SMM Daily Review - 2010/8/2 Base Metals Market

SHANGHAI, August 3 (SMM) –

Copper
SHFE copper market advanced further after a high open on Monday, and broke through the peak level of RMB 58,000/mt since May during the session. SHFE copper for November delivery opened high at RMB 56,830/mt, and rallied all the way to RMB 58,030/mt in the afternoon session. Finally, the most actively-traded copper contract on the SHFE market closed at RMB 57,590/mt, up RMB 1,410/mt from the previous trading day, or up 2.5%. Both positions and trading volumes increased. Positions for SHFE November delivery copper contract were up 9,400 to 195,000 lots, and trading volumes expanded to more than 450,000 lots, with turnover rate of 231%, a sign of brisk trading sentiment. SMM believes that the bullish trend will remain, and the next target will be the RMB 58,000/mt, and then point to RMB 60,000/mt. China A-share market has rebounded recently, and kicked off the August in a strong mood today, up 1.33%, and Shanghai Composite index held firm at the 5-day moving average, approaching to 2,700 points. Amid favorable external markets, especially the loose monetary policy, more speculative funds will enter the China A-share market and base metals market. Domestic copper market will remain strong along with bullish sentiment.

In the spot market, spot discounts changed with movements on the SHFE copper market. As the SHFE/LME copper price ratio remains unfavorable for imports, supply of imported copper was limited in the morning session, with spot discounts between negative RMB 50- 100/mt, mainly domestic copper. With rapid price rallies on the SHFE copper market, up RMB 500/mt within half an hour, spot discounts expanded to negative RMB 150~250/mt. A limited number of imported copper entered the market, and the acceptance to high-quality copper was high, with transactions made in the RMB 57,050-57,150/mt in the morning business. After 11:00 am, traded prices increased to RMB 57,500-57,650/mt. In the afternoon trade, supply of high-quality copper was in shortages, with discounts improving to negative RMB 30-150/mt, dealing stably between RMB 57,600—57,750/mt. On Monday, spot copper prices climbed above RMB 57,000/mt, kicking off the August in a strong mood, approaching RMB 58,000/mt. Downstream producers generally made purchases on an as-needed basis, and were hesitant to build up stocks, depressing market transactions. SMM believes downstream producers with ample cash flow will likely enter the market for purchases, once the rising trend remains in August. Speculators were active in the market on Monday in face of high-quality copper with discounts as high as negative RMB 100/mt.

Aluminum
SHFE aluminum prices opened higher driven up by LME aluminum prices, and rising China’s A-share markets also helped SHFE aluminum prices maintain the upward trends. SHFE 1011 aluminum contract prices opened at RMB 15,650/mt, with the highest level and lowest level reported at RMB 15,820/mt and RMB 15,610/mt, respectively, and finally prices closed at RMB 15,725/mt, up RMB 255/mt compared with the previous trading day, or up 1.65%. Positions increased by over 30,000 lots, and trading activity of SHFE 1011 aluminum contract was more bullish than SHFE 1010 aluminum contract. Technical indicators show signs of rising, and spot discounts fail to expand significantly.
 
Spot markets failed to keep pace with SHFE aluminum prices, and downstream fabricators chose to stand on the sidelines after aluminum prices jumped, but traders were optimistic in the morning session, with spot discounts ranging between 70-80/mt. However, spot discounts expanded to RMB 100/mt after SHFE aluminum prices inched up amid a lack of support from downstream buying, and overall trading sentiment was lackluster.
 
LME aluminum prices posted stronger performance among all base metals, with price increases only less than nickel prices, positively affected by steady declines in LME aluminum inventories, rising aluminum premiums in Europe and the US, as well as speculations of the launch of the aluminum exchange traded fund (ETF). SMM predicts LME aluminum prices will remain strong given positive economic data, with possibility of rising further, but SHFE aluminum prices will increase at a slower pace, with SHFE 1011 aluminum contract prices expected to test the RMB 16,000/mt mark in the near term. 
 
Lead
A bullish sentiment was strong in the Shanghai market on Monday, and SMM lifted prices by RMB 100/mt to RMB 15,950-16,150/mt, and it is a matter of time for domestic lead prices to stand above RMB 16,000/mt. Downstream buying interest improved, but still preferred to buy low-priced goods from Yunnan, dealing at around RMB 16,000/mt. Offers for well-known branded goods were firm at RMB 16,050-16,100/mt, and with strong unwillingness to move goods. In the afternoon, LME lead prices climbed above USD 2,100/mt, stimulating market transactions in domestic lead markets.

SMM believes domestic lead prices will rise above RMB 16,000/mt on Tuesday, and point to RMB 16,200/mt. 
 
Zinc
SHFE zinc prices opened slightly higher at RMB 16,500/mt, and later moved higher all the way led by SHFE copper prices. SHFE 1011 zinc contract prices continued to move at high levels at noon, with the highest prices reported at RMB 16,850/mt, and finally closed at RMB 16,755/mt, up 2.8%. Positions of SHFE 1011 zinc contract increased by nearly 20,000 lots, but a large number of investors exited from the market at the closing, so positions of SHFE 1011 zinc contract finally fell by 3,544 lots. Trading volumes of SHFE 1011 zinc contract reached 1.08 million lots, and although some market players stayed out of the market, and trading volumes fell significantly compared with previous levels, the trading volumes higher than 1 million lots still reflect the bullish transactions on the SHFE zinc market. 
 
In the spot market, SHFE zinc prices extended gains on the first trading day of this week, increasing the wait-and-see sentiment in zinc spot markets. #0 zinc was traded between RMB 16,250-16,300/mt in Shanghai market, with spot discounts ranging between RMB 380-400/mt, while #1 zinc was traded within RMB 16,220-16,280/mt range. SHFE zinc prices rose further at noon, and spot discounts for #0 zinc remained unchanged, so offers for #0 zinc advanced to near RMB 16,400/mt, but trading volumes were limited.
 
As to this round of rises in zinc prices, market players still remain cautious about further zinc price gains despite that they have shifted to an optimistic attitude, and most of them believe zinc prices will fluctuate between RMB 16,000-17,000/mt. Any pressure faced by zinc prices on their upward track will depend on China’s stock markets and SHFE copper prices in the short term.

Tin
LME tin prices opened at USD 19,500/mt and closed at USD 19,625/mt, up USD 25/mt from a day earlier, with the highest price at USD 19,700/mt and the lowest price at USD 19,400/mt. Daily trading volumes were 304 lots and positions were 17,113/mt. LME tin inventories reduced by 50mt to 15000mt. The optimistic rebound is mainly due to better-than-expected business reports from the US. On Monday, with the weakening of the US dollar, LME tin prices opened at USD 19,750/mt, reaching the highest at USD 19,850/mt and the lowest at USD 19,550/mt.
 
In the Shanghai tin spot market, overall tin prices were affected by the impact of supply of low-priced tin. Traded prices of major brand tin were between RMB 145,000-146,000/mt, and traded prices of unknown brand tin were between RMB 143,500-144,500/mt. Mainstream prices remained stable, but overall trading sentiment was sluggish. A small portion of smelters lowered offers slightly due to sluggish transactions at current high prices. LME tin prices continued to advance, but domestic tin prices can not keep up with rising pace of LME tin prices and even showed signs to decline. The weaker domestic tin prices are mainly due to wait-and-see attitude from downstream companies and a lack of support from transactions. Struggles between smelters and downstream purchasers continued, and spot tin prices may stall at current level this week. 
 
Nickel
The better-than-expected US business reports made base metal prices rebound optimistically. LME nickel prices opened at USD 20,450/mt and closed at USD 21,050/mt last Friday, up USD 350/mt from a day earlier, with the highest price at USD 21,200/mt and the lowest price at USD 20,450/mt. LME nickel prices successfully broke through the resistance level and stood above USD 21,000/mt. On Monday, LME nickel prices opened at USD 21,025mt on Monday, reaching the highest at USD 21,800/mt and touching the lowest at USD 21,025/mt, with the latest at USD 21,575/mt, up USD 525/mt from a day earlier. LME nickel inventories increased by 882mt to 118,380mt.
 
In the Shanghai nickel spot market, Jinchuan Group lifted nickel ex-works prices by RMB 3,000/mt to RMB 161,000/mt, and traders also followed suit to lift offers. However, overall trading sentiment was relatively sluggish, and transactions were dominated by traders. Mainstream traded prices of nickel from Jinchuan Group were around RMB 163,500/mt and traded prices of nickel from Russia were between RMB 142,200-142,800/mt.

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