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SHANGHAI, Mar. 8 (SMM) &ndash;
Copper 
SHFE 1105 copper contract prices, the most active one, opened flat at RMB 74,480/mt on Monday. After the opening, the copper for delivery in three months in the SHFE market fell below RMB 74,000/mt along with falling LME copper prices, and found support after sliding to RMB 73,880/mt. As China's Shanghai composite index moved upwards to 3,000 points, price declines in the SHFE copper market were limited, with prices above the daily moving averages. In the afternoon session, SHFE three-month copper contract prices rose to RMB 74,510/mt, narrowing daily declines. Finally, the copper for delivery in three months in the SHFE market closed at RMB 74,200/mt, down RMB 280/mt, or a loss of 0.38%. Positions for SHFE three-month copper contract prices were down 4,714 lots to 163,458 lots, and trading volumes were down 29,774 lots to 103,238 lots. There is no clear direction between 5 and 20-day moving averages technically, with resistance at RMB 74,500/mt still heavy. With cautious market trading sentiment, SHFE copper market will continue to hover at high levels.&nbsp;
In the spot market, price declines in the SHFE copper market narrowed spot discounts. Discounts in the Shanghai market were offered between negative RMB 220-120/mt. Traded prices for standard-quality copper were between RMB 73,150-73,250/mt, and RMB 73,200-73,380/mt for high-quality copper. Supply of standard-quality copper remained tight, with prices close to high-quality copper. In the afternoon session, SHFE current-month copper contract prices represented no dramatic changes, and spot discounts returned to levels seen in early trading in the morning session.&nbsp; Discounts for standard-quality copper were negative RMB 200/mt, and negative RMB 150/mt for high-quality copper, with traded prices between RMB 73,200-73,300/mt, and RMB 73,250-73,350/mt, respectively. Downstream purchasing interest was active for the whole day, with traded prices and trading sentiment generally flat with a week earlier.
Based on SMM survey of market players towards price movements this week, approximately 38% of them believe prices will have upward room to rise.&nbsp; The US's positive economic data and rising crude oil prices will help support copper prices. In addition, declines in SHFE copper inventories for second consecutive week indicate improvement in consumption. With the approach of the delivery date, spot discounts will become spot premiums, and that will also support copper prices. About 48% of market players in the survey take a neutral view towards price movements. LME copper prices have fluctuated at around USD 9,800/mt for nearly a week, and with heavy resistance at RMB 10,000/mt. LME copper prices will unlikely break the mark in the short term due to intense struggles between shorts and longs. However, LME copper prices will find a solid support at USD 9,700/mt after previous tests. In the SHFE copper market, prices have fall back from RMB 75,000/mt repeatedly after rallying to the mark, while the support at RMB 73,000/mt is strong. Technically, copper prices are on an upward track, but price directions are still unclear due to recent movements in the LME copper market. Hence, they believe that LME copper prices will move between USD 9,700-10,000/mt, and SHFE copper prices will fluctuate at around RMB 74,000/mt. China's Shanghai composite index stood above 2,900 points, and reached 3,000 points during the session, supporting the commodity prices. Particular attention should be paid to the news from the ongoing NPC and CPPCC for more direction.
Aluminum 
As LME aluminum prices closed with declines last Friday, the pessimistic sentiment emerged in SHFE aluminum market on Monday as well. SHFE 1105 aluminum contract prices fell continuously after opening at RMB 16,955/mt. Other base metals prices were weak as well, and concerns over weak consumption and tight cash flows caused long investors to exit the market. Although the Shanghai Stock Exchange composite index surged, SHFE 1105 aluminum contract prices remained weak, with the highest level and the lowest level reported at RMB 16,990/mt and RMB 16,865/mt, respectively, and finally prices ended at RMB 16,875/mt, down RMB 135/mt. Trading volumes of SHFE 1105 aluminum contract were only 20,000 lots, and total positions fell slightly. SHFE aluminum prices faced strong pressure at RMB 17,000/mt instead of previous support at this level given persistent pessimistic sentiment. However, cargo-holders in spot markets were unwilling to move goods, helping limit any declines in SHFE aluminum prices. SMM predicts SHFE aluminum prices will keep fluctuating in the short term in view of pressure at RMB 17,000/mt and support from production costs.
Spot aluminum prices in east China fell in response to SHFE aluminum prices. Although actual traded prices fell to RMB 16,580/mt, suppliers showed little interest in moving goods, and downstream processors continued to adopt a wait-and-see attitude due to weak SHFE aluminum prices, with limited deals made at the low-end of aluminum price. As a result, overall market sentiment was extremely sluggish. In south China, buyers remained optimistic toward future aluminum prices, and they made purchases aggressively at lower prices. Spot aluminum prices were mainly between RMB 16,620-16,640/mt, with deals mainly made at the low-end. According to a SMM survey, 50% of enterprises were optimistic toward aluminum prices in view of gradual improvement in consumption, higher production costs, and lower SHFE/LME aluminum price ratio. 35% of enterprises were neutral toward aluminum prices due to mixed economic news. The remaining 15% of enterprises believe China's tightening monetary policies will hamper any increases in aluminum prices, and aluminum prices will fall back in the short term.
Lead 
On Monday in China&rsquo;s domestic lead markets, downstream producers continued to stand on the sidelines or only purchased on an as-needed basis, keeping trading sentiment quiet. Well-known branded lead in Shanghai markets traded between RMB 17,550-17,600/mt, and lead from Gejiu, Yunnan traded at RMB 17,450/mt. As market supply of lead from Gejiu was limited, most transactions were made for well-known branded lead.
Most market players are optimistic or neutral about this week&rsquo;s prices in China&rsquo;s domestic lead markets. 53% of market players believe domestic lead prices will continue to rise this week, in anticipation of the opening of the lead futures market in China. At present, LME zinc prices are lower than LME lead prices, but domestic zinc prices are higher than domestic lead prices, so optimists believe domestic lead prices will rise further. Besides, higher costs at smelters should also support domestic lead prices. With low TC for both domestic and imported lead concentrate, smelters&rsquo; profits are narrowing, which may stimulate smelters to raise offers in response.
The rest 47% of market players are neutral about domestic lead prices this week. Downstream demand for lead ingots has not improved significantly since beginning of 2011, and coupled with strong downstream wait-and-see sentiment from current high prices, downstream producers are refusing to accept the current domestic lead prices. These market players believe investors&rsquo; sentiment should turn negative this week, and coupled with unclear movement of the LME lead market, they predict domestic lead prices are hard to rise in the near future, possibly keeping stable or fluctuating narrowly this week.
Zinc 
On Monday, SHFE zinc prices slumped after opening, with SHFE 1105 zinc contract prices falling to RMB 18,775/mt, down from RMB 19,150/mt. Total positions increased by over 20,000 lots within ten minutes after opening. SHFE zinc prices fluctuated between RMB 18,800-18,900/mt later, supported by the Shanghai Stock Exchange composite index, and with prices finally closing at RMB 18,860/mt, down RMB 370/mt, or down 1.92%. Trading volumes increased by over 3,000 lots to 407,606 lots, and total positions increased by 24,594 lots to 265,510 lots. SHFE zinc prices fell below RMB 19,000/mt, with long position momentum struggling with short positions momentum.
SHFE 1105 zinc contract prices fell and moved between RMB 18,850-18,950/mt in the morning session, and spot zinc prices fell in response. Spot discounts of #0 zinc against SHFE 1105 zinc contract prices were between RMB 480-520/mt, with traded prices mostly between RMB 18,400-18,450/mt and as low as RMB 18,350/mt as a result of falling SHFE zinc prices in the morning session. #1 zinc was traded between RMB 18,350-18,400/mt. Arbitragers were aggressively moving goods given narrowing discounts, but downstream buyers made purchases modestly, believing zinc prices should fall. SHFE zinc prices fluctuated at low levels in the afternoon, while spot discounts remained around RMB 500/mt, which were unfavorable for hedging operations. In this context, traders reduced purchases, and the overall transactions were quiet.
SHFE zinc prices slumped on Monday, with SHFE 1105 zinc contract prices falling as low as RMB 18,800/mt. With regard to zinc price trends this week, 50% of market players believe that SHFE zinc prices should fall below RMB 18,800/mt level, which will also help improve downstream purchasing since they have consumed inventories built ahead of the Chinese New Year holiday. SHFE 1105 zinc contract prices are expected to fall to RMB 18,000-18,500/mt, with spot discounts narrowing to RMB 400-450/mt. Arbitragers will sell goods aggressively and spot transactions will also improve.
37% of market players believe that SHFE zinc prices will unlikely fall to RMB 18,000/mt level. SHFE 1105 zinc contract prices plummeted on Monday, but still with solid support at RMB 18,800/mt. In this context, SHFE 1105 zinc contract prices should fluctuate between RMB 18,500-18,800/mt this week, with spot goods traded mostly between RMB 18,000-18,400/mt.
The remaining 13% believe that SHFE 1105 zinc contract prices will rebound from the support level soon, with prices expected to rise from RMB 19,000/mt level but meet resistance at RMB 20,000/mt mark. Spot zinc prices should move between RMB 18,500-19,000/mt this week.
Tin 
On Monday in Shanghai tin markets, mainstream prices kept stable. Tin from Yunnan Tin Group traded at RMB 203,000/mt, and some minor branded tin such as tin from Hunan province, and tin with Yinsheng and Nanshan brands, traded between RMB 201,500-202,500/mt. In general, overall trading sentiment was quiet. Market supply was still limited, as smelters refused to move goods.
Amid the tensions in the Middle East, LME tin prices are expected to fluctuate at high levels this week. With low market supply and weak transactions, SMM predicts domestic tin prices to mainly keep stable this week.
Nickel 
LME nickel for delivery in three months opened at USD 28,815/mt and closed at USD 28,750/mt on March 4, up by USD 25/mt from a day earlier, with the highest price at USD 29,207/mt and the lowest price at USD 28,555/mt. Daily trading volumes were 2,243 lots and positions were 106,167 lots. LME nickel futures contract for delivery in three months moved stably in the morning Asian trading hours on March 7 after opening at USD 28,700/mt, and fluctuated higher after slipping in the afternoon trading hours, hitting the highest at USD 28,990/mt. LME nickel inventories were down by 474 mt to 129,384 mt.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Overall transactions were quiet in the Shanghai nickel spot market. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 215,000-215,500/mt range, and mainstream traded prices of nickel from Russia were around RMB 214,000/mt range. Transactions were dominated by nickel from Jinchuan Group, while enquires for nickel from Russia were few due to ample supply. Downstream consumers only made purchases on an as-needed basis, with few purchasers entering the market. LME nickel price trend was still not clear, and cautious trading sentiment prevailed in the market.
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SMM Morning Review - 2011/3/8 Zinc Market

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