SMM Daily Review - 2010/8/3 Base Metals Market

SHANGHAI, August 4 (SMM) –

Copper
SHFE copper market on Tuesday moved downwards after opening at high. China A-share market fell below the 5-day moving average, down 1.7%, which caused SHFE copper market to be pressed at the daily moving average, and close in negative territory. SHFE copper for November delivery contract prices briefly reached RMB 58,230/mt after opening high at RMB 58,030/mt. With falling China A-share market, the most actively-traded copper contract moved narrowly in the RMB 57,700-57,800/mt range, and
position closing at the tail of trading helped prices end in negative territory. The November delivery copper contract finally closed at RMB 57,450/mt, close to a daily low level of RMB 57,400/mt, down RMB 70/mt from the previous trading day, or a drop of 0.12%. Trading volumes continued to increase. Positions for SHFE November delivery copper contract were up 2,972 lots to more than 198, 000 lots, and trading volumes exceeded 442,000 lots, and with the turnover rate of 223%, a sign of strong buying interest at low levels, supporting prices. After climbing above RMB 58,000/mt, market is exposed to profit-taking after constant gains, though upward momentum is still technically possible. Particular attention should be paid to movements on China A-share market on Wednesday, and the need of copper price corrections at high levels.

In the spot market, price declines from highs on the SHFE copper market added to downstream producer caution towards purchases at high prices, causing overall downstream purchasing volumes to drop from a day earlier. Suppliers quoted prices based on their own conditions, resulting in mixed offers. High-quality copper was still offered at premiums, especially for “Guixi” brand copper, and suppliers of domestic standard-quality copper were reluctant to move goods due to spot discounts. Supply of imported copper was limited as the SHFE/LME copper price ratio dropped below 7.8, and hydro-copper was quoted at discounts of negative RMB 100-150/mt, with limited supply. Transactions were generally made in the RMB 57,650-57,800/mt range. Overall trading sentiment was soft, while speculators were still active in the market due to spot discounts. Although copper prices now remain strong, spot discounts reflect the actual trading conditions in domestic copper markets, and also suggest the fundamental reason behind little improvements in the price ratio.

Aluminum
SHFE aluminum prices opened higher but moved lower, and SHFE 1011 aluminum contract prices opened at RMB 15,900/mt, and later climbed to RMB 15,930/mt temporarily, and finally closed at RMB 15,685/mt, down RMB 40/mt compared with the previous trading day, or down 0.25%. Trading volumes shrank slightly, but positions increased by nearly 5,000 lots. Recently, SHFE aluminum prices rose at a slower pace compared with LME aluminum prices, so it is normal that SHFE aluminum prices undergo downward corrections after soaring. Long positions grew significantly amid falling SHFE aluminum prices.
 
In the spot market, downstream fabricators held no interest in purchases given weakening SHFE aluminum prices, but traders took advantage of current spot discounts in an effort to gain profits, and overall trading sentiment was moderate. LME aluminum inventories jumped unexpectedly, exerting negative impact on the upward momentum in LME aluminum prices in the future, but the US dollar will remain weak in the short term, and LME aluminum market fundamentals remain strong as well, both having positive impact on LME aluminum prices. However, the risks faced by aluminum prices at high levels are gaining, and special focus should be put on changes in domestic financial markets in the following two days.   
 
Lead
As LME lead market overnight soared more than USD 140/mt, domestic lead prices climbed higher. SMM quoted prices between RMB 16,200-16,500/mt, and transactions were made in the RMB 16,300-16,450/mt range. As LME lead prices moved lower during Wednesday’s Asian trading hours, downstream producers and traders took a wait-and-see attitude.

At present, market mixed views expanded following higher prices, and any further upward momentum will be built after a sign of steadily rising trends. 

Zinc
SHFE 1011 zinc contract prices fell rapidly after opening slightly higher at RMB 17,000/mt, with prices mainly moving around RMB 16,900/mt in the morning. Although SHFE 1011 zinc contract prices edged higher slightly at noon led by China’s stock markets, prices finally ended at RMB 16,825/mt as large amounts of long positions exited from the market after profit-taking. Positions of SHFE 1011 zinc contract plummeted by 34,000 lots to 280,000 lots, while trading volumes also continued to drop to 1.049 million lots.
 
Zinc spot market sentiment remained neutral as well. #0 zinc was traded between RMB 16,450-16,500/mt in Shanghai market, with spot discounts moving around RMB 400/mt against SHFE 1011 zinc contract prices, while #1 zinc was traded within RMB 16,400-16,450/mt range. Market supply of zinc ingot was sufficient, but the divergence of downstream views on zinc price outlook intensified, so overall trading sentiment was lackluster.
 
SHFE zinc prices faced strong resistance at RMB 17,000/mt, and struggles between long and short positions at this level are expected to continue.

Tin
LME tin prices opened at USD 19,750/mt and closed at USD 19,775/mt on Monday, up USD 150/mt from a day earlier, with the highest price at USD 19,900/mt and the lowest price at USD 19,550/mt. Daily trading volumes were 337 lots and positions were 17,144 lots. LME tin inventories were up by 5mt to 15,005mt. Strong US economic data and European corporate earnings boosted investor confidence. On Tuesday, LME tin prices opened at USD 19,770/mt and tested the highest at USD 19,850/mt. LME tin prices maintained slight upward momentum, but it still takes time to tell whether or not tin prices can stay stable when other metal prices all slipped.
 
In the Shanghai tin spot market, supply of major brand goods reduced. Few volume of tin from Yunnan Gejiu Zili Metallurgy Co., Ltd was traded around RMB 145,500/mt and unknown brand tin was traded between RMB 143,000-144,000/mt. Overall prices declined to certain extent, and overall trading sentiment remained stable. Yunnan Tin group raised its ex-works tin prices to RMB 152,000/mt along with surging LME tin prices, but other brand tin smelters didn’t follow suit to lift offers. Traders told that they had difficulty in replenishing stocks due to firm offers from smelters. Supply of goods will stay at low level in the short term. 
 
Nickel
Strong US economic data and European corporate earnings boosted investor confidence. LME nickel prices opened at USD 21,025/mt and closed at USD 21,825/mt on Monday, up USD 775/mt from a day earlier, with the highest price at USD 21,920/mt and the lowest price at USD 21,025mt. Daily trading volumes were 2,484 lots and positions were 88,020 lots. On Tuesday, LME nickel prices opened at USD 21,800/mt, reaching the highest level at USD 21,866/mt and touching the lowest level at USD 21,550/mt, with the latest at USD 21,770/mt, down USD 65/mt from a day earlier. The slip of LME nickel prices is mainly due to profit-taking by investors. LME nickel inventories were down by 222mt to 118,158 mt, with inventory pressure being eased to certain extent.
 
In the Shanghai nickel spot market, Jinchuan Group raised its ex-works nickel prices again by RMB 3,000/mt to RMB 164,000/mt, and traders in the Shanghai nickel spot market also lifted their offers in the morning trading session. However, transactions at high price were limited. Mainstream traded pries were between RMB 165,000-165,500/mt, but traded prices slipped in the afternoon trading session, with the lowest at RMB 164,500/mt reported. Mainstream traded prices of Russia nickel were between RMB 163,500-163,800/mt. Overall trading sentiment was weak, and some large traders told that daily trading volumes were down by 2/3 on a weekly basis.

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