SMM Weekly Review and Forecast (May 4-May 7)

SHANGHAI, May 10 (SMM) - Last week, base metals market fell across the board. The anti-austerity protests in the Greece and the credit ratings downgrades for Greece, Portugal and other European countries, as well as deteriorating debt issues in the Europe had the US dollar index strengthen above 85. The Dow Jones tumbled, a panic sentiment spreading across the global market. On May 2nd, the People's Bank of China announced a 0.5% increase in reserve requirement ratio to 17% from May 10th, and is the third time the ratio has been lifted this year, a further sign of credit tightening in the world's biggest metal consumer. Stocks markets in China slumped, and a bearish sentiment dominated the commodity market, causing base metal prices to drop below their support levels. SMMI plunged 5.17% over the past week, and nickel prices, the previous star performer led this week's price declines. SMMI.Ni tumbled 9.84%, and SMMI.Zn dived 7.9%, and SMMI.Cu weakened 5.17%. Tin prices resisted downward pressure, only down 0.52%. 

Copper
In the week ended May 7th, SHFE copper prices weakened as LME copper prices fell, with slight spot premiums reported. The SHFE/LME copper price ratio improved greatly during the week, and supply of imported copper increased, leaving ample market supply. Downstream purchasing interest was high initially as copper prices dropped, but a wait-and-see attitude emerged as prices continued to fall. In general, downstream producers were cautious, resulting in lackluster trading sentiment.

SMM believes recent sharp declines in copper prices are closely related to economic and financial news, since there have not been any significant changes in market fundamentals.  Whether or not copper prices continue to fall depends on how soon negative news is absorbed, while any price rebound will depend heavily on support from market fundamentals. Presently, the seasonal peak demand period for copper is ending, and coupled with a likely copper supply surplus from high levels of imports in China, will create strong downward pressure on copper prices. However, copper prices will likely rebound technically in the short term while the peak demand period continues. Based on a SMM recent survey, operating rates at 19 major domestic copper tube and pipe producers were still high, reaching at 79.0%.

In this context, SMM believes LME copper prices will fluctuate between USD 6,700-7,000/mt in the coming week. 

Aluminum
SHFE aluminum prices fell at a slower pace compared to LME aluminum prices over the past week (May 4-7), but still falling on Friday to as low as RMB 15,500/mt, a six-month low. Spot markets were relatively neutral, with deals in east China still made with slight or zero discounts, and with only moderate transactions reported.

Domestic aluminum market supply remains in surplus and with inventories continuing to grow. Aluminum markets were bearish, despite a seasonal peak demand period, so market players turned pessimistic. New aluminum capacity is also expected to come online over the next two months and may further depress aluminum markets. Special attention should be paid to any changes in other base metals prices and US dollar trends. SMM predicts LME aluminum prices will test the support level of USD 2,000/mt in the coming week.  SHFE aluminum prices will also likely fall further, with limited support expected at RMB 15,500/mt.

Lead
Domestic lead prices were slower to drop after previous slower move to gain. Sell-offs during the second half of the week in the Shanghai market helped the low-end price fall to RMB 15,000/mt. Although bargain hunting failed to help stabilize market prices, purchasing activities at lower prices dominated market transactions, bringing the previous lackluster trading sentiment to an end. However, overall market supply remained in surplus. Lead-acid battery producers were suffering heavy pressures from seriously-squeezed profits. A bearish sentiment dominates the market, believing support at RMB 15,000/mt is weak. 

Zinc
SHFE zinc prices moved down last week (May 4-7), but fell at a slower pace compared to LME zinc prices. SHFE zinc prices were supported by spot transactions, but SHFE three-month zinc contract prices still fell from RMB 18,500/mt, to RMB 16,800/mt rapidly, down 7.5% over the past week.

Spot zinc prices also slipped all the way , with spot traded prices for #0 zinc hitting a record low of RMB 16,450/mt since February (the lowest prices for #0 zinc were RMB 16,600/mt on February 5th). In this context, market divergence with regard to zinc price outlook intensified. However, downstream consumers and traders were still purchasing goods in order to build up stocks when zinc prices were below RMB 17,000/mt despite of their pessimism toward future zinc prices. In this context, the growing purchases at lower prices will give strong support to zinc prices once LME zinc prices stabilize. Average traded prices for #0 zinc were RMB 17,106/mt in Shanghai last week, down RMB 971/mt from a week earlier, or down 5.4%. However, declines in both SHFE and LME zinc prices have depressed market sentiment, with the pessimism emerging in the market rapidly.

Tin
Tin prices in the Shanghai spot market declined at a slower pace compared with those at LME market. Although smelters continued to lower ex-works prices, tin spot selling prices were still lower than ex-works prices, resulting in low purchasing interest from traders. Up to last Friday, traded prices of brand name tin were at RMB 143,000/mt and traded prices of unknown brand tin were between RMB 142,000-142,600/mt. Downstream wait-and-see sentiment grew further along with the price decline, and trading sentiment was extremely sluggish last week. Short position sentiment from the traders who were unwilling to replenish stocks was strong, and goods held by traders were few. Goods circulating in the market were mainly unknown brand tin, while supply of brand name tin was reducing. As ex-works tin prices were higher than spot tin prices, some traders remained very cautious and were not bold enough to take the risk to replenish stocks. The soft trading sentiment, along with fact that LME tin prices may have difficulty in reversing the decline trend in the short term, is causing base metal prices under pressure to fall further in the following week.

Nickel
In the domestic spot market, Jinchuan Group cut ex-works prices to RMB 185,000/mt. Trading prices fell sharply with the sharp fall in LME nickel prices, with prices of nickel from Jinchuan Group between RMB 174,000-175,000/mt as of last Thursday, and with prices of imported nickel between RMB 173,500-174,000/mt. After the two-day sharply decline, the market was dominated by a strong short position sentiment. .Low prices attracted some buying from downstream consumers, while many traders also took this opportunity to replenish stocks, resulting in brisk transaction activity last Thursday.

According to latest statistics, total stainless steel inventories in Wuxi were 225.2kt, down 2.21%, including 15.7kt of #200 stainless steel, 177.82kt of #300 stainless steel and 31.7kt of #400 stainless steel. Inventories of stainless steel that use nickels as raw material were still very high. LME nickel prices had experienced a deep decline for two consecutive days last week, exerting panic sentiment on stainless steel market to certain extent and causing domestic prices to fall in general. Some downstream customers told that they expected lower purchasing prices due to nickel price stumble, but most them adopted a wait-and-see attitude temporarily as recent offers quoted by steel mills were higher than their expectation.

To contact the writer on this report: angelawang@smm.cn

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