SMM Daily Review - 2010/7/26 Base Metals Market

SHANGHAI, July 27 (SMM) --

Copper

Supported by rising LME copper prices, SHFE copper market on Monday opened high at RMB 55,330/mt, and fell back in the morning session after hitting RMB 55,670/mt, coming under pressure from daily moving average. SHFE copper market dropped as low as RMB 55,100/mt at noon due to falling China A-share market. In the afternoon session, SHFE copper market advanced following a rally in China A-share market, and closed highly at RMB 55,570/mt. SHFE copper for October delivery copper contract felt resistance at RMB 55,600/mt on Monday, and could find solid support at RMB 55,000/mt. Positions for SHFE copper market dropped significantly. Positions for SHFE October delivery copper contract were down 18,832 lots to 164,000 lots, and trading volumes fell to around 238,000 lots, suggesting market strong risk aversion sentiment in trading at a session high. An upward momentum is still technically possible.

SHFE copper market tracked rising LME copper prices, but lacked motivation. SHFE current-month copper contract rose from RMB 55,300/mt, but met resistance at RMB 55,800/mt, causing the SHFE/LME copper price ratio to fall below 7.9. In this context, supply of imported copper reduced, while suppliers of domestic goods showed high interest in moving goods at high prices, with premiums offered between positive RMB 50-80/mt. Premiums fell to RMB 0- positive 50/mt due to depressed sales in the morning business, and a limited number of imported copper was quoted at discounts of negative RMB 50-20/mt. Transactions were generally made in the RMB 55,300~55,550/mt range. Downstream producers took a cautious attitude due to constant price rallies, while some traders were eager to enter the market as they believed that copper prices will gain to RMB 56,000/mt.

Market views are divided on outlook. Pessimists believes that shorts will enter the market again as existing macro-economic conditions remain unclear; optimists believes that the US dollar remains under pressure, and gold prices are still on the increase, and China A-share market efforts to reach 2,600 points will all support copper prices. Some other market players believes that LME copper prices consolidate at USD 7,000/mt for some time.

Aluminum

SHFE base metals prices generally opened high on July 26th, but SHFE aluminum prices were weaker than other base metals in the morning session. SHFE 1010 aluminum contract prices opened at RMB 15,270/mt, and later fluctuated lower to RMB 15,215/mt. The rally in China's A-share markets at noon helped support base metals prices, and SHFE 1010 aluminum contract prices rebounded strongly driven up by positive technical indicators, with prices climbing to RMB 15,450/mt, up RMB 205/mt, or up 1.35%. Trading sentiment was brisk, with total positions increasing by nearly 6,000 lots. SHFE aluminum prices will continue to fluctuate higher in the short term, but steadily expanding spot discounts will hamper any increases in SHFE aluminum prices to some extent.  

Market players stood on the sidelines in east China, and downstream fabricators lacked confidence in higher prices. Traders kept offers relatively firm, and large amounts of goods were tied up in financial deals, so spot discounts will unlikely expand substantially. Aluminum prices stood above the 60-day moving average, and trading volumes doubled, but the growth in positions was limited, an indication of growing short-term transactions. SMM predicts SHFE aluminum prices will remain strong on July 27th buoyed by other base metals, with SHFE 1010 aluminum contract prices expected to test the RMB 15,500/mt resistance level.    

Lead

Although LME copper prices experienced corrections during Asian trading hours, domestic lead prices reached RMB 15,500/mt, triggering buyer caution in purchases. However, buying interest improved in the afternoon trade due to rising LME lead prices, and traders became unwillingness to move goods due to optimistic outlook. Transactions in the Shanghai market were traded between RMB 15,450-15,550/mt. Market players are divided on the outlook. Optimists believe that domestic lead prices will advance to RMB 16,000/mt, while some others expect prices to struggle in the RMB 15,500-15,800/mt range in the short term.

Zinc

China's plan to limit production of nonferrous metals by 2015 boosted stock markets, and SHFE zinc prices opened slightly higher, and later advanced significantly at noon. Finally, SHFE 1011 zinc contract prices closed at RMB 16,205/mt, easily climbing above the 60-day moving average. Positions of SHFE 1011 zinc contract increased by nearly 100,000 lots to 280,000 lots.

Zinc prices have risen for nine consecutive days, and some downstream producers began to make purchases. As a result, spot market sentiment improved slightly. #0 zinc was mainly traded between RMB 15,650-15,700/mt in Shanghai, and traded prices for #0 zinc even reached RMB 15,800/mt in the afternoon. #1 zinc was mainly traded around RMB 15,650/mt in the morning. SHFE zinc prices broke through the previous resistance level, resulting in intensifying the divergence of market views on market outlook. More market players are optimistic toward zinc prices this week. Special focus should be put on whether or not SHFE zinc prices can hold steady at RMB 16,200/mt, with the resistance level expected to be RMB 16,500/mt in the near term.

Tin

The European Union bank stress test results didn’t contain many surprises, giving a dose of confidence to the market and improving economic prospect. LME copper prices were pushed up above USD 7,000/mt from fund buying, which helped to stimulate stable tin prices. LME tin prices opened at USD 18,550/mt last Friday, and advanced by more than 6% to USD 19,750/mt, reaching a high last seen in September 2008, with prices ending at USD 19,175/mt, up USD 625/mt from a day earlier. Daily trading volumes were 672 lots and positions were 17,023 lots. LME tin prices opened at USD 19,200/mt on Monday, and continued to test previous day's high along with strong momentum of other base metals.

The LME tin price surge stimulated Shanghai tin spot prices. Tin smelters tentatively lifted offers to RMB 142,000-146,000/mt in the morning trading session, and traders also follow suit due to limited supply of goods. Purchasers from downstream companies increased, and unknown brand tin with traded prices between RMB 142,000-143,500/mt was sold out quickly. Upstream smelters continued lifting offers in the afternoon trading session when LME tin prices further advanced. Smelters offered tin from Yunnan Tin group above RMB 150,000/mt and other brand tin smelters also lifted offers to RMB 145,000/mt, with increased unwillingness to move goods by smelters and cautiously bullish sentiment dominating market.

Nickel

LME nickel prices opened at USD 20,205/mt and closed at USD 20,425/mt last Friday, up USD 220/mt from a day earlier, with the highest price at USD 20,631/mt and the lowest price at USD 20,120/mt. Daily trading volumes were 3,278 lots and positions were 86,303 lots. Inventories reduced by 396mt to 116,814mt. Fund buying increased due to improved economic prospect. LME nickel prices opened at USD 20,310mt on Monday, reaching the highest at USD 20,810/mt and touching the lowest at USD 20,310/mt, with the latest at USD 20,662/mt, up USD 237/mt from a day earlier.

In the Shanghai nickel spot market, overall trading sentiment was relatively brisk. Downstream purchases increased and transactions were relatively brisk, with demand recovering to certain extent. Prices of Russian nickel were between RMB 159,500-160,000/mt and prices of nickel from Jinchuan Group were between RMB 160,500-161,000/mt.

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