SMM Daily Review - 2010/8/24 Base Metals Market

SHANGHAI, Aug. 25 (SMM) --

Copper:

SHFE 1012 copper contract prices opened lower at RMB 56,910/mt yesterday, with prices mainly fluctuating around RMB 56,750/mt in the morning session, and with trading sentiment weak as well. The Shanghai Stock Exchange Composite Index (SSE Composite Index) jumped in the midday, stimulating SHFE copper prices to move higher, with prices erasing previous losses and soaring to RMB 57,390/mt. SHFE 1012 copper contract prices fluctuated at high levels in the afternoon. At the tail of trading, price resistance grew continuously, and the SSE Composite Index was losing previous gains as well, and the US dollar strengthened to 83.5, all exerting downward pressure on SHFE copper prices, and SHFE 1012 copper contract prices finally closed at RMB 56,820/mt, down RMB 350/mt, or down 0.6%. SHFE 1012 copper contract prices were below the 20-day moving average, with technical indicators also showing signs of declining. Positions of SHFE 1012 copper contract increased by more than 20,000 lots, with struggles between long and short positions remaining intense, but short momentum was stronger amid uncertainties over financial environment.

In the spot market, trading sentiment remained brisk. In the morning business, spot copper was traded at premiums of positive RMB 50-150/mt, and purchasing interest was higher at lower prices, especially for high-quality copper, whose traded prices were mainly between RMB 57,200-57,450/mt. SHFE copper prices jumped by RMB 200/mt during spot trading period, allowing spot premiums to narrow to between positive RMB 0-50/mt, and traded prices advanced to between RMB 57,350-57,500/mt in response. High-quality copper holders were reluctant to move goods in an effort to push up premiums, and standard-quality copper followed suit, but transactions of domestic standard-quality copper were hampered by imported copper.

Spot copper prices were lower but later moved higher, and trading sentiment was bullish in the morning but became bearish in the afternoon, with market players adopting a more cautious attitude as well. Although SHFE copper prices still have room to fall in the short term, higher buying interest at lower prices will help support copper prices based on spot premiums and actual transactions.      

Aluminum

SHFE aluminum prices fell slower compared with other base metals in the morning session. SHFE 1011 aluminum contract prices opened at RMB 15,305/mt, and later climbed to RMB 15,400/mt driven up by the SSE Composite Index in the midday. At the tail of trading, LME aluminum prices plummeted, and the SSE Composite Index also showed signs of falling, and in response, SHFE 1011 aluminum contract prices fell rapidly as long positions exited the market after profit-taking, with prices finally closing at RMB 15,305/mt, down RMB 35/mt compared with the previous trading day, or down 0.23%. Total trading volumes shrank, and positions continued to fall by nearly 3,000 lots.

As SHFE aluminum prices rebounded in the morning session and became the only metal to post gains, spot trading sentiment in east China improved as well, and purchasing interest was higher, with spot aluminum mainly traded between RMB 15,100-15,140/mt, while aluminum prices also climbed to RMB 15,200/mt in south China. However, base metals prices slumped in the afternoon, and although limited lower-priced goods were available in the market, downstream fabricators still held little interest in purchasing, keeping trading sentiment lackluster.

LME aluminum prices fell below the 60-day moving average, and tested the support at USD 2,000/mt. The US dollar remained strong recently, with the index moving toward 83.5, exerting heavier pressure on base metals prices. As a result, LME aluminum prices are expected to hit the USD 2,000/mt mark in the short term, but any downside room for aluminum prices will be limited supported by firm overseas spot prices.       

Lead

Domestic lead spot prices were almost unchanged from yesterday’s levels. As LME lead prices experienced corrections following a low open and only advanced slightly later, downstream purchasers with bullish sentiment entered the market to made purchases cautiously. However, trading sentiment was quiet since most downstream purchasers continued to stand on the sideline due to uncertain market directions. In the afternoon trading session, LME constantly slipped all the way and transactions were lackluster, with few downstream producers making purchases. Traders believed that LME lead prices would rebound after the slump. Besides, the inventories held by traders were also purchased at high prices. In this context, traders did not make any concession to lower spot lead offers in afternoon trading hours. Deals were mainly done in the morning business, with traded prices in RMB 15,850-16,000/mt range.

Zinc

Negatively affected by LME zinc prices, SHFE 1012 zinc contract prices opened lower at RMB 16,850/mt, with prices mainly moving around the daily moving average. SHFE 1012 zinc contract prices advanced to an intraday high of RMB 17,035/mt in the midday stimulated by jumping SSE Composite Index. SHFE 1012 zinc contract prices fluctuated between RMB 16,800-17,000/mt in the afternoon. At the tail of trading, the US dollar strengthened to 83.515, and LME zinc prices fell to USD 2,005/mt, both dragging down SHFE 1012 zinc contract prices to RMB 16,645/mt, and finally prices ended at RMB 16,730/mt, down 1.76%. The turnover rate reached as high as 515%, and trading volumes of SHFE 1012 zinc contract remained nearly 1.7 million lots, and positions declined by 16,550 lots, showing clear signs of withdrawal of long investors. Long investors adopted a more cautious attitude amid unclear market direction and steady declines in zinc prices.

SHFE 1012 zinc contract prices moved narrowly between RMB 16,800-16,880/mt after opening lower, but later climbed to above RMB 16,900/mt driven up by the SSE Composite Index. In this context, #0 zinc was traded between RMB 16,550-16,580/mt in the Shanghai spot market, with spot discounts of RMB 350/mt against SHFE 1012 zinc contract prices, while #1 zinc was traded in the RMB 16,530-16,550/mt range. Zinc smelters said they would not sell goods as spot prices were too low, while downstream producers made some purchases to meet normal production needs, with no intention of large-scale purchases. Downstream inquiries were up in the afternoon when SHFE zinc prices plummeted, with buying interest improving slightly.

Tin

LME tin prices opened at USD 20,750/mt and closed at USD 20,600/mt on Monday, down USD 150/mt from a day earlier, reaching the highest at USD 20,750/mt and touching the lowest at USD 20,500/mt. Daily trading volumes were 108 lots and positions were 16,166 lots. LME tin inventories were down by 130 mt to 14,305 mt. On Tuesday, LME tin prices opened at USD 20,600/mt and fell to test USD 20,350/mt. The performance of the equity market and the US dollar is still the most important factor affecting metal prices. Asian equity markets were mixed, and the US dollar index climbed slightly. The US existing new home sales in July and US Dec Richmond Fed Manufacturing Index in August will be released on Tuesday, which is expected to affect metal prices.

In the Shanghai tin spot market, tin prices extended declines. Mainstream traded prices were between RMB 145,000-146,000/mt due to sluggish transaction and decline of LME tin prices. A small amount of tin from Yunnan Tin group was traded around RMB 147,000/mt and unknown brand tin was traded between RMB 145,000-146,000/mt. The constant decline of LME tin prices dampened market sentiment, resulting in reduced trading volumes. Prices are expected to fall further amid sluggish consumption, and support from Yunnan Tin group’s offers above RMB 150,000/mt is weakening.

Nickel

Most base metal prices ended with losses on Monday due to soft performance of equity market. LME nickel prices opened at USD 21,200/mt on Monday, and later fell to test USD 20,705/mt, down 2.03%, hitting a 2-week low. Trading volumes were also down considerably. The US dollar index climbed to test 83.5 during the Asian trading hours, and the LME nickel prices fell to fluctuate narrowly around USD 20,750/mt.

In the Shanghai nickel spot market, transactions were sluggish. Traded prices were between RMB 165,500-167,000/mt during the morning trading period, but spot transactions stagnated in the afternoon trading session as traders were reluctant to move goods when LME nickel prices fell sharply in the afternoon trading hours. With regard to market outlook, bearish sentiment outweighed bullish sentiment. Shorts believed that current economic and downstream fundamentals were both weak, which will weigh on nickel prices.

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