SMM Weekly Review and Forecast (Jun.7-Jun.11)

SHANGHAI, Jun. 12 (SMM) --

Copper

On Monday, SHFE copper prices fell to their daily limit, following falling LME copper prices over the weekend. On Tuesday, SHFE copper prices continued to fall, but rebounded on  Wednesday and Thursday due to a stock market rally in China, with firmer SHFE copper prices compared to LME copper, helping the SHFE/LME copper price ratio remain high, even exceeding 8.2 briefly.

Next week, The Shanghai Futures Exchange (SHFE) will be closed for three trading days during the Chinese Dragon Boat festival of 14-16 June, and the closure will add to market uncertainty in copper markets. The euro remains vulnerable to downward pressure given the lingering debt issues in Europe. In other news, China is beginning to face stronger inflationary pressure, causing risk aversion sentiment to increase. On the positive side, downstream demand remains strong, but will not lend strong support to copper prices due to ample market supply. 

SMM holds a cautiously pessimistic view towards copper price trends during the holiday period. LME copper will likely begin another round of price declines, with prices expected to fluctuate between USD 6,200-6,500/mt.
 
Aluminum

SHFE three-month aluminum contract prices tested the RMB 14,000/mt mark on Monday,  negatively affected by plunging LME aluminum prices, but later rebounded to the 5-day moving average of RMB 14,600/mt late last week. The SHFE three-month contract price gain was supported by an increase in purchases while prices were down, and as other base metals prices moved higher. The slump in aluminum prices stimulated downstream buying interest, but the wait-and-see sentiment re-emerged as aluminum prices began to rebound. In summary, overall trading sentiment was relatively positive last week.
 
The SHFE market will be closed for three days next week due to the Chinese Dragon Boat Festival holiday, so LME base metals prices movements will become the focus of market players. LME aluminum prices should continue to fluctuate, with the US dollar index and copper price trends key factors behind aluminum prices. The Euro zone debt crisis has temporarily faded, the US dollar is losing upward momentum, and base metals prices are also finding it difficult to move higher given mixed economic data from the US.

In this context, SMM predicts LME aluminum prices will hover between USD 1,900-2,000/mt in the coming week. China’s May CPI has exceeded the 2010 target of 3%, raising expectations of an increase in interest rates, which will negatively affect futures markets after the holiday.  SMM predicts SHFE aluminum prices will continue to test the support range of RMB 14,000-14,500/mt next week.
 
Lead

Earlier this week, domestic lead markets were consumed with a panic sentiment due to plunging LME lead, and lead prices in the Shanghai market lost support at RMB 14,000/mt, falling as low as RMB 13,500/mt. As LME lead prices later rebounded, domestic lead prices rallied as well, to around RMB 14,000/mt on Thursday.  However, actual transactions were still soft due to volatile price movements, and downstream producers were not active in replenishing stocks before the upcoming holiday. 

Zinc

SHFE zinc prices opened lower and then fell to the daily price limit on Monday due to LME zinc prices and US stocks markets, and the weekly lowest price of SHFE 1009 zinc contract was at RMB 13,480/mt.  SHFE zinc prices were extremely bullish late last week as domestic A-shares in Chinese stock markets surged, led by bank shares, with large amounts of speculative funds entering the market.  As a result, SHFE zinc prices soared to daily price limits on Wednesday, with SHFE 1009 zinc contract prices closing at RMB 14,305/mt, and with a gain of 6.12% compared with the lowest price recorded on Tuesday.  SHFE 1009 zinc contract positions were 255,000 lots on June 12th, down 93,422 lots from a week earlier, an indication of raising risk-aversion sentiment in China’s domestic markets ahead of holiday.

In the spot market, stock building activities were soft, which is closely related to firm offers from traders and the fact that SHFE zinc prices finally stand above RMB 14,000/mt, despite of the approach of the Dragon Boat Festival. Averaged weekly traded prices of #0 zinc were RMB 13,768/mt, down RMB 1,362/mt or 9% from a week earlier.

With regard to inventories, supply of goods from smelters was limited in the market, so warrant transactions dominated market transaction, resulting in SHFE inventories down 4528 mt from a week earlier. However, spot inventories continued to increase, and zinc spot prices may face strong sell-off pressure at RMB 14,500-15,000/mt after the Dragon Boat festival, with weak upward, momentum over the short term.

Tin

In the Shanghai tin spot market, spot prices fell between RMB 136,500-137,000/mt, dragged down by LME tin price slump early last week. Spot market was sluggish and transactions were extremely quiet. Smelters, traders and downstream companies all adopted a wait-and-see attitude. Smelters believed that current price level was too low to move goods, traders thought that it was not appropriate to replenish stock given the thin profit at present, and downstream consumers only made purchases on an as-needed basis with strong wait-and-see attitude, and they preferred to use qualified unknown brand tin that has more competitive prices.

Market players told that transactions will not be strongly boosted under current strong bearish sentiment, even if suppliers slightly lowered offers. Downstream companies were all waiting for prices to fall further.

Spot prices ceased to slip and gradually stabilized when LME tin prices rebounded slightly later last week. However, market trading sentiment was still sluggish, indicating that market movement was not optimistic in the short term.

Supply of goods was limited in the market, and some goods will arrival in the following week. A three day holiday due to the Dragon Boat Festival will fall next week, and transactions will be affected by the holiday to certain extent. LME tin price performance was not well expected, and sluggish consumption will continue to drag spot tin prices, despite that spot prices are supported by firm offers from smelters. It is expected that tin prices will largely remain stable, and may have room to fall further.

Nickel

Chinese officials revealed on June 9th in advance that China's imports were up significantly during May, contributing to a weakening of the US dollar and a rebound in LME metal prices. LME nickel prices moved above the 5-day moving average at USD 18,642/mt, up USD 635/mt from a day earlier, and closed at USD 19,085/mt.  Inventories were down by 318mt, to 135,168mt.  On June 10th, LME nickel prices tested the USD 19,000/mt level, and any news from China becomes the focus of speculators.  Base metal may face increasing risks from speculative funds during the Dragon Boat Festival from 14-16 June.

Jinchuan Group cut ex-works nickel prices twice last week. As LME nickel prices fell below USD 18,000/mt on June 4th, Jinchuan Group cut ex-works nickel prices by RMB 12,000/mt, to RMB 156,000/mt, on June 7th. Since rapid declines in LME nickel prices created profits for imported nickel, large amounts of imported nickel from bonded areas flooded the market.  In this context, Jinchuan Group again cut ex-works nickel prices by RMB 6,000/mt, to RMB 150,000/mt, in order to maintain market share. Transactions were up, but still dominated by traders who took the opportunity to replenish stocks.  In addition, imported nickel in bonded areas quickly moved through customs clearance, resulting in a relatively ample supply of goods in the market.

According to the latest statistics, inventories were 251.6kt at 26 warehouses within the Wuxi stainless steel market, up 1.6%, and included 24.7kt of #200 stainless steel, #192.7kt of #300 stainless steel, and 34.2kt of #400 stainless steel.

Ex-works prices for #304 stainless steel from Taigang Stainless Steel were cut by RMB 1,000/mt, but #430 stainless steel prices were unchanged.  Currently prices are RMB 22,620/mt for #304 cold-rolled stainless steel, RMB 21,120/mt for #304 hot-rolled stainless steel, and RMB 12,420/mt for #430 cold-rolled stainless steel.

According to the results of SMM survey of domestic stainless steel mills, averaged operating rates during April and May were relatively stable at March levels, but operating rates in May were down slightly compared to April. This was due mainly to small and medium-sized mills adopting a wait-and-see attitude and cutting production slightly as nickel prices fell and orders for stainless steel were down.  It is known that Most domestic mills are planning to cut production during June, with stainless steel output expected to be significantly lower.

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

 
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