SMM Daily Review - 2010/5/19 Base Metals Market

SHANGHAI, May 20 (SMM) --
Copper:
On Wednesday, SHFE copper market was closely tied to China's A-shares market. SHFE copper market opened low due to depressed LME copper prices, and later rebounded following rising A-shares markets. In the morning business, the August delivery copper on the SHFE market dropped as low as RMB 51,820/mt, and ended at a daily session high of RMB 53,650/mt at the Midday, with significant increases in the positions in the morning. During the afternoon trade, SHFE August delivery copper prices pared gains along with falling stocks markets, and finally closed at RMB 53,130/mt, up RMB 180/mt or 0.34%, after a wide fluctuation range of over 3% for the trading day. SHFE August delivery copper saw profit taking, with positions down more than 7,272 lots. The turnover rate was as high as 352.90%, with trading volumes at 663,350 lots, and positions neared to 188,000 lots, with trading value at over RMB 175.1 billion. SMM believes the struggle between short and long positions will intensify in the short term. 

Mixed offers were heard in the spot markets. Spot premiums in the morning advanced to positive RMB 250-400/mt following rapid gains in the SHFE copper market, with brisk inquiries, and bargain hunting increased. However, some cargo-holders lowered spot premiums to positive RMB 100~250/mt to stimulate sales, leaving the trading gap at more than RMB 1,000/mt in the morning. Transactions in the morning business were generally done between RMB 53,000~53,850/mt. In the afternoon, SHFE copper market dropped with falling stocks markets, helping spot premiums fall to positive RMB 200~350/mt, with traded prices down to RMB 53,100-53,500/mt. Only a select number of buyers entered the market for purchases in the afternoon business. 

On Wednesday, SHFE copper market experienced brief rebounds, with short positions still dominating the market. At present, the US dollar trend and movements on domestic financial markets are continuing to direct copper market trends. Despite of purchasing activities at low prices, time is needed to wait for recovery of long positions in the market.

Aluminum:
Although LME aluminum prices closed up on May 18th, SHFE 1008 aluminum contract prices opened lower at RMB 15,050/mt on May 19th negatively affected by a stronger US dollar and other base metals, and later slipped all the way, with the lowest prices reported at RMB 14,770/mt. SHFE aluminum prices later rebounded to above RMB 15,000/mt due to profit-taking by some short positions, and moved widely around RMB 15,150/mt in the afternoon, with the highest prices reported at RMB 15,245/mt. SHFE aluminum prices closed at RMB 15,160/mt, up RMB 75/mt compared with the previous trading day, or up 0.50%. Total positions declined by 2,384 lots to 257,612 lots, and total trading volumes reported 194,968 lots. All technical indicators show weak momentum.

Spot aluminum prices climbed at a slower pace in the morning session when SHFE aluminum prices advanced significantly, with spot discounts expanding to RMB 50/mt. Downstream consumers were in a stronger position in the market, with low acceptance of higher prices reported. As a result, overall trading sentiment was bearish. LME aluminum inventories continued to increase sharply, heavily weighing down LME aluminum prices. Meanwhile, the steady declines in positions indicate shortages of speculative funds, and the short positions will be higher than long positions in the short term despite of withdrawal of some short positions.     

Lead:
Domestic lead market followed LME lead price trends, and market confidence picked up along with rising LME lead prices and improved performance on the SHFE zinc and copper markets. Despite of lackluster trading sentiment, prices rose to RMB 14,650/mt, with brisk inquiries. Domestic lead market turned quiet in the afternoon trade due to falling LME lead prices.

Fluctuating LME lead prices added hesitation to market players, making them becoming more uncertain towards outlook. Transactions in the Shanghai market were done in the RMB 14,500-14,650/mt range.     

Zinc:
SHFE zinc prices opened low but moved higher on May 19th, and SHFE 1008 zinc contract prices opened at RMB 15,180/mt, and finally closed at RMB 15,340/mt, with the lowest prices reported at RMB 14,830/mt, setting a new low since August 2009. The fluctuating range of SHFE zinc prices exceeded 5% all day, allowing trading volumes of SHFE 1008 zinc contract to hit a record high of more than 1.54 million lots, with struggles between short and long positions intensifying around RMB 15,000/mt.

Although zinc prices bottomed out yesterday (on May 19th), the rebounding zinc prices failed to improve overall trading sentiment. Meanwhile, the falling SHFE zinc prices at noon also indicated the weak upward momentum for zinc prices. #0 zinc was mainly traded between RMB 15,100-15,200/mt in Shanghai, with spot discounts ranging between RMB 300-350/mt against SHFE 1008 zinc contract prices. Downstream inquiries were up significantly, but most downstream purchasers still adopted a wait-and-see attitude, resulting in limited purchasing volumes. SMM believes any upward momentum in zinc prices will to some extent depend on the stabilization of macro economic environment and the recovery in market sentiment, so zinc prices are expected to continue to move at low levels in the short term.    

Tin:
Spikes of European economic fundamentals caused severe concern from market investors, and LME tin prices fluctuated narrowly on May 18th when the US dollar index fluctuated at high levels, with price closing at USD 17,400/mt, up USD 300/mt, while reaching the highest level at USD 17,550/mt and touching the lowest level at USD 17,100/mt. Daily trading volumes were 219 lots and positions were 19,592 lots. On May 19th, LME tin prices still experienced weak performance after a low open and fluctuated around USD 17,250/mt, with great difficulty in standing above USD 17,300/mt.

In the Shanghai tin spot market, suppliers' confidence in holding goods further collapsed as they were under great pressure that transactions were sluggish in spot market. Downstream consumers still made purchasers on an as-needed basis, despite that suppliers had lowed prices slightly given the high costs. LME copper prices and nickel prices only rebounded temporarily, and most consumers were only willing to make purchases after a further price decline, resulting in weak consumption of tin in spot market. Prices of major brand tin were between RMB 142,500-143,500/mt and prices of unknown brand tin were between RMB 141,500-142,000/mt.

Nickel:
LME nickel prices advanced after a low open and rebounded robustly to USD 22,100/mt on May 18th, or up 7%. Prices finally closed at USD 21,800/mt, up USD 1,100/mt. Daily trading volumes were 3,096 lots and positions were reduced by 1,860 lots and positions were 93,666 lots. On May 19th, LME nickel prices opened low at USD 21,200/mt during the Asian trading period. Although prices later ceased to decline when the US dollar index slipped in the noon trading period, prices still met resistance at 5-day moving average and continued to slip in the afternoon session, which is a strong indication that the market is still haunted by the concern over the complexity of the euro zone debt crisis.

In the Shanghai spot nickel market, short position sentiment further grew as LME nickel prices reversed half of the gains that were acquired on May 18th when opened on May 19th, despite that LME nickel prices rebounded significantly on May 18th. In this context, traders quoted offers cautiously at RMB 167,000-168,000/mt which are near cost level of nickel from Jinchuan Group to seek transactions, but buying was still sluggish in the morning trading session and transactions only increased slightly in spot market when LME nickel prices advanced slightly in the noon trading session. Importing costs of nickel from Russia were higher than selling prices, so suppliers' willingness to move nickel from Russia was weak. Mainstream traded prices of nickel from Russia were between RMB 166,300-166,500/mt and actual traded prices of nickel from Jinchuan Group were around RMB 167,000/mt.  Buying was extremely sluggish again when LME nickel prices slipped in the afternoon session, which is a reflection that the overall downstream consumption was still sluggish. 

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

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