SMM Base Metals Market Daily Review (2015-6-29)

SHANGHAI, Jun. 30 (SMM) –

Copper
SHFE 1509 copper contract prices rose above RMB 42,150/mt on Monday and touched RMB 42,620/mt before finishing at RMB 42,500/mt, rising by RMB 570/mt. SHFE 1509 copper contract positions decreased 2,486 and trading volumes increased 71,884 lots. The most active SHFE copper contract prices were between the 10 and 20-day moving averages. Capital will start flowing back to commodities market should stock market remain weak.

Spot copper was offered at a premium of RMB 230-290/mt to SHFE 1507 copper in Shanghai Monday. Traded prices were RMB 42,520-42,700/mt for standard-quality copper and RMB 42,540-42,720/mt for high-quality copper.

Market activities declined considerably near the last trading day before middle 2015. Some speculators moved goods outs with profit-taking. High-quality copper accounted for large market while hydro-copper was still hard to hunt. Most producers were busy in settling accounts end of this quarter. Therefore, trades were left quiet.

70% of industry insiders polled by SMM expect copper prices to tread water this week, with LME copper at USD 5,740-5,840/mt and SHFE copper at RMB 42,000-42,600/mt. Markets now expect the PBOC to interest rate and RRR cuts further this year and widen the floating range of deposit interest rate so as to liberalize interest rate. The interest rate and RRR cuts announced last weekend is estimated to inject some RMB 470 billion. But most investors remained cautious considering tight liquidity conditions by the end of the quarter and around the midyear. Thus, copper trading activities will be limited, which will trap prices in the current range.

22% of market players see copper prices to fall with LME copper down below USD 5,700/mt and SHFE copper falling below RMB 41,800/mt. These players based their opinions on uncertainty over Greek debt crisis and the plunge in Chinese stock market which is depressing market confidence.

8% of players are bullish that LME copper will break through USD 5,850/mt and SHFE copper may climb above RMB 42,800/mt, noting that upbeat data from China, Euro zone and US will benefit commodity prices. Besides, technical indicators are pointing upwards. In China, approval of IPO applications may slow after June, meaning liquidity conditions may ease, which, combined with the PBOC’s reverse repos, will help with a rise in copper prices.

Aluminum
On Monday, China’s interest rate and RRR cuts this past weekend pushed SHFE 1509 aluminum contract up to RMB 12,750/mt. But prices fell back in the afternoon before ending at RMB 12,735/mt. Trading volumes totaled 28,260 lots, and positions were up 8,600 lots to 119,202 lots.

Spot aluminum largely traded between RMB 12,610-12,620/mt in Shanghai on Monday, discounts of RMB 110-120/mt over SHFE 1507 aluminum contract, versus RMB 12,590-12,610/mt in Wuxi, and RMB 12,620-12,630/mt in Hangzhou. Processors bought as needed in small amounts due to month-end cash crunch. In the afternoon, some cut offers slightly, but trading did not improve.

SMM surveyed 27 large aluminum smelters and traders in China.

56% of them expect prices to stabilize this week: 1. LME aluminum has found support at USD 1,671/mt and should range USD 1,670-1,720/mt. 2. China’s interest rate and RRR cuts should help SHFE 1509 aluminum contract hold stable at RMB 12,650-12,800/mt. 3. Consumption in domestic spot market might pick up with the passing of month-end cash crunch. This will help keep spot prices stable at RMB 12,580-12,620/mt.

The rest 44% are bearish: 1. The US dollar will strengthen further on positive US economic data, which will push LME aluminum down below USD 1,670/mt. 2. Negative technical side and growing bearishness will cause SHFE 1509 aluminum contract to fall to RMB 12,650/mt. Eagerness to sell and the onset of off-season in July will weigh aluminum prices in domestic spot market down below RMB 12,580/mt.

Lead
The most active contract touched a low of RMB 13,020/mt after opening last Friday evening session at RMB 13,080/mt, to end down RMB 40/mt at RMB 13,060/mt. The contract dived to RMB 12,755/mt on Monday and closed the day down RMB 280/mt or 2.14% at RMB 12,820/mt. Trading volumes fell 1,012 to 3,746 lots with positions down 110 to 13,106.

In Shanghai’s market, traded prices were RMB 13,350-13,380/mt for Nanfang and Tongguan brands, a premium of RMB 300/mt over SHFE 1508 lead, versus RMB 13,180-13,250/mt for Ximai brand.

Smelters shipped no goods out. Ximai brand goods stored by traders several years ago flowed into market while older Shuangyan and Honglu brand goods were hard to hunt after spot prices fell. Downstream makers did not purchase raw materials due to tight liquidity. Cheaper lead in Henan attracted more buyers, pressing Shanghai’s trades again.

SMM survey of 30 industry insiders shows 53% of them are bearish about lead prices this week, expecting LME lead to test support at USD 1,750/mt and spot lead prices to fall to RMB 13,200-13,300/mt. On the macro front, an escalation of Greek debt crisis and positive expectation for the US nonfarm payrolls drove up the US dollar index, which will weigh on base metal prices. The falling long positions in lead and wider cash-to-three-month contango in LME lead may presage weaker LME lead prices. In China, most primary lead smelters have completed maintenance operations and secondary lead production also recovered with the busy farming season coming to an end. Meanwhile, downstream demand is anemic due to low operating rates at lead-acid battery producers. As such, spot prices will come under pressure.

13% of industry insiders are bullish that LME lead will rise to USD 1,800-1,830/mt and spot lead prices will increase about RMB 50/mt. Liquidity conditions are expected to improve some at the beginning of July, and some downstream buyers will begin build raw material stocks. Meanwhile, an easing of financial pressures will allow suppliers to hold prices firm. In addition, low secondary lead output caused by tight scrap battery supply and a reduction of VAT rebate rate for secondary lead producers from 50% to 30% effective on July 1 will also help support lead prices.

The remaining 34% of market players expect lead prices to hold steady this week considering mixed reports, including China’s interest rate and RRR cuts and the lingering Greek debt issue. In China, smelters will be less willing to sell at lows with financial pressure easing in early July, while downstream producers may increase purchases, helping lead prices stabilize.

Zinc
SHFE 1509 zinc contract prices opened at RMB 15,600/mt, then remained flat and closed at RMB 15,550/mt, down RMB 80/mt. SHFE 1509 zinc contract prices fluctuated between RMB 15,550/mt on Friday, and fell sharply in the afternoon, dipping to RMB 15,380/mt, and closing at RMB 15,400/mt, down RMB 230/mt or 1.47%. Trading volumes increased 26,620 to 104,818 lots, and total positions grew 7,466 to 124,436. SHFE 1509 zinc contract prices will fall more slowly and test support from RMB 15,400/mt.

#0 zinc prices were between RMB 15,550-15,570/mt, RMB 0-20/mt above SHFE 1509 zinc contract prices. #1 zinc prices were RMB 15,510-15,520/mt. SHFE 1509 zinc contract prices fluctuated between RMB 15,550-15,570/mt, down nearly RMB 100/mt, with spot premiums between RMB 10-30/mt in the morning, but narrowing to RMB 0-10/mt due to weak downstream buying interest. SHFE 1509 zinc contract prices fell to RMB 15,510-15,520/mt at the end of trading, but spot premiums remained largely unchanged. Falling zinc prices increased market pessimism. When combined with month-end cash tightness, downstream buying interest was weak. Traders reduced purchases due to expectations of additional inflows of imported zinc from rising SMM/LME zinc price ratio. Smelters and cargo holders reported sluggish sales, with overall transactions muted. SHFE 1509 zinc contract prices fluctuated between RMB 15,420-15,460/mt in the afternoon, with spot prices RMB 10-30/mt above SHFE 1509 zinc contract prices.

LME zinc prices hit a three-month low. Will LME zinc price fall further? SMM surveyed 30 market players to find that 47% are neutral, believing LME zinc prices will move between USD 2,000-2,060/mt and SHFE 1509 zinc contract prices will fluctuate between RMB 15,300-15,600/mt. They expect additional stimulus measures. HSBC’s and official PMI for China in June is promising, bolstering the market. But ongoing Greek crisis, combined with the upcoming non-farm data in the US, will left investors cautious. Nonetheless, LME zinc prices will find support from USD 2,000/mt. Despite soft demand, plunging zinc prices will deter mines and smelters from producing.

43% are bearish, seeing LME zinc prices fall below USD 2,000/mt and SHFE 1509 zinc contract prices drop below RMB 15,300/mt. China’s A-share market has falling for three weeks in a row. China’s deposit reserve ratio and interest rate cut failed to boost market confidence, weighing down commodity prices. Chronic Greek crisis will also weigh on the euro, which will bolster the US dollar and in turn push down base metals. When combined with the onset of the off-season and falling zinc prices, consumers will contract inventories, in turn weighing on zinc prices.

10% are bullish, believing LME zinc prices will rebound to USD 2,060/mt, and SHFE 1509 zinc contract prices will return to RMB 15,800/mt. They base their opinion on the interest rate and deposit reserve ratio cut by the PBOC. When combined with rising home prices recently, market confidence will increase. Besides, cash tightness will alleviate early next July.

Tin
In Shanghai spot tin market, mainstream traded prices followed SHFE tin down further to RMB 112,500-113,500/mt on June 29. Downstream consumption was sluggish as bearishness dominated. Goods from Yunnan Tin Group traded at RMB 113,000-113,500/mt.

SMM surveyed market players in domestic tin industry.

45% of them expect tin prices to hold stable this week: Myanmar has entered the rainy season, which will last three months. Tin ore supply in the country is not expected to recover until mid-to-late August. LME tin inventories fell to 6,810 mt as of last Friday, the lowest in over six years. The decline in LME tin inventories was due mainly to falling shipment from Indonesia. The Indonesian government stipulates that local tin producers are not allowed to export unless they can prove that tin they produce comes from government-registered mines. So, LME tin should hold stable this week. Some SME tin producers in China have cut output, due to raw material shortages, environmental issue and depressed market conditions. As such, tin prices in domestic spot market should stop falling.

The rest 55% are bearish: the Greek debt crisis will continue to cast a shadow on the market. LME tin might fall to test support at USD 14,300/mt. Daily trading volumes of SHFE tin were a mere over 1,000 mt, due to a lack of capital. SHFE 1509 tin contract, the most active one, hit a new low of RMB 110,720/mt on Monday. The slump in China’s stock market and weak LME tin should send SHFE 1509 tin contract down further. Weak SHFE tin, coupled with the traditional off-season, will cause tin prices in domestic spot market to drop further to RMB 111,000/mt.

Nickel
SMM #1 nickel prices were between RMB 90,800-91,900/mt. Premiums of Jinchuan nickel against the most actively traded contracts on the Wuxi electronic trading were RMB 200/mt in the morning. Trading improved recently as downstream buyers replenished stocks on slumping nickel prices, causing trading to improve, and with traded prices between RMB 89,800-90,800/mt. Nickel prices continued to fall in the afternoon and hit a record low. With Jinchuan nickel price dropping below RMB 90,000/mt, some traders began to hold back goods. Downstream buyers turned reticent, with traded prices between RMB 89,000-89,900/mt. Jinchuan Group lowered prices by RMB 1,000/mt to RMB 935,000/mt.

SMM surveyed 30 market players to find that 8 of them are bullish toward nickel prices, 17 are neutral and 5 are bearish.

The 27% optimistic ones think LME nickel prices will rise to USD 12,200-12,500/mt. The deposit reserve ratio and interest rate cut by the PBOC will help release liquidity. The China Securities Regulatory Commission (CSRC) is expected to pause IPO to help ease market panic. Chronic Greek crisis is also expected to reach some resolution. Positive economic indicators from the US mean domestic economy is recovering. Cargo holders have begun to hold back goods on slumping nickel futures prices. Meanwhile, the monsoon in the Philippines will cause nickel ore supply to decrease. In this scenario, LME nickel prices should rebound this week, and SHFE 1509 nickel prices will rise to RMB 92,000-94,000/mt.

56% neutral ones believe LME nickel price will fluctuate between USD 12,000-12,200/mt. Demand for nickel weakened significantly on the off-season and impact on domestic stainless steel plants from anti-dumping measures by other countries. As nickel prices have fallen below costs lines, cargo holders are unwilling to sell. But panic dominated the market. LME nickel prices should remain low in the near term, and SHFE 1509 nickel contract prices should move between RMB 90,000-92,000/mt.

17% see LME nickel prices falling to USD 11,800-12,000/mt. Growing likelihood of a Grexit will push up the US dollar, weighing down base metals prices. Interest rate and deposit reserve ratio cut by the PBOC will help release liquidity, but will not contribute to nickel demand in the near term. Falling nickel prices also caused selloffs of finance-driven imports, further pushing down nickel prices. SHFE 1509 nickel contract prices will move between RMB 88,000-90,000/mt.