SHANGHAI, Jan. 20 (SMM) – Heavy selling led to significant fall across base metal markets last week. The World Bank slashed global growth forecast. Meanwhile, expectation for the European Central Bank (ECB)’s further quantitative easing and concerns over a potential Greek exit from the euro zone sent the euro to its lowest in nine years. In the US, the Fed’s Beige Book suggested officials’ concerns that tumbling crude oil may hurt the US recovery. Speculators shifted to gold and US Treasury bonds from stock market, resulting in a four-day losing streak in US shares. The US dollar index hovered near 92.

SMMI.Cu fell by 8.58% last week and SMMI.Zn dropped 3.78%. An influx of imported zinc hit China’s spot zinc markets, with spot prices once down by 4.26%. SMMI.Ni posted a 3.14% decline last week, with LME nickel off by more than 5% and Jinchuan Group cutting prices by RMB 3,500/mt to RMB 107,500/mt. SMMI.Sn fell by 1.36%, outperforming LME tin which registered a nearly 5% decrease. SMMI.Al slipped 2.5% and SMMI.Pb dropped 0.98%. Chinese lead prices were resistant to declines due to tight supply. SMMI declined 5.65% last week.

Copper
SHFE copper followed LME copper down to around RMB 40,000/mt, and hit a low of RMB 39,820/mt, losing nearly 10% for the week. All copper contracts on SHFE fell by the daily limit January 14, with trading volumes and positions soaring. Technical indicators pointed downwards and the market was oversold.

China’s spot copper market experienced large swings last week. Spot copper quoted at discounts of 100-200/mt early last week. Some short sellers expanded discounts to RMB 1,000-1,500/mt for the first time since October 2008 with SHFE copper prices down by the daily limit January 14. SMM expects spot copper at a discount of RMB 100/mt and a RMB 50/mt premium to the SHFE 1502 copper contract.

SHFE copper this week may track LME copper prices and move between RMB 39,800-42,000/mt, but investors should be wary of selling pressures on distant-month contracts.

Aluminum
SHFE 1503 aluminum contract bounced back after a brief dip to RMB 12,445/mt, as bears exited. Positions fell as many as over 20,000. In China’s spot market, sellers were active in the market, but did not go panic after prices slumped. Traders went bargain hunting, while processors showed little interest.

This coming week, the most active SHFE aluminum contract will remain weak between RMB 12,700-12,900/mt because of a lack of market confidence and selling pressures at highs. In China’s spot market, weak downstream demand will prevent prices from trading above SHFE front-month aluminum contract. Spot discounts of RMB 0-50/mt are expected.

Lead
Lead for March delivery on the Shanghai Futures Exchange, the most active contract, followed copper prices down to as low as RMB 11,770/mt early last week, but recouped most losses by last Friday. The price of the SHFE 1503 lead contract was down about 1.5% from the week ending January 9. The most active SHFE 1503 lead contract is more resistant to declines than LME lead and other base metals as lead prices have slipped below production costs and more smelters have joined in production suspension. The price of the most active contract, however, will have little room to rise due to the lack of buying and is expected to hover at RMB 12,000-12,400/mt this week.

Spot lead prices in China were more resistant to declines relative to lead futures prices last week. Lead was in short supply in Shanghai and Guangdong. Spot lead traded at a RMB 400/mt premium to the most active SHFE 1503 lead contract in Shanghai, and a RMB 50-100/mt premium to the SHFE 1501 lead contract in Guangdong. Supplies from Hunan Yuteng Nonferrous Metals that traded at par with the SHFE 1501 lead contract earlier were no longer available in Guangdong last week. Jiyuan Wanyang Smelting Group, Jinli Lead Industry and Shibin Lead Industry in Henan sold aggressively at a RMB 80-100/discount to the average SMM #1 lead price. Some downstream producers began to source raw material from Henan since lead prices there were lower than in Shanghai.Spot lead prices in China should trade at RMB 12,350-12,550/mt this week. Lead smelters will be forced to increase sales due to tightening liquidity towards the end of January. Smelters in Henan are expected to continue to sell actively. In addition, some 7,000 mt of lead has hit the market in Guangdong following the expiration of the SHFE 1501 lead contract. As such, overall supply will grow this week. A few large lead-acid battery producers will ramp up raw material purchases, while most producers will buy under term contracts or as needed against high finished-goods inventories.

Zinc
In Shanghai’s spot market, spot premiums of #0 zinc against SHFE 1503 zinc contract prices only widened to RMB 230-290/mt, up from RMB 230-260/mt, although SHFE zinc prices plunged nearly RMB 600/mt. Smelters held back goods on plummeting zinc prices. But a large inflow of imported zinc and goods releases by arbitrage traders left supply healthy, weighing on domestic zinc prices and leading to slower sales by cargo holders. Downstream buyers replenished goods modestly on cash tightness. Overall transactions improved, though.

Discounts on #0 zinc in Tianjin against Shanghai prices expanded to RMB 70/mt at one point. Zinc prices in Tianjin stayed down due to soft demand. Galvanizers across North China cut or suspended production. Spot zinc supply, however, remained in surplus as sales slowed. Overall transactions muted further.

Discounts on #0 zinc in Guangdong against Shanghai prices narrowed from RMB 120-130/mt to RMB 50-60/mt. Spot prices proved resilient as zinc inventories fell further. Cargo holders held onto their goods and kept prices firm on tight supply. Traders purchased actively, and downstream buyers snapped up goods at lower prices, allowing overall transactions to improve.

In China’s spot markets, smelters should ramp up supply to generate cash. When combined with a large inflow of imported zinc and goods releases by arbitrage traders, supply will increase. However, downstream buying interest will be constrained by liquidity crunch, muting transactions and causing spot premiums against SHFE 1503 zinc contract prices to contract to RMB 200-280/mt this week.

Tin
In Shanghai spot tin market, falling LME tin and slack downstream demand dragged prices down last week. Prices for Yunxi, Jinhai, Yunheng and Yunshan brand tin dropped to RMB 125,500-126,000/mt, due to selloff by some traders and inflow of hedged goods. Nanshan and Jinlong brand tin traded between RMB 125,000-125,500/mt as of last Friday, while Yunxiang and Feidie brand tin traded between RMB 126,000-127,000/mt. Tin of other brands was largely offered between RMB 125,500-127,500/mt. Lower prices lured some downstream buyers in.

Nickel
The average price of SMM #1 refined nickel shed RMB 2,070/mt from a week ago to RMB 107,380/mt last week. Tight supply allowed nickel prices in China to fall slower than LME nickel. Trading was brisk. Nickel for delivery in February 2015 on the Wuxi electronic trading outperforms the contracts behind it, indicating firmness in spot market. Russian nickel was in shortage in China, helping narrow its price spread with Jinchuan nickel to RMB 100/mt from RMB 200/mt. More Russian nickel will flow into Chinese market at the end of the month, which will alleviate its shortfall. Jinchuan Group adjusted nickel prices three times to close the week down RMB 3,500/mt at RMB 107,500/mt.

Nickel supply in China remains tight as Jinchuan Group has cut shipments. Should LME nickel continue to fall, spot nickel prices in domestic market will fall slower than LME nickel, which will allow spot premiums over the most active nickel contract on Wuxi electronic trading to continue rising. Spot nickel prices in domestic market are expected between RMB 106,000-109,000/mt this week.