SMM Daily Review - 2010/8/25 Base Metals Market

SHANGHAI, Aug. 26 (SMM) --

Copper

SHFE 1012 copper contract prices opened lower at RMB 56,420/mt in the morning session, and later fluctuated around RMB 56,900/mt following the Shanghai Stock Exchange Composite Index (SSE Composite Index), but then dipped further after 10:00 am. The SSE Composite Index even fell below 2,600 points in the afternoon, sending SHFE 1012 copper contract prices to RMB 56,300/mt, with a drop of more than 1%. At the tail of trading, SHFE 1012 copper contract prices reversed some losses and closed at RMB 56,690/mt, down RMB 260/mt, or down 0.46%. Positions of SHFE 1012 copper contract increased by 3,210 lots to 148,600 lots, while trading volumes exceeded 350,000 lots, with the turnover rate of 238%. Short momentum gained further, with market sentiment and technical indicators showing a pessimistic trend. In this context, SHFE 1012 copper contract prices will test the support at the 30-day moving average after falling to between 20-day and 30-day moving averages a day earlier, with eyes on the support at the RMB 56,000/mt mark.

 Trading sentiment was bullish first but later became bearish in copper spot markets. Offers for spot copper were firm at premiums of positive RMB 100-150/mt in the morning business when SHFE copper prices fell at a slower pace, and trading sentiment was brisk, with traded prices mainly moving between RMB 57,150-57,250/mt. In spot trading hours, SHFE copper prices retreated again following the SSE Composite Index, shifting market caution to pessimism. As a result, premiums of spot copper failed to increase, with premiums remaining between positive RMB 70-150/mt and traded prices falling to between RMB 57,100-57,200/mt, and buying interest was lower in response. Copper prices are expected to extend declines, so downstream producer chose to stand on the sidelines. Traded prices fell from RMB 57,100/mt, to RMB 56,850/mt in the afternoon business, with premiums firm between positive RMB 100-150/mt, and almost no deals were made.         

 Aluminum

SHFE 1011 aluminum contract prices opened slightly lower at RMB 15,305/mt, and reported limited fluctuations in the morning session when SHFE copper and zinc prices fluctuated widely. The SSE Composite Index weakened continuously, and SHFE 1011 aluminum contract prices slipped after briefly climbing to RMB 15,350/mt, with prices even falling to RMB 15,235/mt in the afternoon session. At the tail of trading, SHFE 1011 aluminum contract prices erased some losses, and closed at RMB 15,315/mt, down RMB 25/mt, or down 0.16%. Total trading volumes continued to shrink, and positions increased slightly. Property stocks plunged due to signal of real estate control, bringing the SSE Composite Index to below 2,600 points, down over 2%. Whether or not the SSE Composite Index can rebound from lows tomorrow will become a key factor affecting base metals prices trends.

 A weaker SHFE aluminum prices depressed trading sentiment in spot markets, and although spot supplies tightened in east China, slight declines in aluminum prices failed to stimulate buying interest of aluminum processors. As a result, market sentiment was sluggish, and only limited deals were made, with traded prices moving between RMB 15,060-15,090/mt. Market players chose to stay out of the market in the afternoon after SHFE aluminum prices plummeted.        

 Zinc

SHFE 1012 zinc contract prices opened lower negatively affected by LME zinc prices overnight. SHFE 1012 zinc contract prices advanced to as high as RMB 16,875/mt in the morning session driven up by the SSE Composite Index. However, the US dollar strengthened to 83.355 in the midday, dragging down LME zinc prices to near USD 1,900/mt. In response, SHFE 1012 zinc contract prices dipped to as low as RMB 16,445/mt, and finally closed at RMB 16,650/mt, down RMB 215/mt. Trading volumes surged, with trading volumes of SHFE 1012 zinc contract exceeding 2.1 million lots, while positions of SHFE 1012 zinc contract increased by 17,300 lots, with short positions higher than long ones, an indication of higher pessimism. 

 In the Shanghai spot market, #0 zinc was traded between RMB 16,400-16,450/mt, with spot discounts moving around RMB 350/mt against SHFE 1012 zinc contract prices, while #1 zinc was traded in the RMB 16,350-16,400/mt range. Downstream producers made some purchases as zinc prices have fallen for several consecutive days. Market sentiment turned pessimistic in the afternoon as SHFE zinc prices dipped further, with spot trading sentiment lackluster. 

 Lead

With a low open in morning session, LME lead prices constantly slipped after experiencing slight corrections in the afternoon and most downstream producers expected a downstream trend due to the consecutive drops for several days, despite their acceptance to today’s lead spot prices. Therefore, trading sentiment was still quiet, with strong “wait-and-see” sentiment. Only a small amount LME lead was traded when the prices rose at noon. The lead from “Gejiu”, Yunnan was traded in RMB 15,800-15,850/mt range, and major brand lead was traded between RMB 15,900-15,950/mt in the Shanghai market. Compared to lead from “Gejiu” with price at RMB 15,800/mt, downstream purchasers preferred to major brand lead at RMB 15,900/mt. 

Tin

LME tin prices opened at USD 20,600/mt and closed at USD 20,400/mt on Tuesday, down USD 200/mt from a day earlier, with the highest price at USD 20,600/mt and the lowest price at USD 20,160/mt. Daily trading volumes were 225 lots and positions were 15,948/mt. LME tin inventories were down 215 lots to 14,090/mt. On Wednesday, LME tin prices opened at USD 20,450/mt, and fluctuate during the Asian trading hours, with the lowest price at USD 20,275/mt. Lower-than-expected homes sales from the US triggered sell-offs, but base metal prices received support from relatively strong euro. The US will announce data on durable goods orders and new homes sales in July on Wednesday night, which is expected to affect base metal performance.

In the Shanghai tin spot market, mainstream traded prices continued falling due to sluggish consumption. Spot tin prices continued slipping along with decline of LME tin prices in the afternoon trading session, but transactions still didn’t improved, with overall lackluster trading sentiment reported in the market. A small amount of tin from Yunnan Tin group was traded around RMB 147,000/mt, and unknown brand tin was traded between RMB 144,500-146,000/mt. Spot transactions become sluggish again, with few trading volumes reported. Market sentiment was bearish toward future market outlook, and prices slipped further due to wait-and-see sentiment adopted by the downstream purchasers. Market participants told that any room for tin prices to fall further will be limited as gods held by traders were limited despite that purchases from downstream companies almost come to an end in late August.

Nickel

LME nickel prices hit a 2-week low and closed at USD 20,524/mt on August 24, down 3.19% from a day earlier. On August 25, LME nickel prices opened at USD 20,600/mt and fell to test USD 20,400/mt after surging to USD 20,750/mt. The US dollar climbed to test 83.333 during the Asian trading hours, and LME nickel prices slip to USD 20,395/mt. Later the US dollar index fell to 82.93, and LME nickel prices rebounded after decline. Trading volumes of LME nickel prices reduced significantly, less than 1/3 from a day earlier. LME nickel inventories were up by 792 mt to 118,302 mt. In the Shanghai nickel spot market, wait-and-see sentiment was strong among downstream purchasers amid constant decline of LME nickel prices. Traded prices of nickel from Jinchuan Group were between RMB 165,500-166,000/mt, and traded prices of nickel from Russia were between RMB 164,500-165,000/mt. Composite prices fell by RMB 1,250 to RMB 165,000/mt.

Recently, lower-than-expected home sales from the US dampened market sentiment, and there were no solid news for LME nickel prices. In addition, purchases for nickel reduced due electricity restriction at many downstream stainless steel mills. In this context, most traders believed that nickel prices will slip down in the future. SMM predicts that LME nickel prices will continue slipping and Shanghai nickel spot prices will also fall further.

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