market, buyers showed little interest out of anticipation that prices would fall. Sellers that had mounting stocks on hand became anxious to sell after SHFE aluminum prices dropped in the second half of the week. This caused spot discounts to enlarge to around RMB 100/mt over SHFE front-month contract.

This coming week, the most active SHFE aluminum contract will remain at current lows of RMB 13,650-13,800/mt due to poor market fundamentals and profit-taking at highs. In China’s physical market, tightening liquidity at the month’s end may cause spot discounts to widen to RMB 100-140/mt over SHFE 1411 aluminum contract.

Lead for December delivery on the Shanghai Futures Exchange, the most active contract, fluctuated between RMB 13,600-13,700/mt last week. Positions for all SHFE lead contracts decreased by some 3,000 lots from the week ending October 18 as investors headed for the exit. SHFE lead will be resistant to declines this week, but will lack impetus to rise, with prices expected at RMB 13,600-13,800/mt.

Traded prices on China’s physical lead markets were mostly in a RMB 13,550-13,700/mt band last week. Lead smelters ramped up sales to increase cash flows, helping ease tight supply, while traders bought actively to replenish inventories. Downstream producers, however, slowed purchases last week after building up some inventories earlier and expecting no further price rises. Spot lead prices should range between RMB 13,600-13,800/mt this week. Lead smelters should continue selling actively in late October. Although some downstream producers may start buying, the market will remain in oversupply this week, likely denting spot prices.

In China's spot markets, spot premiums of #0 zinc against SHFE 1412 zinc contract prices widened from RMB 180-350/mt a week earlier to RMB 240-360/mt last week. Supply was tight early in the week as smelters held back from selling, but supply tightness improved later the week due to goods releases from arbitrage traders and imported zinc inflows. High spot premiums constrained buying interest. Downstream buyers only purchased modestly at lower prices early in the week, then turned cautious, leaving overall trading muted.

Arriving shipments of imported zinc will increase this week due to the improving SHFE/LME zinc price ratio. As cargo holders liquidate inventories to generate cash at month's end, supply of regular brands will be sufficient, excluding Shuangyan and Yuguang. This will cause the price spread to expand. Downstream buying interest, however, will remain low due to liquidity concerns. Spot premiums are expected to narrow to RMB 250-330/mt.

The decline in Shanghai tin prices slowed down last week as LME tin prices came to stabilize. Mainstream traded prices were RMB 134,500-137,500/mt last Friday. Trading activity was brisk in the first half of the week, but the inflow of cheap goods from Yunnan dragged prices down. Trading waned later in the week, but depletion of cheap goods allowed low-end prices to stabilize between RMB 134,500-135,000/mt. Yunxiang and Tianti brand tin traded at RMB 134,500/mt, while Yunxi and Yunheng brand tin traded between RMB 136,500-137,500/mt.

In China’s spot nickel market, the average price for SMM #1 refined nickel tumbled RMB 6,070/mt on a weekly basis to RMB 104,330/mt last week. Increased price volatility on the Wuxi electronic trading and Shanghai spot nickel market enticed traders to enter the market for arbitrage. Only a few downstream producers went bargain hunting. Jinchuan Group cut nickel prices three times by a total of RMB 3,200/mt to close the week at RMB 103,300/mt. Russian nickel traded RMB 100-200/mt below Jinchuan nickel.

This coming week, nickel prices in China’s spot market are expected to fall faster to RMB 102,000-106,500/mt.

SHFE copper prices
SHFE aluminum prices
SHFE lead prices
SHFE zinc prices
Shanghai tin prices
Shanghai nickel prices

For queries, please contact Frank LIU at liuxiaolei@smm.cn

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