SMM Daily Review - 2010/9/28 Base Metals Market

SHANGHAI, Sept. 29 (SMM) --

Copper

SHFE copper market opened low on Tuesday, and failed to move higher due to great pressure. Meanwhile, China’s stock market showed no strong movements, and few speculators entered the market, giving little support for SHFE copper market. SHFE 1101 copper contract found support at RMB 60,120/mt after declines from an open at RMB 60,260/mt. Although the most actively-traded copper contract reached RMB 60,660/mt, resistance was available at RMB 60,500/mt. In the afternoon session, SHFE 1101 copper contract fluctuated at the daily moving average, and moved lower. Finally, SHFE 1101 copper contract closed at RMB 60,360/mt, down RMB 300/mt, or a loss of 0.49%. Trading volumes were only at 75,964 lots, a sign of strong risk aversion sentiment before the upcoming holiday. Although SHFE copper market closed at above the 5-day moving average, signs of price corrections were technically possible. Hence, SMM believes that SHFE copper market will continue to fluctuate at high levels in the pre-holiday market.

Price corrections in the SHFE copper market depressed spot buying interest, and so downstream producers exhibited strong resistance towards goods priced at above RMB 60,000/mt. Downstream producers and speculators generally chose to stay out of the market in view of unsteady copper prices, and the expected stock replenishment before the holiday failed to materialize. Traders and some lead producers represented high enthusiasm for moving goods due to increasing stocks in hands, and expanded spot discounts in order to sell goods. However, market transactions remained sluggish. In the morning business, spot discounts for high-quality copper were at negative RMB 50-80/mt, dealing in the RMB 60,300-60,400/mt range; spot discounts expanded to around negative RMB 100/mt in the afternoon, with traded prices down below RMB 60,300/mt. Purchasing interest was available in the morning trade towards high-quality copper, but no buying interest was heard in the afternoon. Sales of domestic standard-quality copper were depressed by some low-priced imported copper. As spot discounts for imported hydro-copper were at around RMB 250/mt, discounts for domestic standard-quality copper were forced to expand to above negative RMB 150/mt in order to move goods, with traded prices down to around RMB 60,200/mt. In general, both buyers and sellers were cautious in the pre-holiday market due to concerns over prices around the holiday period. 

Aluminum

Negatively affected by falling LME aluminum prices, SHFE 1012 aluminum contract prices opened slightly lower at RMB 15,870/mt, but later climbed to RMB 16,000/mt, with prices even hitting an intraday high of RMB 16,020/mt. However, SHFE copper and zinc prices failed to make any breakthrough and even fell significantly in the afternoon session, dragging down SHFE 1012 aluminum contract prices. SHFE 1012 aluminum contact prices finally closed at RMB 15,885/mt, down RMB 10/mt, or down 0.06%. Trading sentiment improved slightly, and total positions increased slightly by 2,590 lots, with long positions flat at short positions. SMM predicts SHFE 1012 aluminum contract prices will fluctuate in a narrow band ahead of National Day holiday, and still have upward momentum after the holiday supported by production cuts as a result of power restrictions.

Downstream processors began to stand on the sidelines due to steady increases in aluminum prices, leaving low buying interest. Spot discounts in east China widened slightly to RMB 70-100/mt, but traders kept offers firm, resulting in lackluster trading sentiment. Spot aluminum prices in south China increased slightly, but at a slower pace than east China, since downstream producers were unwilling to accept current high aluminum prices after significant price increases on Monday. Overall trading sentiment in south China was neutral as well.    

Lead

In domestic lead spot market, transactions were mainly done in the RMB 16,500-16,650/mt range on Tuesday, down slightly from a day earlier. Some traders didn’t keep prices as firm as before due to the need of cash generation following the end of the month. In addition, traders showed improved risk-aversion sentiment due to the upcoming National Day holiday. In this context, Tuesday’s offers declined with falling LME lead prices. Although LME lead prices accelerated its falling pace in the afternoon on Tuesday, domestic traders did not cut offers further, given low stocks in hands and cautiously optimistic sentiment toward market outlook.

Zinc

On Tuesday, dragged down by LME zinc prices, SHFE 1101 zinc contract prices opened low and struggled at RMB 18,000/mt, with prices once falling to RMB 17,780/mt. Although SHFE 1101 zinc contract prices finally stood at the RMB 18,000/mt mark, prices have broken the 5-day moving average, with a drop of 1.07%. Trading volumes decreased by over 100,000 lots to 600,000 lots, and the total position increased by 8,658 lots to 260,000 lots, with long position momentum obviously stronger.

In the spot market, SHFE 1101 zinc contract prices were dragged down by overnight LME zinc prices and struggled at the RMB 18,000/mt mark, and zinc spot prices fell in response. In Shanghai spot market, #0 zinc was traded between RMB 17,450-17,550/mt, with discounts of RMB 500/mt against SHFE 1101 zinc contract prices, while #1 zinc was traded between RMB 17,400-17,500/mt. Market players chose to stand on the sidelines, leaving low buying interest, and overall transactions were moderate. In Guangdong spot market, #0 zinc was traded between RMB 17,400-17,500/mt, and #1 zinc was traded between RMB 17,350-17,450/mt. The downstream enterprises purchased on an as-needed basis, but they still adopted a wait-and-see attitude, with trading volumes limited, and overall transactions were weak as a result.

Tin

LME tin prices opened at USD 23,575/mt and closed at USD 23,650/mt on Monday, up USD 50/mt from a day earlier, with the highest price at USD 23,800/mt and the lowest price at USD 23,565/mt. Daily trading volumes were 91 lots and positions were 17,262 lots. On Tuesday, LME tin prices opened at USD 23,650/mt during the Asian trading hours, and fell to test the lowest at USD 23,500/mt, weighed by stronger US dollar index.  LME tin inventories were down by 55 mt to 13,500 mt. Trading sentiment was quiet before the National Day holiday, with prices fluctuating narrowly.

In the Shanghai tin spot market, prices were largely unchanged from a day earlier. Affected by weaker LME tin prices, some traders cut prices during the afternoon trading hours, with low-end prices down by RMB 500/mt to RMB 148,000/mt. Overall trading sentiment was moderate. Tin from Yunnan Tin group was traded between RMB 150,000-150,500/mt and tin from Yunnan Gejiu Zili Metallurgy was traded around RMB 150,000/mt. Traded prices of unknown brand tin were between RMB 148,000-148,800/mt. Overall market trading sentiment was quiet with the approaching of National Day holiday.

Nickel

 LME base metal prices largely fell on Monday due to fewer participants from China before the National Day holiday and from soft equity market in Europe, but LME nickel prices reversed the decline trend and closed at USD 23,120/mt, USD 120/mt higher or up by 0.52% from a day earlier. LME nickel inventories were up by 438 mt.

On Tuesday, base metal prices extended Monday’s decline trend, and slipped slightly at a stable pace, while LME nickel prices expanded decline pace.  LME nickel prices move stably after opening at USD 23,000/mt and climbed to test USD 23,020/mt. However, LME nickel prices were on downward track and fell to test USD 22,720/mt when the US dollar index climbed above 79.78 from 79.38. LME nickel inventories were up by 1,176 mt to 122,208 mt.

In the Shanghai nickel spot market, most traders were cautious before the National Day holiday and adopted a wait-and-see attitude, resulting in sluggish trading sentiment. In addition, stock replenishments from downstream producers were also sluggish given the weak downstream demand as well as the fact that some downstream producers have already purchased NPI for the preparation of production. On Tuesday, traded prices of nickel from Jinchuan Group were between RMB 171,800-172,000/mt, up by RMB 150/mt from a day earlier, and traded prices of nickel from Russia were between RMB 171,300-171,500/mt, up RMB 300/mt from a day earlier.

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