SMM Base Metals Weekly Price Review and Forecast (Jan. 12-16, 2015)

SHANGHAI, Jan. 13 (SMM) – Oil prices across the world fell further last week. Risks reemerged that Greece may exit the euro zone. European and US stocks both trended lower. As such, risk aversion sentiment grew, sending the US dollar index above 92 and helping with a rebound in gold. Base metals prices, in contrast, were under pressure, with the SMMI down 1.16%. Copper and aluminum remained subdued, but nickel and tin recouped earlier losses to bottom out.

LME and SHFE copper was down 2.8% and 2.2%, respectively. A rise in the SHFE/LME copper price ratio led to influxes of imported copper, while the large price gap between SHFE 1501 and 1502 copper contracts prompted cargo holders to sell. The resulting oversupply caused spot copper to trade at a discount across the board. SMMI.Cu recorded the biggest fall of 1.8%. LME aluminum dipped to USD 1,773/mt, down for a seventh straight week, while SHFE aluminum fell over 5% to RMB 12,755/mt. Spot aluminum was noticeably resistant to declines and was quoted at a premium without any sharp increase in supply. SMMI.Al was down 1.64% as downstream producers were unwilling to replenish input inventories in quantity following the New Year holiday.

LME nickel rose by over 4%, aided by buying force. The Jinchuan Group raised Daban nickel price to RMB 111,000/mt. SMMI.Ni was up 1.97%. LME tin surged more than 5% at one stage January 2, but later pulled back. SMM.Sn was up only 0.98% as demand remained weak.

China’s zinc smelters ramped up sales after the New Year holiday, while large volumes of imported zinc flowed to the market, both causing spot premiums to narrow. SMMI.Zn was down 0.1%. SMMI.Pb was unchanged last week as lead smelters sold consistently and downstream producers went bargain-hunting in light volumes. Base metals prices remain depressed by a strengthening US dollar and falling crude oil prices.

Copper
SHFE most active copper contract prices dropped from RMB 45,500/mt to RMB 44,500/mt, shedding 2.2% and with the low-end price at RMB 43,980/mt. Trading volumes for SHFE copper contracts soared nearly 1.75 million lots, while positions grew 46,000. Selling pressures on distant-month contracts strengthened.

Hedged goods flooded into spot copper markets last week after SHFE copper dropped, and imported copper supply grew due to the higher SHFE/LME copper price ratio. Moreover, cargo holders rushed to sell goods before the expiration of SHFE 1501 copper contact as the price spread between 1501 and 1502 copper contracts remained above RMB 400/mt. Therefore, spot copper quoted at discounts to SHFE front-month copper contract. Some traders bought spot goods and sold futures.

Aluminum
SHFE 1503 aluminum contract fell to its lowest since 2014 at RMB 12,755/mt as bearish sentiment gathered steam. However, the most active contract tracked LME aluminum up later in the week. In China’s spot market, falling prices did not trigger panic sell-off since arrivals were limited after the three-day New Year holiday. Many downstream buyers stayed out of the market, waiting for prices to fall further.

The rise in the most active SHFE aluminum contract was driven mainly by withdrawal of bears rather than entry of bulls. As such, the contract should remain weak between RMB 12,700-12,850/mt this coming week.

In China’s spot market, supply and demand will remain weak. Spot aluminum is expected to trade at discounts of RMB 0-20/mt and premiums of RMB 0-30/mt over SHFE front-month aluminum contract.

Lead
Lead for March delivery on the Shanghai Futures Exchange, the most active contract, moved last week at RMB 12,150-12,500/mt, with positions up by over 7,000 from the week ending January 2. Total positions for all SHFE lead contracts were essentially unchanged. The most active SHFE 1503 lead contract is expected to hover at RMB 12,250-12,550/mt this week against a bearish outlook towards lead prices and weakening buying force on the futures market.

Spot lead prices in China traded at RMB 12,450-12,550/mt last week. Smelters have become more willing to sell since last Wednesday. Shanghai’s lead shortage eased as Chihong Zn & Ge, Nanfang, and Chengyuan all reported sales. Wanyang and Jinli, two smelters in Henan, rushed to sell. Low prices in the Guangdong market have redirected smelter sales efforts into other regions. Others, such as those in Yunnan’s Gejiu area have simply shut down. Lead smelter supply in Guangdong thus remains light. Traders have rushed to replenish stocks, while downstream buyers went bargain-hunting early last week, before retreating from the market again. Spot lead prices in China should fluctuate at RMB 12,500-12,700/mt this week. Lead smelters are expected to continue to sell, which should put pressure on spot lead prices. Downstream producers will largely buy only as needed due to liquidity crunch and poor orders.

Zinc
In Shanghai's spot market, spot prices dropped with SHFE zinc prices, with spot premiums against SHFE 1503 zinc contract prices holding at pre-New Yew's Day holiday level between RMB 200-250/mt. Traders returned to the market early last week and replenished stocks at lower prices. Active supply from smelters, combined with increasing influx of imported zinc, led to ample supply. But downstream buyers mainly consume inventories on hand, leaving trading muted.

Discounts on #0 zinc in Tianjin against Shanghai prices widened to RMB 40/mt at one point last week. Tianjin's zinc prices stayed low on sufficient goods availability. Smelters and cargo holders both sold actively. But demand in North China was sluggish. Some small and medium galvanized tube/pipe producers have ceased operation, and large producers also cut output, muting trading and weighing down spot prices.

Discounts on #0 zinc in Guangdong against Shanghai prices narrowed from RMB 170-200/mt two weeks ago to RMB 120-130/mt. Guangdong reported large shipments arriving during the New Year's Day holiday. Smelters sold normally, while cargo holders moved goods actively. But spot prices remained firm on low inventories. Traders purchased modestly, and downstream buyers mainly bought at lower prices, which stood on the sidelines early in the week, leaving overall transactions quiet.

Smelters will continue to sell actively due to cash tightness this week. Cargo holders will also move goods enthusiastically as spot premiums against SHFE spot-month zinc contract prices stay high around RMB 100/mt ahead of delivery date and since traders are expecting narrower spot premiums. Downstream buying interest will be low as some producers have suspended production. In this scenario, spot prices should fall with SHFE zinc prices, with spot premiums between RMB 180-250/mt against SHFE 1503 zinc contract prices, and trading quiet.

Tin
In Shanghai spot tin market, mainstream traded prices rose to RMB 127,500-130,500/mt in the first half of last week as supply fell short of demand. Traders had limited stocks on hand, and smelters sat on their inventories out of bullishness. Sharply rising LME tin prices enticed downstream buyers in domestic market to jump in. This allowed leading smelters to raise offers above RMB 130,000/mt. However, trading activity waned later in the week as LME tin lacked upward momentum. Some smelters were forced to cut offers. Mainstream traded prices dropped to RMB 26,500-129,500/mt last Friday.

Nickel
The average price of SMM #1 refined nickel gained RMB 710/mt from the December 29-31 period to RMB 109,450/mt last week. Downstream restocking activity was brisk early last week, but diminished after prices moved higher. Jinchuan Group became more willing to sell now that prices rebounded. The company adjusted nickel prices three times to close the week up RMB 500/mt at RMB 111,000/mt.

With Jinchuan Group not holding back goods, tight supply will ease. Downstream producers will source only as needed following modest purchases after the three-day New Year holiday. In this scenario, nickel prices in China’s domestic market are expected to fall slightly to RMB 108,000-112,000/mt this week.