SMM Weekly Review and Forecast (July 26-30)

SHANGHAI, August 2 (SMM) - With moderating policies on the property market and cash flow, market risk sentiment increased in domestic stocks and commodity markets. Meanwhile, the better-than-expected results of European bank stress tests eased market worries. SMMI gained over the past week, up 1.37%. SMMI.Sn and SMMI.Pb led the gains, up 3.57% and 3.29%, respectively. SMM believes that base metals market will move upward with China A-share market in the short term, given favorable domestic policies, improved cash flow, and easing concerns over the economy in the EU and US, and technical rebounds.  

Copper
SHFE copper prices were slower to advance over the past week due to weak spot consumption in domestic markets. For most of the week, SHFE copper prices rose, but were unable to match gains made by LME copper. SHFE August delivery copper contract prices broke through the RMB 56,000/mt mark.

Deliveries of goods to Shanghai were down since maintenance at copper smelters is ongoing.  Cargo-holders of refined copper were eager to sell goods in view of higher prices, while supply of imported copper was restricted by declines in the price ratio over the past week. Downstream demand was significantly weaker due to fewer orders during the summer low demand period. Downstream producers generally stayed out of the market, leaving trading activity low.

After hitting several new highs over the past week, copper prices remain bullish, with continued upward momentum is still technically possible. In other news, the euro may feel resistance in move higher, while the US dollar is expected to remain weak in view of markets higher appetite for risk. In addition, China’s A-share market will likely reach 2,700 points following optimistic statements by China’s Central Bank with regard to economic growth. Sentiment in overseas markets is favorable for prices, and will support copper prices. The only negative factors for copper price gains are current soft demand and high prices for scrap copper in China. However, SMM believes that any unfavorable market fundamentals will be overshadowed by speculation in the short term. 

In this context, SMM believes copper prices will continue to rise, testing higher prices, with LME copper prices expected to move between USD 7,100-7,300/mt.

Aluminum
SHFE aluminum prices made several attempts to reach RMB 15,500/mt, supported by positive economic news, but strong resistance caused SHFE aluminum prices to stall between RMB 15,000/mt and the 5-day moving average. Spot transactions were lackluster early last week due to resistance from buyers to the higher prices. Although spot discounts expanded slightly, aluminum prices still posted small gains. As a result, buyers were forced to accept higher prices and transactions improved slightly.

Domestic consumption has become the current focus of market players, but even marginal declines in aluminum stocks are giving support to aluminum prices, regardless of the market fundamentals. SHFE aluminum prices will experience downward corrections after surging to RMB 15,200/mt, but any declines will be limited. SMM predicts SHFE aluminum prices will be weaker than LME aluminum prices, but the SHFE aluminum price range will be higher.

Lead
Domestic lead prices showed strong performance over the past week, and prices broke through RMB 15,500/mt, approaching the RMB 16,000/mt mark in late week. But, trading sentiment was low at higher price levels. SMM expects domestic lead prices to test the previous resistance level of RMB 16,000/mt in the coming week.

Zinc
SHFE 1011 zinc contract prices continued to consolidated around RMB 16,000/mt after becoming the most actively traded contract and as LME zinc prices moved steadily higher. However, a wait-and-see sentiment grew as zinc prices approached RMB 16,500/mt and price trends became less clear. In this context, copper prices and China's A-share market trends will serve as key factors affecting near-term zinc prices. Spot market sentiment was neutral, and some downstream producers began to make purchases in view of their low raw material inventories when zinc prices strengthened. Average traded prices for #0 zinc were RMB 15,828/mt in Shanghai, up 3.6% from a week earlier.

Regional stocks continued to fall, with lower market supply the main reason behind steady declines in zinc stocks. Total stocks in Shanghai, Tianjin, and Guangdong last week were reported at 484 kt. SHFE zinc inventories also fell further by 1,108 mt to 243 kt last week, with the decline slowing sharply compared with the 4,000 mt drop a week earlier. 

Tin
Domestic spot tin prices surged along with LME tin prices last week. Overall trading sentiment was brisk on Monday. Traders lifted offers and replenished stocks actively, and downstream producers also entered the market to replenish stocks at an increasing volume, with goods sold rapidly between RMB 142,000-143,500/mt. Tin smelters continued to lifted offers along with surging LME tin prices, with goods from Yunnan Tin group above RMB 150,000/mt and other unknown brand tin above RMB 146,000/mt. Overall market sentiment became bullish and suppliers showed reluctance to move goods. With growth pace of LME tin prices becoming slower last Tuesdays, downstream purchasers gradually reacted quietly and adopted a wait-and-see attitude towards high domestic spot prices, resulting in gradual sluggish transactions. Overall trading sentiment was even more sluggish on Thursday, and few traders lowered prices to promote sales last Friday. In this context, mainstream prices slipped slightly, with traded prices of major brand tin between RMB 144,000-146,000/mt and traded prices of unknown brand tin between RMB 143,500-145,300/mt.

This round of price rally is completed pushed up by LME tin prices surge, but is lacking of support from domestic consumption, therefore, domestic market become quiet rapidly. Recent domestic tin prices will receive certain support from strong LME tin prices, but the sluggish demand for tin in domestic market will become the biggest obstacle preventing prices from rising. It is expected that domestic tin spot prices will slip slightly at a stable pace this week. 
 
Nickel
Economic data from the EU and US guided LME nickel prices last week. LME nickel for delivery in three months rose early last week, but later fell back slightly after profit-taking.  At the end of last week, LME nickel prices rebounded to USD 20,675/mt, due to positive employment data from the US. Low-end nickel prices were higher last week, with prices between USD 20,450 and 20,760/mt. Inventories increased by 444mt, to 116,778mt.

In the Shanghai nickel spot market, transactions were brisk early last week, but later became quiet at the week’s end.  Market confidence resumed when Jinchuan Group raised nickel prices, resulting in brisk trading activity early last week. Mainstream traded prices for nickel from Jinchuan Group rose to between RMB 160,500-161,000/mt, while mainstream traded prices for imported nickel increased to RMB 159,500/mt.  Downstream consumers purchased goods slight cautiously on July 28th and 29th. Total spot nickel inventories in Shanghai and south China were down by 8.5%.

Stainless steel prices continued to rebound as steel mills lifted prices last week.  However, stainless steel prices stalled late last week when LME nickel prices began to fluctuate, waiting for a clearer nickel price trend.  Current tight supply of certain specification stainless steel and higher nickel prices have pushed up stainless steel prices, but overall trading sentiment has not improved.  Due to recent RMB appreciation, exports from stainless steel related industries have fallen sharply.  Sales of domestic automobiles, as well as kitchen and bathroom products, continued to be weak.  In this context, domestic stainless steel markets may not improve for the foreseeable August.

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