SMM Weekly Review and Forecast (August 3-7)

SHANGHAI, Aug. 11 (SMM) -- Last week, base metal prices increased first and then dropped. Optimistic outlook towards economic recovery had pushed base metal prices up, with new highs reported, but large cumulative gains brought growing risks, and the rising US dollar index weighed on the commodity market. However, market players are still optimistic towards the overall market price trends.

    Nickel showed outperformed other base metals over the past week. SMMI.Ni represented the largest weekly growth of 7.27%, with the average weekly increase of 5.19%; SMMI.Cu was flat with the previous week, with largest weekly increase of 2.8%; SMMI.Zn experienced the largest weekly gain of 3.06%, and finished off up 1.36 %.

    Copper

    SHFE copper prices tracked higher along with the strong LME copper prices, but demand was dampened by rapid price increases, weighting heavily on domestic copper prices, with spot discounts ranging from RMB 300/mt to RMB 100/mt. LME copper prices continued to outperform SHFE copper prices, shrinking the SHFE/LME copper price ratio.

    Some refined copper suppliers were reluctant to sell goods, holding out for higher prices in the near term, while supply of imports remained limited due to the falling price ratio. Scrap copper enjoyed price advantages over refined copper, stimulating downstream demand for scrap copper.

    Operating rates at copper plates, sheets and strips were stable. Downstream purchasing interest was depressed by recent copper price gains. However, buying activity following price declines was a sign that most market players believed prices would continue to rise.

    Aluminum

    SHFE aluminum prices strengthened, with prices at RMB 15,000/mt. However, profit-taking materialized as SHFE aluminum prices approached RMB 15,500/mt, weighing on SHFE aluminum prices. Compared with LME aluminum, SHFE aluminum prices advanced at a slower pace, and performance in domestic spot markets was poor as a result. Downstream producers stood on the sidelines after prices increases, as well as growing supply from large volumes of imports. 

    US unemployment data to be released early this week is expected to be relatively unchanged. LME base metal markets will likely experience corrections after previous steady gains, but any downward room will be limited since overall market trends remain unchanged. SHFE aluminum prices will continue to fluctuate around RMB 15,000/mt, and may advance further from strong cash flows into markets or from positive economic news. 
 
    Lead 

    Domestic lead prices met resistance at RMB 14,000/mt, and although the low end of domestic lead prices advanced to RMB 13,700-13,900/mt early in the week, soft downstream demand served to dampen upward momentum. Some lead producers maintained prices, while small and medium-size producers were flexible in adjusting prices. Some major end users made purchases by signing long contracts, limiting spot retails. In general, overall trading volumes failed to grow. 

    Zinc

    SHFE zinc prices followed the LME zinc price trend, with steady price increases a result of ample cash flow. The highest SHFE three-month contract zinc prices ever hit at RMB 15,600/mt, and then weakened, with struggles occurring at RMB 15,000/mt.

    Rapid price increases left downstream producers in a dilemma. Despite of improved downstream purchasing interest on Thursday and Friday, most downstream producers took a cautious attitude with regard to purchases. Although market players generally believed that current zinc price declines would be brief corrections during its rising trend, most of them still acknowledged the existing zinc prices would continue to drop. 

    Last week, the average weekly price of #0 domestic zinc in the Shanghai market was RMB 14,705/mt, up RMB 835/mt from a week earlier. The average weekly price of imported zinc was RMB 14,620/mt. Discounts expanded to RMB 500/mt due to depressed spot markets, and the increasing discounts also reduced supply of imports over the past two weeks. 

    Tin

    Despite of depressed tin market performance, tin producers raised offers to keep pace with the rising market prices, given higher copper and nickel prices, and high traded prices of tin ore around RMB 105,000/mt as well. Domestic tin prices climbed to RMB 118,000/mt from 112,000/mt, up RMB 6,000/mt. Traders were not active in taking goods, narrowing the range of traded prices.

    The electronic industry remained depressed, leaving no upward room for end-use products. Downstream producers generally purchased on an as-needed basis, with low inventories, so as to control costs, resulting in lackluster transactions.
Domestic tin price increases will be restricted by price corrections expected in LME markets next week.

    Nickel

    Jinchuan Group raised #1 nickel ex-works prices for a record six trading days in a row beginning July 30th, with prices increasing to RMB 153,000/mt, up from RMB 128,000/mt.  Prices were up 20% or RMB 25,000/mt, and trading sentiment in domestic markets waned with the higher prices.

    Last week, trading inventories in Shanghai were ample, given large amounts purchased for stock replenishment used for speculation, as well as high inventories at warehouses and rising NPI output. Overall market supply remains sufficient, although Dalian INCODS Company was forced to cut general-purpose nickel output by 2/3 due to raw material shortages.   

    According to market sources, Taiyuan I/S plans to produce 220-230 kt of stainless steel during August, Baosteel Group 120-130 kt, Zhangjiagang Pohang Stainless Steel Company 60 kt,  Lianzhong Stainless Steel Corporation 75 kt, and 30 kt by Jiuquan I/S, whose scheduled unit maintenance during August is expected to affect half of its stainless steel output. However, total stainless steel output at the above steel mills will remain above 500 kt.

    A foreign analysis institute believes global output of stainless steel and crude steel should reach 21.6 million mt during 2009, down 16.7% from 2008 and down 23.5% from 2007. Compared to output during both 4Q 2008 and 1Q 2009, the global stainless steel sector appears to be recovering. Foreign stainless steel manufacturers are still replenishing stocks, keeping demand for nickel strong. Pohang Iron and Steel Company (POSCO) plans to produce 140 kt of stainless steel during August, with operating rates above 90%.

    Data concerning consumption will be announced next week and is not expected to be as favorable, such as the ISM manufacturing index, and this news will have negative impact on market confidence. However, any downward movement of LME nickel prices will be limited due to current strong market confidence from recent positive economic data and the recent positive LME nickel price trend. Technically, LME nickel prices will continue to hover at high levels in the short term, with prices expected to move in the USD 18,000-20,000/mt range or higher. 

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