SMM Daily Review - 2010/8/18 Base Metals Market

SHANGHAI, Aug. 19 (SMM) –

Copper
Supported by rising LME copper market overnight, SHFE copper market advanced further after a high open. SHFE copper for November delivery opened at RMB 58,020/mt in the morning session, successfully breaking through RMB 58,000/mt. As China A-share market climbed above 2,680 points in the morning, the most actively-traded copper contract edged up along the daily moving average, and briefly dropped in the midday after China A-share market fell back from highs. In the afternoon session, the November delivery copper contract returned the daily moving average. Another support on copper prices was falling US dollar, helping SHFE November delivery copper contract briefly touch RMB 58,520/mt, up more than 1.5%. At the tail of trading, SHFE November delivery copper contract fell as low as RMB 57,900/mt due to profit-taking before closing at RMB 58,040/mt, up RMB 560/mt, or a gain of 0.97%. SHFE copper for November delivery copper contract succeeded to hold at RMB 58,000/mt on Wednesday, and rose above the 5 and 10-day moving average, keeping upward momentum available. Positions for SHFE November delivery copper contract were down more than 14,000 lots on Wednesday, while SHFE copper for December delivery copper were up 19,272 lots. China Everbright Bank went public on Wednesday, and Shanghai Stock Exchange Composite Index closed lower, and with expanding trading volumes. The pressure at 2,700 points was strong, with profit-taking emerging. Recently, SHFE copper market has been closely related to movements on China’s A-share market. Although SHFE copper market succeeded to advance above RMB 58,000/mt on Wednesday, reaching as high as RMB 58,500/mt, time is needed for SHFE copper prices to move on further, and with eyes on performance on the US equities market and the US dollar movements.

In the spot market, prices advanced above RMB 58,000/mt following support from both SHFE and LME copper markets. However, downstream producers generally stood on the sidelines along with rapid price gains to RMB 58,250-58,400/mt and declines on China A-share market from highs. In this context, cargo-holders were forced to trade goods at discounts. In the morning business, high-quality copper was traded at discounts of negative RMB 20~50/mt, hydro-copper at negative RMB 100~150/mt, while domestic standard-quality copper at around negative RMB 80/mt due to pressure from discounts of negative RMB 100/mt for same-grade imported copper. Traded prices fell from RMB 58,250-58,350/mt to RMB 58,150-58,300/mt. High-quality copper still enjoyed advantages, with smooth sales, while sales of standard-quality copper were depressed. Market inquiries were brisk for the whole trading day, but with limited transactions. Limited price difference between different contracts restricted arbitraging. Slight improvement in the SHFE/LME copper price ratio in recent days narrowed some losses for imported goods. Spot copper market will continue to experience tests at above RMB 58,000/mt from macro economy and stock markets.

Aluminum
SHFE 1011 aluminum contract prices opened slightly higher at RMB 15,550/mt, and later China's A-shares surged to a three-month high of 2,687 points at 10:00 am, and SHFE 1011 aluminum contract prices lost previous gains in response after soaring to RMB 15,635/mt. SHFE aluminum prices faced heavy selling pressure, and closed unexpectedly lower at RMB 15,500/mt when SHFE copper and zinc prices closed with significant gains, down RMB 15/mt, or down 0.1%. Trading sentiment was brisk, but positions dropped slightly.
 
In the spot market, downstream buying interest was low when SHFE aluminum prices opened higher in the morning session, and downstream buyers had no intention of building up raw material stocks except for necessary purchases. Later, plunging SHFE aluminum prices further depressed buyers' confidence in steady increases in aluminum prices in the future. Traders in east China kept offers firm with discounts of RMB 60-80/mt, with mainstream traded prices falling below RMB 15,300/mt, and market sentiment was lackluster. CHALCO announced to raise alumina prices to RMB 2,750/mt yesterday, and most aluminum producers have gotten out of serious losses currently. In this context, although higher alumina costs fail to drive up aluminum prices significantly, they will help support the low-end of aluminum price range, and SMM predicts aluminum prices will continue to fluctuate at high levels.         

Lead
Offers for domestic lead reported on SMM moved up RMB 150/mt based on gains in LME lead market overnight. Since LME lead prices broke through the 10-day moving average, downstream producer confidence towards outlook improved, with increasing inquiries, and market trading sentiment improved as a result. However, traders were unwilling to lower offers in view of possibility of further price rallies in the LME lead market, generating little downstream buying interest. In this context, well-known branded lead only made a small amount of transactions, with prices between RMB 16,300-16,450/mt. Transactions were mainly done for lead from “Gejiu”, Yunnan Province, with prices at around RMB 16,200/mt. In the afternoon trades, LME lead prices constantly dropped and well-known branded lead fell to around RMB 16,350/mt, with few 

In summary, downstream producers remained wary of purchases due to low confidence towards outlook, despite of improvement in transactions. 

Zinc
Positively affected by strengthening LME zinc prices, SHFE 1012 zinc contract prices opened high and moved higher yesterday. China's A-shares surged to a three-month high of 2,687.76 in the morning session, helping drive up SHFE 1012 zinc contract prices, with prices mainly moving between RMB 17,600-17,800/mt. However, China's A-shares failed to stand steady at the high level, but moved on a downward track later. As a result, SHFE 1012 zinc contract prices fell slightly to RMB 17,635/mt at noon.
 
SHFE 1012 zinc contract prices extended strong gains in the afternoon, with prices hitting an intraday high of RMB 17,850/mt. Later, the US dollar strengthened to 82.41, dragging down SHFE 1012 zinc contract prices to break the daily moving average, with prices finally closing at RMB 17,560/mt, up RMB 195/mt, or up 1.12%. Positions of SHFE 1012 zinc contract increased by over 20,000 lots, and trading volumes reached 1.42 million lots, an indication of bullish trading sentiment. SHFE 1012 zinc contract prices still remained above all moving averages, with prices still moving on an upward track.
 
In the spot market, #0 zinc was traded between RMB 17,200-17,250/mt in Shanghai, with deals of some brands made at RMB 17,150/mt, while trading volumes of #1 zinc were limited due to lower market demand. SHFE zinc prices experienced strong gains for three consecutive days, and spot zinc prices moved higher in response. However, downstream producers remained cautious about current higher zinc prices, with lower interest in purchasing, so overall spot trading sentiment was weak.

Tin
LME tin prices opened at USD 21,050/mt and closed at USD 21,185/mt on Tuesday, up USD 135/mt from a day earlier, with highest price climbing to USD 21,650/mt and the lowest price touching USD 21,050/mt. Trading volumes were 190 lots and positions were 16,873 lots. LME tin inventories were up by 125mt to 14,065/mt. On Wednesday, LME tin pries opened at USD 21,360/mt and slip sharply to USD 20,900/mt in the afternoon trading session. Concerns over economic recovery expanded in the market, and base metal prices will continue to fluctuate widely.
 
Shanghai tin spot market extended yesterday’s sluggish consumption. Tin from Yunnan Tin group was sparsely traded between RMB 149,500-150,000/mt, and tin from Yunnan Gejiu Zili Metallurgy Co., Ltd was traded around RMB 146,500/mt, while unknown brand tin was traded between RMB 146,000-146,500/mt. Supply of goods was increased than before, but major brand tin suppliers were still unwillingness to move goods at low prices. Current strong LME tin prices still fail to boost domestic tin transactions, and prices meet resistance to climb further as downstream purchasers still adopt a wait-and-see attitude. 
 
Nickel
A strong rise of the US equity market pushed up prices of base metals and crude oil on Tuesday. LME nickel prices opened at USD 21,600/mt and closed at USD 22,075/mt on Tuesday, up USD 515mt from a day earlier, with the highest price at USD 22,175/mt and the lowest price at USD 21,600/mt. Daily trading volumes were 1,577 lots and positions were 96,024 lots. LME nickel inventories were down by 420mt to 116,592 mt. LME base metal prices met great resistance to climb further amid investors’ weakening long position sentiment. On Wednesday, LME nickel price opened at USD 22,000/mt, reaching the highest at USD 22,265/mt and touching the lowest at USD 21,800/mt, with the latest at USD 21,900/mt, down USD 175/mt from a day earlier.
 
In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were around RMB 169,500/mt and mainstream traded prices of nickel from Russia were between RMB 168,500-169,500/mt. Purchases from downstream consumers were not brisk, accounting for 20% of total trading volumes. Trading inventories of nickel exceeded 9,000 mt.

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