SMM Base Metals Weekly Price Review and Forecast (Mar. 30-Apr. 3, 2015)

SHANGHAI, Mar. 31 (SMM) – Trading activity in base metals picked up significantly in the week ending March 27. The US dollar lost ground due to the US Fed’s dovish tone. ECB president’s optimism over European economy drove a rally in the euro. Crude oil and gold soared on political turmoil in the Middle East. Negative HSBC flash China manufacturing PMI for March raised hopes for stimulus, boosting Chinese A-share. In this scenario, SMMI gained 1.99% last week, with copper leading gains. SMMI.Cu rose as much as 3.24%. Growing optimism left trading in copper market brisk. Rising SHFE zinc lured speculators in, allowing SMMI.Zn to increase 1.02%. Lead prices in China followed LME lead up, with SMMI.Pb climbing 0.81%. Spot discounts in domestic spot aluminum market narrowed, with SMMI.Al up 0.22%. SMMI.Ni closed the week flat. Falling tin prices on the LME and SHFE weighed spot tin prices down, with SMMI.Sn down 0.42%.     

 

Chinese stocks climbed more than 2% last week. SHFE copper prices posted an over 5% rally from RMB 42,500/mt to RMB 44,700/mt, but still increased more slowly than LME copper. Thus, the SHFE/LME copper price ratio declined from 7.28 to 7.14. SHFE most-active copper contract prices stood above short-term moving averages, but have met resistance. Trading volumes increased nearly 2 million lots, and positions soared more than 36,000.

 

SMM predicts that SHFE copper may drift higher to RMB 43,500-44,500/mt this week.

 

Copper supply in China’s spot market, especially high-quality copper, increased early last week. Activities of dealers increased noticeably.

Bulls were cautious about jumping in after SHFE 1506 aluminum contract hit RMB 13,400/mt. But the most active contract found solid support at the 5-day moving average due to limited number of bears. In China’s spot market, suppliers held back goods, and supply of goods with invoice dating March was tight. This allowed spot discounts to narrow. Downstream consumption remained sluggish.   

 

SHFE 1506 aluminum contract might rise to RMB 13,300-13,500/mt as rising LME aluminum cheered investors up. In China’s spot market, suppliers will continue to hold back goods at lows, which will allow spot discounts to shrink slightly to RMB 220-270/mt over SHFE front-month contract. 

SHFE lead rose to RMB 12,400/mt helped by the rally in LME lead, gaining 3%. The SMM/LME lead price ratio fell to 6.8.

 

Spot lead traded at RMB 12,300-12,450/mt last week, up RMB 100/mt. The sharp rise in spot lead prices early last week turned downstream buyers cautious and persuaded them to cut purchases. However, some downstream producers entered the market again last Friday when prices stabilized. Traded prices were RMB 12,400-12,450/mt in Shanghai and spot goods in Henan were offered at discounts of RMB 80-100/mt to SMM refined lead prices, compared with RMB 100-130/mt a week earlier.

Spot discounts of #0 zinc against SHFE 1505 zinc contract prices expanded from RMB 60-10/mt to RMB 150-100/mt. This helped improve market trading. As traders increased purchases, spot discounts stabilized. Downstream buying interest, however, remained weak.

 

Discounts on #0 zinc price in Tianjin over Shanghai prices narrowed from RMB 20/mt to zero. A few smelters that had been unwilling to sell moved goods modestly on rebounding zinc prices. When combined with high inventories, supply was ample. This led to cheaper resources, despite firm quotes. Demand improved slowly as some smelters resumed production, allowing overall transactions to increase slightly.

 

Premiums on #0 zinc price in Guangdong against Shanghai prices stayed between RMB 10-20/mt, which once widened to RMB 60/mt. Zinc inventories in Guangdong have been falling recently, lending some support to zinc prices. Nonetheless, cargo holders sold proactively. Spot discounts of deliverable zinc including Qilin and Tiefeng zinc against SHFE 1505 zinc contract prices expanded to RMB 100/mt. Traders purchased enthusiastically at lower prices. Downstream buyers, however, purchased to need after zinc prices climbed. Most transactions were made between traders.

 

In China’s spot markets, downstream buyers will purchase as needed this week. Traders hold a mixed attitude toward the market as spot prices have remained below SHFE 1506 zinc contract prices. Some of them will purchase at lower spot discounts. When combined with falling inventories, spot discounts against SHFE 1506 zinc contract prices should stabilize around RMB 100/mt this week. 

In domestic spot tin market, the price range narrowed slightly. Some smelters entered maintenance cycle, cutting market supply. But the fall in supply was accompanied by decline in downstream demand, preventing prices from going up. 

 

Trading in domestic spot market should remain thin this week, with prices expected to inch down to RMB 118,500-121,500/mt.  

SHFE 1507 nickel contract made its debut on March 27. Nickel prices varied greatly from brand to brand in the spot market, but nickel prices on the SHFE are undifferentiated by brand. Investors thus opened short positions moved aggressively, sending SHFE 1507 nickel contract down to RMB 100,650/mt. The contract rebounded slightly later before closing at RMB 101,080/mt. Trading volumes and positions totaled 28,860 lots and 14,364, respectively. 

 

SMM #1 refined nickel prices averaged RMB 103,990/mt last week, up RMB 350/mt from a week ago. Jinchuan nickel was in shortage, allowing its premiums over 1504 nickel contract on the Wuxi electronic trading to stay high. Russian nickel flooded into China’s spot market, causing it to trade at wide discounts over Jinchuan nickel. Downstream buyers favored Russia nickel as a result. Jinchuan Group adjusted prices twice to close last week flat at RMB 104,000/mt. 

 

This week will see more imported nickel flow into the Chinese market and more Jinchuan nickel being exported back to China. Hence, market prices will go down further, which will leave Jinchuan Group anxious to sell, thereby pushing down its premiums over 1504 contract on the Wuxi electronic trading. Spot nickel is expected to trade between RMB 99,000-103,500/mt.