SMM Daily Review - 2010/9/13 Base Metals Market

SHANGHAI, Sep. 14 (SMM) –

Copper
SHFE copper market opened high on Monday, with December delivery contract opening at RMB 59,250/mt. Although the most actively-traded copper contract on the SHFE market advanced further after a high open, the December delivery copper contract came under pressure from the daily moving average. At the midday, SHFE December delivery copper contract briefly dropped as low as RMB 59,080/mt, with solid support available at RMB 59,000/mt. At the tail of trading, SHFE December delivery copper contract rallied to RMB 59,660/mt before ending at RMB 59,540/mt, up RMB 980/mt, or a gain of 1.67%, returning above the 5-day moving average. Technically, a sign of rising is possible, and SHFE copper market remains on its upward track, and will rise after absorbing all negative news.

Spot market saw slight discounts in the morning as SHFE copper prices lacked rising momentum after a high open, and downstream producers were wary of purchases. However, traders showed high purchasing interest in high-quality copper, with spot discounts at negative RMB 20-50/mt. “Guixi” brand copper was quoted at discounts of RMB 0/mt, showing its unwillingness to move goods. Transactions for high-quality copper were generally made in the RMB 59,250-59,400/mt, which improved the standard-quality copper market. Discounts for domestic standard-quality copper were at negative RMB 50-80/mt, dealing at around RMB 59,200/mt, and traded prices rose to RMB 59,300/mt in the afternoon. Spot discounts for imported hydro-copper were at around negative RMB 150/mt due to declines in supply. Most market players were optimistic towards the outlook, and cargo-holders were unwilling to move goods at discounts due to the approach of a delivery date, reducing market supply.

According to data released by China’s National Bureau of Statistics (NBS) on September 11th, China’s CPI grew 3.5% in August from a year earlier; industrial added value gained 13.9% YoY, higher than the year-on-year growth of 13.4% in July; retail sales increased 18.4%. These results indicate that China’s economy is keeping a healthy development track. In addition, China’s M2 data also shows ample cash flow, lifting sentiment in base metals market. Based on fund positions, long positions remained dominant although long and short positions both increased. According to data from the NBS, China’s output of refined copper was 397 kt in August, down slightly on a monthly basis; copper inventories experienced marked declines for a second straight week based on the data tallied by Shanghai Futures Exchange; the SHFE/LME copper price ratio remains low, leaving no incentives for imports. To sum up, domestic copper market is not in supply surplus, which is favorable for copper prices. After the upcoming delivery date, the last round of stock replenishment at downstream producers will start for the coming holiday. In this context, SMM believes copper prices will gain along with corrections in the US dollar and support from other aspects after absorbing all negative news.

Aluminum
SHFE aluminum prices showed strong performance in the morning session, with SHFE 1012 aluminum contract prices climbing to RMB 15,930/mt after opening higher at RMB 15,900/mt. SHFE 1012 aluminum contract prices later lost some gains under heavy selling pressure, and then moved smoothly in view of sluggish trading sentiment. SHFE 1012 aluminum contract prices hit the lowest level of RMB 15,740/mt, and finally closed at RMB 15,775/mt, up RMB 105/mt, or up 0.67%. Trading volumes of SHFE 1012 aluminum contract shrank slightly, while positions grew by 1,346 lots.
 
In the spot market, as SHFE aluminum prices opened high but moved lower in the morning session, spot aluminum prices increased by over RMB 100/mt as well, with discounts narrowing to between RMB 40-60/mt. Downstream fabricators in east China stayed out of the market, keeping trading sentiment lackluster. Aluminum prices in south China only posted mild gains, stimulating buyers to make purchases, with trading sentiment relatively brisk.
 
China’s macro economic data for August was positive, helping improve financial market sentiment. According to a SMM survey, a majority of traders are optimistic toward aluminum prices this week. Market confidence in higher aluminum prices remains existent despite that market players are cautious toward the upward room for aluminum prices, combined with strong performance of LME aluminum prices, SMM predicts SHFE aluminum prices will climb gradually.         
 
Lead
Transactions were brisk in domestic lead market on support of a rising LME lead market on Monday. Traders reflected that stocks held by them were significantly lower compared to earlier days due to smelters’ low selling sentiment, thus reluctant to move goods. During Monday’s afternoon trading session, continuous rises in LME lead prices further improved trader confidence toward market outlook, making them more unwilling to sell goods. Transactions for lead were done in the RMB 16,250-16,450/mt range in the Shanghai market. Market produced slight mixed views about outlook of LME lead market due to more uncertainties as a big amount of macro data will be released this week. However, market players generally believed LME lead prices would hover at high levels, and domestic lead prices would experience fluctuations. Since time is still needed for downstream producers to accept high prices, together with declines in purchasing volumes by downstream producers from restrictions on electricity supplies in Jiangsu and Zhejiang province, traded prices in domestic lead market met resistance in rising above the RMB 16,500/mt mark. On the other hand, the low-end of traded prices was supported by smelter unwillingness to move goods.

Zinc
SHFE 1101 zinc contract prices opened high but moved lower in the morning session, with prices mainly moving below the daily moving average. The US dollar index weakened in the midday, driving LME zinc prices higher to USD 2,170/mt. Meanwhile, the Shanghai Stock Exchange Composite Index strengthened to hit 2,700 points again. As a result, SHFE 1101 zinc contract prices advanced in the afternoon, and finally closed at RMB 18,095/mt, up 1.89%, with prices re-testing the 5-day moving average. Trading volumes of SHFE 1101 zinc contract reached 1.2 million lots, up more than 20,000 lots compared with last Friday levels, while positions were 280,000 lots, with a daily increase of 45,028 lots and with short momentum slightly stronger than long momentum.
 
Spot zinc prices tracked SHFE zinc price trends yesterday. In the Shanghai spot market, #0 zinc was traded between RMB 17,400-17,450/mt, with most deals made at the low-end of price range, while #1 zinc was traded around RMB 17,350/mt. In the Guangdong spot market, #0 zinc was traded between RMB 17,300-17,400/mt, with deals of some brands made at RMB 17,250/mt, while #1 zinc was traded between RMB 17,250-17,350/mt. As spot zinc prices fluctuated widely following SHFE zinc price trends recently, market players chose to stand on the sidelines, and downstream buying interest was low, keeping overall trading sentiment lackluster.
 
As to this round of fluctuations in zinc prices, 40% of market players believe SHFE 1101 zinc contract prices will regain previous losses gradually this week after experiencing slumps last Thursday, and will increase further in the near term. 40% of market players believe strong support is needed for base metals prices to rise further after base metals prices plummeted last Thursday on probe speculation, and predict SHFE 1101 zinc contract prices will continue to struggle at the RMB 18,000/mt mark this week. The remaining 20% of market players believe further support from market fundamentals is needed for SHFE 1101 zinc contract prices to regain previous losses after significant declines last Thursday. However, spot transactions failed to report significant improvement in September, so they believe SHFE 1101 zinc contract price will likely edge lower this week.

Tin
LME tin prices opened at USD 21,450/mt and closed at USD 21,500/mt Friday, down USD 100/mt from a day earlier, with the highest price at USD 21,960/mt and the lowest price at USD 21,250/mt. Trading volumes were 394 lots and positions were 17,318 lots. On Monday, LME tin prices opened at USD 21,850/mt and climbed as high as USD 22,150/mt as China’s better-than-expected economic data eased market concern and as the US dollar index slipped significantly. LME tin inventories were down by 85 mt to 13,885 mt.
 
In the Shanghai tin spot market, tin prices ceased to decline and rebounded slightly amid LME tin price surge. Traded prices of major brand tin were between RMB 146,000-147,000/mt and traded prices of unknown brand tin were between RMB 145,000-145,500/mt, up by RMB 500/mt. Overall trading sentiment was relatively brisker than that on last Friday, but traders told that most downstream consumers still adopted a wait-and-see attitude towards this week’s price. It was known that smelters were unwilling to move goods below RMB 145,000/mt, and some suppliers preferred to adopt a wait-and-see attitude and refuse to sold goods. Yunnan Tin group plans to conduct unit maintenance for a month beginning in late September, with 4,000 mt of affected refined tin output reported, and will exert certain impact on tin supply. However, since current tin demand is sluggish, unit maintenance will have limited impact on boosting tin prices. 
 
Nickel
LME nickel prices closed at USD 22,401/mt last Friday, down USD 199/mt from a day earlier, with the highest price at USD 22,951/mt and the lowest price at USD 22,360/mt.  Daily trading volumes were 1,896 lost and positions were 99,145 lots. LME nickel inventories were up by 204 mt. LME base metal prices mostly ended with losses last Friday as re-kindled concern over interest hike in China made cautious market players stay sideline.
 
China’s macro-economic data released on last weekend were relatively positive and some data were better-than-market expectation, helping boost market. Economic data showed sings of gradual stabilized economy development, and better-than-expected loans and monetary data surprised the market, suggesting that liquidity is improving. The data is positive for equity and commodity markets, and LME nickel led gains among other base metals on Monday. LME nickel prices opened at USD 22,550/mt on Monday morning, and later climbed and fluctuated between RMB 22,500-22,990/mt. LME nickel inventories were down by 342 mt to 118,818 mt.
 
In the Shanghai nickel spot market, transactions were relatively brisk along with steady growth of LME nickel prices. Purchasing interest from downstream producers was high, and downstream purchasing volumes accounted for 40% of total trading volumes. Traded prices of nickel from Jinchuan Group were between RMB 170,500-171,000/mt, up RMB 500/mt, and traded prices of nickel from Russia were between RMB 169,500-170,000/mt, up RMB 1,000/mt.

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