SMM Weekly Review and Forecast (August 2-6)

SHANGHAI, Aug. 9 (SMM) -- China and other economies released a series of economic data including PMI last week, and the manufacturing data in major economies shows the recovery in global economy will continue. Last week, the US equity markets advanced and the US dollar index weakened, causing LME base metals prices to move higher. The SMMI rose by 0.98% last week led by lead and zinc prices, with SMMI.Zn and SMMI.Pb up 2.99% and 2.73%, respectively. The US dollar will continue to come under pressure in the near term. If Jean-Claude Trichet, Governor of European Central Bank (ECB), implies that the ECB will tighten the monetary policy at the monthly monetary policy meeting in August, the US dollar index will likely fall further, which will in turn help base metals prices remain strong in the near term.

Copper:
SHFE copper prices rose slower than LME copper due to a lack of funds and weak spot consumption over the past week. SHFE copper for November delivery has become the most actively-traded contract, with prices reaching as high as RMB 58,500/mt.

Cargo-holders were divided on selling goods. Cargo-holders of imported copper sold limited amounts due to the unfavorable ratio, while domestic copper smelters had greater interest in selling at high prices. However, some cargo-holders were unable to sell goods due to losses from short hedging. Generally speaking, market supply increased slightly. Downstream producers remained on the sidelines as they believed the continuous price increases during the seasonal low demand period would bring about risks. In general, overall market trading sentiment turned more pessimistic as supply rose and demand fell.  

This coming Friday, US non-farm employment data for July is expected to show a decrease of 60,000. If the data is worse than expected, the US dollar should fall further. If the data is positive, market confidence towards the pace of US economic recovery should improve financial markets. This reaction is an indication of the impact the results will have on LME copper price movements. In addition, the leveling out of LME copper inventories will also dampen upward momentum of copper prices in the future. 

SMM believes LME copper prices will remain strong in the short term and will not experience any significant downward corrections, based on the recent immediate rebound of LME copper prices after last week's slight price declines. SMM expects LME copper prices to fluctuate in the USD 7,350-7,650/mt range in the coming week.

Aluminum:
Last week, SHFE 1011 aluminum contracts became the most active in the SHFE aluminum market. Contract prices opened significantly higher and closed with strong gains on Monday, with prices mainly fluctuating around RMB 15,700/mt later in the week. However, aluminum price movements were still weaker than other base metals. Spot aluminum prices kept pace with SHFE aluminum prices early last week, with prices climbing to RMB 15,300/mt. Market optimism was stronger, with traders keeping offers firm, but downstream buying interest was still soft. Suppliers cut offers late last week, boosting buying interest, helping trading sentiment improve. 

China's markets are still absorbing consecutive rallies in China's A-share markets and rumors that China's Central Government will take additional measures to rein in property prices. In this context, SMM predicts SHFE 1011 aluminum contract prices will mainly test the 5-day moving average next week, with special interest paid to any changes in domestic financial markets.

Lead:
Driven by rising LME lead prices, domestic lead prices advanced to above RMB 16,000/mt earlier in the week, with brisk trading sentiment. In the following days, LME lead market lacked further upward momentum, while domestic lead prices gained further to around RMB 16,400/mt, making some downstream producers and traders believe prices would fall. Hence, trading sentiment turned lackluster later in the week. If lead producers resume their interest in moving goods, domestic lead prices will fluctuate at around RMB16,000/mt.

Zinc:
SHFE three-month zinc contract prices continued to move higher along with LME zinc prices, rising as high as RMB 17,485/mt, after remaining steady at RMB 16,000/mt, and posting a weekly gain of 4.8%. Average traded prices for #0 zinc were RMB 16,405/mt, and regional stocks were 479 kt last week, down 5 kt from a week earlier. Zinc stocks in Shanghai and Tianjin remain stable, but stocks in south China were down due to lower delivery volumes.

SHFE zinc prices will also move higher following gains by LME zinc prices, but next Friday (August 13th) will be the last trading day of SHFE 1008 zinc contract, and market players generally take a more rational and cautious approach around delivery dates. As a result, SMM predicts SHFE three-month zinc contract prices will fluctuate between RMB 16,800-17,800/mt in the coming week, with mainstream zinc prices expected to rise further.

Tin:
China's spot tin prices firstly eased but later rallied last week. Wait-and-see sentiment from downstream purchasers was strong and prices were relatively stable early last week, but domestic smelters constantly lifted their offers late week when LME tin prices jumped last last Thursday. Offers from major brand tin smelters were raised above RMB 150,000/mt and ex-works tin prices from Yunnan Gejiu Zili Metallurgy Co., Ltd were as high as RMB 155,000/mt. Quiet market sentiment turned into bullish sentiment, and trading sentiment was extremely brisk. Supply of goods from traders was limited in the Shanghai tin spot market so trading volumes didn't grow significantly, but trading sentiment improved significantly.

Traders continued to lift offers. Up to last Friday, traded prices of major brand tin were RMB 148,000/mt and traded prices of unknown brand tin were between RMB 146,000-147,500/mt. Traders told that supply of goods is reduced further at present, as smelters were reluctant to move goods for the expectation of optimistic outlook in the future, creating difficulties for traders to replenish stocks. It is expected that prices may still have room to climb further under the context of limited supply and bullish market sentiment.

Nickel:
Traded prices for China's domestic spot nickel were up from last week and due mainly to sharp price increases by Jinchuan Group. Downstream demand was lukewarm last week, with transactions largely done between traders. Mainstream traded prices for nickel from Jinchuan Group advanced to between RMB 165,000-165,500/mt and traded prices for imported nickel were also higher, between RMB 164,000-164,500/mt. Total inventories in Shanghai and south China were down 1.2%.

The RMB 500/mt price increase from Taigang Stainless Steel was in line with market expectations. LME nickel prices strengthened, adding to the bullish market sentiment. Spot stainless steel prices were generally higher last week, while total inventories were down slightly. Supply tightened, but market purchases were still lukewarm. Recent price increases for stainless steel are thought to be mainly from higher nickel price, since current tight supply of stainless steel is only short-term and not sustained enough to push up stainless steel prices. In this context, overall market sentiment was still lukewarm.

According to the survey results for operating rates at domestic stainless steel producers during June, operating rates at stainless steel mills were down from May. Operating rates were down particularly significant at smaller and medium sized producers with capacity below 100,000mt/yr. Production at private small mills is more flexible, and most only arrange production plans once orders are received. Operating rates at smaller mills began falling as China's domestic stainless steel market entered into a seasonal low-demand period. Although a portion of larger mills halted production in order to conduct unit maintenance, overall output is not expected to be affected. In this context, operating rates at these large stainless steel mills were only down slightly.

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