SMM Daily Review - 2010/7/14 Base Metals Market

SHANGHAI, July 15 (SMM) –

Copper
Supported by rallying LME copper market overnight, SHFE copper market on Wednesday opened higher, but any upward strength was weak, and gave up gains in the afternoon session due to falling China A-share market. The most actively traded copper contract on the SHFE market opened high at RMB 52,920/mt, and fell back later after reaching as high as RMB 53,200/mt. In the morning session, the October delivery copper contract on the SHFE market was able to move narrowly around RMB 53,000/mt. However, China’s A-share market felt pressure from the Agricultural Bank of China’s beginning of trading on Thursday, sending Shanghai Composite down after approaching 2,500 points, and SHFE copper market made quick response to falling stock market. SHFE October delivery copper contract lost earlier gains, down as low as RMB 52,710/mt before ending at RMB 52,910/mt, up RMB 250/mt or 0.47%. Positions for SHFE October delivery copper contract stabilized around 208,000 lots, and trading volumes dropped slightly to 397,000 lots. SMM believes that SHFE October delivery copper prices will likely continue to experience corrections.

The delivery date for SHFE current month copper contract nears, and the price gap between SHFE current month and August delivery copper contract remains around RMB 300/mt, greatly affecting spot transactions. Overall trading sentiment on Wednesday was low. Spot premiums were quoted between RMB 0/mt and positive RMB 80/mt in the morning. Downstream producers showed no interest in buying goods at high prices, while cargo-holders were eager to move goods for cash generation at high prices before the arrival of delivery date, nudging spot premiums lower to positive RMB 20/mt, but with sparse buying interest. Transactions in the morning trade were made between RMB 53,680-53,750/mt, and traded prices dropped to RMB 53,500-53,650/mt. Tomorrow will be the last trading day before the delivery date. Meanwhile, China will announce a slew of major economic data tomorrow, and the Agricultural Bank of China will start trading on the same day. If the data is favorable, market sentiment will be improved, and stock and futures markets will be positively responded as a result.

Aluminum
SHFE aluminum prices were weaker than LME aluminum prices, and SHFE 1009 aluminum contract prices climbed to RMB 14,880/mt temporarily after opening slightly higher at RMB 14,800/mt. The strengthening China's A-shares in the morning session failed to push up SHFE aluminum prices, and SHFE 1009 aluminum contract prices dipped to RMB 14,780/mt, and finally closed at RMB 14,810/mt. Trading sentiment was bearish, and total trading volumes were 61,462 lots, and positions declined by 4,426 lots to 247,164 lots.
 
Spot market sentiment was neutral negatively affected by sluggish SHFE aluminum prices, and signs that the demand from selected sectors was weakening further depressed downstream buying interest. Spot discounts remained zero against SHFE 1007 aluminum contract as the delivery date nears, but spot discounts are expected to expand after the delivery date, and overall trading sentiment was lackluster. July 15 is the last trading day of SHFE 1007 aluminum contract, and China's economic data in June will be released as well. Meanwhile, the Agricultural Bank of China (ABC) will start trading on July 15. In this context, China's macro economic data and stock market movements after ABC starts trading on the Shanghai Stock Exchange will directly affect SHFE aluminum price trends.     
 
Lead
Domestic lead prices followed rising trend of LME lead market overnight, but fluctuating LME lead prices depressed downstream buying interest, leaving lackluster trading sentiment. Sales of well-known branded goods in the Shanghai market were depressed, with actual deals made in the RMB 14,750-14,850/mt range. Currently, domestic lead producers are continuing to control sales in bulk, and some downstream producers in south China reported some deals traded at premiums.

Zinc
SHFE 1010 zinc contract prices opened slightly higher at RMB 15,035/mt, and later moved narrowly around RMB 15,050/mt all day. SHFE 1010 zinc contract prices fluctuated rapidly in the morning session, with prices hitting the highest level and the lowest level at RMB 15,160/mt and RMB 14,955/mt, respectively, and finally closed at RMB 15,105/mt. SHFE 1010 zinc contract prices received support at the 30-day moving average temporarily, and positions of SHFE 1010 zinc contract declined by 17,200 lots to 296,750 lots, and trading volumes also plummeted by 360,000 lots to 1.7 million lots, an indication of the wait-and-see sentiment.
 
In the spot market, difficulties in spot transactions grew significantly as SHFE zinc prices experienced rapid fluctuations in the morning. #0 zinc was mainly traded between RMB 14,950-15,000/mt, with spot discounts ranging between RMB 100-120/mt, and difficulties in transactions at the high-end of price range increased. #1 zinc was traded between RMB 14,900-14,950/mt. Most downstream producers adopted a wait-and-see attitude as the delivery date nears, and market players were focused on the upcoming China's macro economic data for 1H 2010, as well as possible changes in China's monetary policy for 2H 2010.

Tin
LME tin prices opened at USD 17,400/mt and closed at USD 17,870/mt on Tuesday, up USD 321/mt from a day earlier, with highest price climbing to USD 18,175/mt and the lowest price touching USD 17,350/mt. Trading volumes were 422 lots and positions were 17,394 lots. The euro hit a two month high and LME tin prices hit a two week high, as equity market rebounded robustly from strong performance of the US companies. Meanwhile, smooth sales of Greece treasury bills also helped ease concerns over the European debt crisis eased to certain extent. LME opened at USD 17,920/mt and climbed to test USD 18,000/mt, still fluctuating narrowly.

Some smelters lifted prices by RMB 1,000/mt along with LME tin price increases, but overall transactions were still lackluster. In the Shanghai tin spot market, limited supply of goods as well as strong wait-and-see sentiment made prices still stay largely stable. Traded prices of tin from Yunnan Tin group were between RMB 138,800-139,000/mt and traded prices of unknown brand tin were between RMB 137,800-138,000/mt. Trading sentiment was better than previous days, but overall trading sentiment was still lackluster. Downstream companies need more clear price directions to improve purchasing interest. 
 
Nickel
LME nickel prices opened at USD 19,149/mt and closed at USD 19,476/mt on Tuesday, up USD 327/mt from a day earlier, with the highest price at USD 19,618/mt and the lowest price at USD 18,985/mt. Daily trading volumes were 1,773 lots and positions were 88,691 lots. Inventories reduced by 276mt. On Wednesday, LME nickel prices opened at USD 19,500/mt, reaching highest price at USD 19,650/mt and touching the lowest price at USD 19,475/mt, up USD 174/mt, with latest price at USD 19,650/mt. LME tin prices moved above all moving averages. The rally of the European equity market as well as a strong euro made base metal price fluctuate upward.
 
In the Shanghai nickel spot market, transactions were relatively brisk due to LME nickel price increases. However, transactions were still largely down between traders, and downstream end users still remained conservative. Traded prices of nickel from Jinchuan Group were around RMB 155,000/mt and traded prices of imported nickel were between RMB 153,500-154,000/mt.

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

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