SMM Base Metals Market Daily Review (2015-4-20)

SHANGHAI, Apr. 21 (SMM) – 

 

Copper 

The most active SHFE copper contract rallied to RMB 44,200/mt after starting on Monday, but then dropped below RMB 44,000/mt. Chinese stocks pulled back in the afternoon, and SHFE copper gave back earlier gains to end at RMB 43,870/mt, up RMB 120/mt. Trading volumes in SHFE 1506 copper contract fell by 49,318 lots and positions posted a 11,060 decline. Trading volumes increased 2,028 lots, with positions up 13,048.

 

Spot copper was offered at premiums of RMB 80-140/mt to SHFE 1505 copper contract Monday morning. Prices are RMB 44,040-44,160/mt for standard-quality copper and RMB 44,060-44,200/mt for high-quality copper.

 

Markets remained cautious towards China’s RRR cut. Some cargo holders offered high premiums, but demand was modest. Later, spot premiums narrowed some, luring traders into buying. Downstream buyers mostly held on the sidelines.

 

54% of industry insiders surveyed by SMM expect copper prices to move sideways this week, with LME copper trading at USD 6,050-6,130/mt and SHFE copper at RMB 43,300-44,000/mt. Despite China’s RRR cut, stock prices dived Monday afternoon, and bank shares in most economies fell across the board. Besides, with investors jumping into stock markets, futures trades will decline, also limiting moving range of copper prices. SHFE 1507 copper contract has not yet rolled over to the new most active contract on April 20, which was a reflection of waning trades in futures market.

 

33% of the surveyed see LME copper up to USD 6,150/mt and SHFE copper standing above RMB 44,000/mt this week. The G20 finance ministers met in Washington April 16-17 to discuss global economic developments, investment and infrastructure, IMF reform, financial regulation, as well as cooperation in global taxation. Reports from the meeting helped restore market confidence. Besides, the US dollar index dropped lately and is set for more falls in the near term, which will also bolster copper prices.

 

In addition, the People’s Bank of China announced the second RRR cut on Sunday. The China Securities Regulatory Commission clarified that China’s enhanced efforts in margin trading and short selling should not be considered a curb on stock markets, placating market concerns. As a result, trading in Chinese stock market exceeded RMB 1 trillion on Monday.

 

Technical indicators also point upwards. In China, copper inventories in Guangdong have fallen to about 20,000 mt, while SHFE copper stocks fell for the second week, pushing up spot premiums. Copper consumption is also growing in the peak demand season. These factors will combine to drive another rebound in copper prices.

 

The remaining 13% are bearish that copper prices will decline this week, with LME copper down below USD 6,050/mt and SHFE copper testing a low of RMB 43,000/mt. Mixed US data and weakening US shares will lend little support to copper prices.

 

Besides, the latest report indicates a 1,125 decline in net long positions in COMEX copper for the week ending April 14, a sign that hedge funds are less optimistic about market outlook. Markets responded mildly to China’s RRR cut. Besides, some long investors intend to book profits at highs, which will exert a drag on prices.

 

Aluminum      

Last Friday night, SHFE 1506 aluminum contract inched up to RMB 13,210/mt after starting at RMB 13,205/mt. The most active contract ended the night session at RMB 13,175/mt. Trading volumes totaled 6,132 lots, with positions down 792 to 113,088.

 

 

Despite China’s RRR cuts, SHFE aluminum drew no support. On Monday, the most active contract fell to RMB 13,070/mt before closing at RMB 13,100/mt. Trading volumes totaled 31,388 lots, with positions up 1,376 to 115,256.

 

SHFE 1505 aluminum contract drifted lower to RMB 13,100/mt on Monday. Spot aluminum largely traded between RMB 13,000-13,010/mt in Shanghai, discounts of RMB 100-110/mt over SHFE 1505 aluminum contract, versus RMB 12,980-13,010/mt in Wuxi, and RMB 13,030-13,060/mt in Hangzhou. Processors and traders showed little buying interest, sending prices down. In the afternoon, some traders went bargain hunting. 

  

SMM surveyed 35 large aluminum smelters and traders in China. 

 

17% of them are bullish over aluminum prices this week: (i) a softer greenback and rising crude oil will drive LME aluminum up above USD 1,830/mt; (ii) rising LME aluminum and crude oil should push the most active SHFE aluminum contract up above RMB 13,250/mt; (iii) in domestic spot market, spot discounts did not expand further, suggesting that cargo holders are unwilling to sell at lower prices. Spot aluminum should rise above RMB 13,030/mt. 

 

Another 26% are bearish: (i) LME aluminum is in “overbought territory”, meaning that prices might fall below USD 1,810/mt; (ii) negative technical indicator will weigh the most active SHFE aluminum contract down to RMB 13,000-13,100/mt; (iii) in domestic spot market, growing inventories and sluggish downstream consumption will drag prices down below RMB 12,980/mt. 

 

The rest 57% expect prices to stabilize: (i) LME aluminum should move between USD 1,810-1,830/mt; (ii) the most active SHFE aluminum contract has found solid support at RMB 13,000/mt, but a lack of positive news will prevent prices from rising, with prices expected between RMB 13,100-13,250/mt; (iii) in domestic spot market, suppliers will hold back goods at low prices, while buyers will show little interest, with spot prices expected between RMB 12,980-13,030/mt.

 

 Lead

The most active SHFE 1506 lead jumped to RMB 13,600/mt Monday from RMB 13,490/mt last Friday’s evening session as the People’s Bank of China (PBOC) announced to cut the reserve requirement ratio (RRR) on Sunday.

 

But later SHFE lead prices fell back slowly, ending at RMB 13,565/mt, up RMB 5/mt, after the good news was absorbed. Positions dropped 1,156 to 16,558 as shorts and longs booked profits.

 

Quotes were RMB 13,850-13,900/mt for lead of Chihong Zn & Ge, and about RMB 13,780/mt for Chengyuan’s goods early on Monday, but then retreated to RMB 13,650/mt for Chengyuan and Tongguan brands, with premiums of RMB 60-100/mt to SHFE 1506 lead contract. Humon offered RMB 13,580-13,610/mt and Shuangyan brand quoted at RMB 13,560/mt. Tongguan and Humon moved goods in small amounts. Traders bought actively, and downstream producers mainly purchased cheaper goods. Spot goods available in the Henan market were few, and branded lead was quoted at RMB 13,600/mt. Premiums in Hunan and Jiangxi also increased.

 

SMM’s survey of 30 industry insiders indicates that only 33% of them are still optimistic about lead prices. These players believe LME lead will rise to USD 2,100/mt and spot lead prices to RMB 13,600-13,700/mt this week.

 

A sequence of economic indicators are due for release this week, including HSBC’s China manufacturing PMI for April, US new home sales and durable goods orders for March, Markets are now upbeat about Chinese data but pessimistic about US economic indicators. Base metals are likely to take impetus from rebounding crude oil, China’s monetary easing and a weak US dollar.

 

Furthermore, the increase in canceled warrants and growing net long positions in lead, as well as positive technical indicators are pointing to further rises in lead prices.

 

In China’s lead market, spot premiums held elevated due to tight supply. Prices in Jiangxi and Henan were RMB 20-100/mt higher than SMM lead prices.

 

30% of the surveyed are bearish that LME lead will fall back to USD 2,000/mt and spot lead prices will be RMB 13,300-13,500/mt. These players argue that base metals prices did not show significant increase following China’s RRR cut, meaning the positive news has been priced in.

 

Technically, LME lead has met resistance and may present a correction.

 

The remaining 37% market players expect lead prices to remain stable this week, noting that price moving range will be restricted after investors shifted to Chinese stock markets. In spot market, lead prices may lack momentum to rise further following recent 

 

Zinc

SHFE 1506 zinc contract prices opened at RMB 16,590/mt, then fluctuated between RMB 16,520-16,630/mt, and closed the day at RMB 16,585/mt, down RMB 50/mt or 0.3%. SHFE 1506 zinc contract prices opened at RMB 16,660/mt on Monday, then surged to RMB 16,710/mt, but dropped to as low as RMB 16,450/mt in the afternoon due to an exodus of longs, and closed at RMB 16,475/mt, down RMB 160/mt or 0.96%. Trading volumes decreased 14,834 to 100,654 lots, and total positions decreased 9,550 to 104,956. SHFE 1506 zinc contract prices should level out this evening.

 

#0 zinc prices were between RMB 16,470-16,510/mt, RMB 140-90/mt below SHFE 1506 zinc contract prices. #1 zinc was traded between RMB 16,410-16,420/mt. SHFE 1506 zinc contract prices touched RMB 16,710/mt, then fell back to RMB 16,600/mt, with spot discounts narrowing RMB 130-90/mt. Smelters sold actively, leading to healthy supply. Some downstream buyers purchased modestly, and traders purchased proactively for tern contract delivery.

 

Shuangyan #0 zinc prices were RMB 16,500-16,510/mt, RMB 90/mt below SHFE 1506 zinc contract prices. Yuguang #0 zinc prices were RMB 16,490-16,500/mt, RMB 100/mt below SHFE 1506 zinc contract prices. Qinxin, Feilong and Qilin #0 zinc prices were RMB 16,470-16,490/mt, with spot discounts of RMB 130/mt against SHFE 1506 zinc contract prices. SMC #0 zinc prices were RMB 16,420-16,440/mt, with spot discounts of RMB 180-170/mt against SHFE 1506 zinc contract prices. Indian and Netherlandish #0 zinc prices were RMB 16,380-16,390/mt, with spot discounts of RMB 210/mt against SHFE 1506 zinc contract prices. Namibia’s #0 zinc prices were RMB 16,370-16,380/mt, with spot discounts of RMB 220/mt against SHFE 1506 zinc contract prices. SHFE 1506 zinc contract prices extended losses in the afternoon, causing spot discounts to narrow. SHFE 1506 zinc contract prices rose RMB 50/mt in the afternoon, with spot discounts of Shuangyan #0 zinc contracting to RMB 30/mt at one point, but traded prices were RMB 70/mt below SHFE 1506 zinc contract prices.

 

LME zinc prices rose further last week. With regard to zinc price trends this week, SMM surveyed 30 market players to find that 23% are bullish, believing LME zinc prices will rise to USD 2,260/mt, and SHFE 1506 zinc contract prices will climb to RMB 16,800/mt. The US dollar index has closed with declines for four consecutive days, well bolstering base metals. The PBOC lowered deposit reserve ratio by 1%, also positively affecting zinc prices.

 

47% are neutral, seeing LME zinc prices moving between USD 2,210-2,250/mt, and SHFE 1506 zinc contract prices fluctuating between RMB 16,400-16,700/mt. LME zinc prices are on the rise due to rising crude oil prices and falling US dollar index. But should total positions on LME zinc decrease, LME zinc prices will stop increasing.

 

30% are pessimistic, believing LME zinc prices will fall below USD 2,200/mt, and SHFE 1506 zinc contract prices will drop to RMB 16,300/mt. The deposit reserve ratio drop by the PBOC suggests a sluggish Chinese economy. Meanwhile, spot discounts hold around RMB 100/mt. Operating rates at die-cast zinc alloy producers were below the same period last year, while operating rates at smelters were higher than the same period last year. With large arriving shipments, total inventories in Shanghai, Guangdong and Tianjin remain high. 

 

Tin

In Shanghai spot tin market, mainstream traded prices rebounded to RMB 110,800-112,000/mt on Monday. LME and SHFE tin stopped falling, and domestic supply fell, allowing prices to rally. Downstream producers and traders entered the market now that prices have stopped falling.  

 

SMM surveyed market players in domestic tin industry. 

 

Half of them expect tin prices to hold stable this week: mixed macro front will keep LME tin in check. Tin smelters in Yunnan and Jiangxi are holding back goods at lows prices against raw material shortages. This will allow spot prices to stabilize between 110,500-114,000/mt. SHFE 1507 tin contract should move between RMB 111,000-113,000/mt. 

 

Another 30% are bearish: LME tin will test support at USD 13,600/mt as bears prevail. SHFE 1507 tin contract will be vulnerable at RMB 110,000/mt. Poor demand will send prices in domestic spot market down to RMB 108,000/mt.

 

The remaining 20% are bullish: technically, LME tin is poised to challenge USD 15,500/mt. SHFE 1507 tin contract is expected to climb to RMB 112,000-115,000/mt. Small tin mines in Myanmar are cutting output against falling prices, and more mines are likely to follow suit should prices continue falling. This will affect raw material supply for tin smelters in China. In this context, market players are expecting that prices in domestic spot market will rise to RMB 111,000-115,000/mt. 

 

 Nickel   

SMM #1 nickel prices were between RMB 92,700-94,500/mt. Nickel prices fell in the morning. Some traders held prices firm, but increasing supply weighed down premiums of Jinchuan nickel. Downstream buyers purchased as needed, with trading muted and traded prices between RMB 92,600-94,100/mt. Spot nickel prices dropped further in the afternoon, causing traders to reduce supply and left spot premiums to stabilize. SHFE 1507 nickel contract prices were RMB 3,000/mt above 1505 nickel contract prices on the Wuxi electronic trading. Downstream buying interest improved as nickel prices inched lower, with traded prices between RMB 92,000-93,700/mt.

 

SMM surveyed 30 market players to find that 6 are bullish toward nickel price trends this week, 16 are neutral, and 8 are pessimistic.

 

The 20% optimistic market players believe LME nickel prices will move between USD 12,750-13,000/mt. A falling US dollar index will positively affect base metals prices. China’s metal demand will improve as the April peak season set in. Major economic indicators in April are also promising. The PBOC lowered deposit reserve ratio by 1 percentage point. Meanwhile, nickel ore and NPI inventories fell to a low. Strict environmental protection inspections have affected NPI output, which will bolster nickel prices. Total positions on SHFE nickel reached some 120,000, but SHFE nickel capacity is only 46,000, which will force a large number of shorts to leave the market. SHFE nickel prices should climb to RMB 96,000-96,500/mt.

 

The 53% neutral ones see LME nickel prices moving between USD 12,500-12,800/mt. The PBOC lowered deposit reserve ratio by 1 percentage point on recent sluggish economic indicators. Commencement of domestic infrastructure construction projects will boost demand for base metals. But growing nickel ore supply will weigh on nickel ore prices. Falling stainless steel prices and high inventories will allow stainless steel plants to push down nickel prices. SHFE 1507 nickel contract prices are expected to fluctuate between RMB 95,000-96,000/mt.

 

27% are bearish, thinking LME nickel prices will drop to USD 12,300-12,500/mt. Despite stimulus measures from China, weak demand will weigh down nickel prices. Some NPI producers restarted production, which will increase NPI output. Weakening stainless steel prices, however, will allow stainless steel prices to lower bid prices for nickel. SHFE 1507 nickel contract prices should fall with LME nickel prices below RMB 95,000/mt.