SMM Weekly Review and Forecast (Aug. 9-13)

SHANGHAI, Aug. 16 (SMM) – According to data released on August 11 by China’s National Bureau of Statistics (NBS), China’s CPI rose further in July, and its economy grew at a slower pace. Moreover, data from China’s Customs also indicates that China’s growth of imports experienced marked declines in July. Rebounding US dollar further weighed down base metal prices. In this context, SMMI moved lower over the past week, with a weekly decline of 2.12%. Zinc, which represented larger gains previously, dropped rapidly during the past week. SMMI.Zn slid as much as 3.96%, leading declines of other base metals, followed by SMMI.Cu and SMMI.Pb, down 2.11% and 1.86%, respectively. The disappointing economic data from the US has depressed market sentiment, and economic recovery in the Europe is also weaker than expected. In this context, SMM believes that base metals market will continue to come under downward pressure in the near future.

Copper
Previously, SHFE copper prices were slower to gain compared with LME copper market, but this time SHFE copper market showed a sign of dropping independently of LME copper market.  All copper contracts on the SHFE copper market fell below RMB 57,000/mt. SHFE November delivery copper contract, the most active, lost support at the 5 and 10-day moving averages, hovering around RMB 56,000/mt.

In the spot market, buyers generally adopted a wait-and-see attitude in face of price declines, rather than purchases at lower prices, resulting in sluggish trading sentiment. Despite the approach of delivery date, spot discounts remained. Supply of imported copper was limited due to the unfavorable price ratio. Unit maintenance at some smelters is still under way, and other smelters were reluctant to move goods as prices fell as delivery dates neared. However, those cargo-holders profiting from price declines in the futures market chose to sell off goods, increasing market supply. The latest round of price declines reinforced buyer pessimism, further dampening purchasing interest. In generally, market transactions were weak.

SMM believes copper prices will rebound from lows in the coming week, since last week’s declines were simply a reaction to weak economic data. LME copper prices is expected to level out in the coming week near USD 7,300/mt, and hover between USD 7,000-7,500/mt.

Aluminum
SHFE aluminum prices have fallen to below several moving averages, with SHFE 1011 aluminum contract prices falling to near RMB 15,400/mt. Spot aluminum prices also fell below RMB 15,100/mt, following lower SHFE aluminum price trends. Buyers stood on the sidelines early last week, and traders kept offers firm as the delivery date nears, with aluminum market prices flat at SHFE 1008 aluminum contract prices on Friday. In this context, buying interest improved and downstream producers increased purchases, helping market sentiment improve.
 
China's Ministry of Industry and Information Technology announced the list of companies required to eliminate inefficient capacity by September 30th, but the number of aluminum producers involved and the total affected aluminum capacity were both limited. In this context, any support for aluminum prices from this news should be minimal. If China's A-shares continue to fall, SHFE aluminum prices will move lower as well. Spot aluminum prices are expected to hold steady at the RMB 15,000/mt mark as the delivery date approaches, but any upward momentum will depend on trends in financial markets. 
 
Zinc
Although SHFE zinc prices fell slower, and SHFE 1011 zinc contract prices held steady above RMB 17,000/mt early last week. However, falling LME zinc prices triggered a round of panic sell-offs late last week, with prices even falling by daily price limits on Thursday. SHFE 1011 zinc contract prices experienced a decline of over 6% over the past week. In addition, positions of SHFE 1011 zinc contract fell gradually as the delivery date neared, and short momentum was building, with domestic zinc prices undergoing a round of downward corrections.
 
Domestic spot zinc prices will fall to below RMB 16,000/mt next week, as LME zinc prices will fail to find support at USD 2,000/mt. However, market speculation remains strong, and special attention should be paid to investor buying activity when SHFE three-month zinc contract prices are near RMB 16,200/mt. In general, SMM expects SHFE three-month zinc contract prices to fluctuate between RMB 16,000-16,800/mt in the coming week.
 
Lead
Domestic lead prices fell to RMB 16,000/mt, down from RMB 16,400/mt earlier in the week. Goods from Gejiu, Yunnan province were traded below RMB 16,000/mt, at around RMB 15,900/mt. Trading sentiment in domestic lead markets was closely related to movements in the LME lead market. Transactions were good earlier in the week, as LME lead prices stayed at high levels, while downstream producers chose to stay out of the market in the middle of the week, after LME lead prices dropped. Until the weekend when LME lead prices resumed its rising pace, downstream producers showed interest in buying goods. Domestic lead prices fell rapidly to below RMB 16,000/mt late last week, a sign of low market confidence. However, the low-end of price improved from previous levels. SMM believes that domestic lead prices will continue to fluctuate at around RMB 16,000/mt in the short term. 

Tin
In domestic tin spot market, smelters lifted offers and traders also raised offers above RMB 150,000/mt when LME tin prices rose robustly early last week, with bearish sentiment prevailing in the market. Although prices rose significantly, transactions were still brisk. However, wait-and-see sentiment grew when LME tin prices slipped sharply last Tuesday, and trading sentiment cooled down quickly. Prices gradually slipped as downstream purchasers tried to beat down prices when transactions were sluggish. Supply of unknown brand tin increased in the market, but transactions were still sluggish despite that prices were lower. The bearish sentiment further added downstream purchasers’ expectation of even lower prices in the future.
 
Up to last Friday, traded prices of major brand tin were between RMB 149,000-151,000/mt and traded prices of unknown brand tin were between RMB 146,000-148,000/mt. Current tin prices have already been pushed at high levels, but LME tin price trend is not clear. In this context, purchasers preferred to adopt a wait-and-see attitude despite that spot tin price have slipped slightly. Smelters were under pressure and still kept offers firm due to high raw material prices. Tin prices failed to receive support from demand during low consumption period, but received certain support from high raw material costs.
 
Nickel
Spot transactions in domestic nickel markets were boosted from two price increases from Jinchuan Group, with prices of RMB 171,000/mt. Transactions were also up due to strong gains by LME nickel prices and bullish sentiment. However, market sentiment dampened and transactions were sluggish when LME prices fell steadily from Wednesday Transactions were largely done between traders to replenish stocks, with downstream purchasers rarely seen in the market. As of last Thursday, nickel from Jinchuan Group was traded between RMB 165,000-165,500/mt, and nickel from Russia was traded between RMB 164,000-164,500/mt.
 
According to the latest data, total inventories of stainless steel at 26 warehouses in the Wuxi stainless steel market were 221.7kt, down 6.3%, and included 27.4kt of #200 stainless steel, 166.6kt of #300 stainless steel, and 27.7kt of #400 stainless steel.  Ex-works prices for #304 stainless steel from Taigang Stainless Steel were up by RMB 300/mt on a weekly basis, and unchanged for #430 stainless steel. Currently, offers are RMB 22,920/mt for #304 cold-rolled stainless steel, RMB 22,120/mt for #304 hot-rolled stainless steel, and RMB 11,620/mt for #430 cold-rolled stainless steel. 
 
During the summer months, Jiangsu, Zhejiang provinces and other regions experience peak power consumption periods, and electricity supply for industrial use is gradually restricted. It is reported that electricity supply at stainless steel mills in Jiangsu province will be cut for two days every week beginning August 13th. There are many private stainless steel mills located in Dainan town, Jiangsu province, and it is expected that electric power restrictions will have an impact on stainless steel output in that region.

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