SMM Weekly Review and Forecast (August 17-21)

SHANGHAI, Aug. 25 (SMM) -- Earlier in the week, base metal markets across the board experienced marked declines, plagued by disappointing US housing starts and building permit data, as well as the plunging China's A-shares stock markets. But, base metal prices rebounded slightly during the latter part of the week along with crude oil and stock markets. In general, overall base metal markets showed weak vibrations. Last week, SMMI dropped 0.48%, with SMMI.Ni having had the largest decline, down 1.59%. SMMI.Cu was down 0.95%, and SMMI.Pb fell 0.74%.  Zinc prices outperformed other base metals, with SMMI.Zn up 2.05%.

    Copper

    Similar to LME copper market, SHFE copper prices tracked lower. Declines in stock prices for China's domestic A-shares weighed on domestic futures prices. Transactions in spot markets were lackluster, with premiums and discounts moving around RMB 0/mt. LME copper remained stronger than SHFE copper prices. 

    China's copper semis output fell during July, with scrap copper imports increasing. Currently, China's refined copper is experiencing a slight oversupply, and stocks not trading in the market have not had any significant negative impact on the market, given the present low SHFE/LME copper price ratio and positive sentiment. However, the dropping refined copper imports by China and continuous increases in SHFE inventories show recent demand in China has waned slightly from levels recorded during the first half of 2009. 

    SMM expects LME copper prices will move within the range of USD 5,750-6,300/mt next week, and LME copper prices will heavily influence SHFE copper prices. Particular attention should be paid to the US and EU's revised GDP and housing data in the coming week. 

    Aluminum 

    SHFE aluminum prices fell from the previous week, with RMB 15,000/mt becoming an important resistance level. SHFE three-month aluminum contract price fluctuated in the RMB 14,500-15,000/mt range. Total positions and speculative funds were down significantly, as was the Shanghai-Shenzhen stock index. Falling SHFE aluminum prices affected trader prices and downstream purchasing interest. Spot transactions were depressed, with trading volumes down on a weekly basis.  

    According to LME and domestic aluminum inventories, aluminum supply will remain in surplus for the foreseeable future. However, production cuts at UC Rusal may tighten aluminum spot supply in the LME market in view of its low inventory circulation. Improved expectations towards a recovery in the US and EU economies is stimulating interest in building stocks. In addition, the International Aluminum Institute (IAI) announced global aluminum output experienced further declines in July. In this context, aluminum supply tightness in foreign markets is expected to emerge in the short term. The relatively strong LME aluminum performance over the past week is an indication that aluminum supply and demand would improve in the short term.  

    Although many domestic aluminum producers have restarted production, aluminum inventories in domestic spot markets were still reasonable, based on SMM data. Without taking into consideration actual domestic aluminum demand, the growth of China's apparent aluminum consumption is exceeding market expectations, and buying activities are helping support aluminum prices. Aluminum prices have remained firm despite the recent withdrawal of speculative funds. 

    SMM predicts both LME and SHFE aluminum prices will continue to fluctuate in existing ranges in the coming week.

    Lead 

    Domestic lead spot market movements were closely related to movements in A-shares in China's domestic stock markets. Spot trading sentiment was extremely lackluster on Monday and Wednesday when stock markets were down. During this period, some traders sold off goods at RMB 13,300/mt. Although a portion of smelters tried to stabilize prices at RMB 13,500/mt, downstream producers stood on the sidelines, hoping for further price reductions, resulting in cautious purchases. 

    On Friday, the Henan provincial government called local lead smelters to hold a meeting for discussing environment protection, in a bid to eliminate the inefficient smelting capacity and improve overall environment quality. Lead output in the local is expected to reduce in the coming 1-2 months. In this context, traders in spot markets were active in making inquiries, with difficulties in buying high-quality lead at RMB 13,550/mt, but downstream purchasing interest failed to follow. 

    Market players' confidence that lead prices will rise to RMB 14,000/mt in the coming week has improved, a marked contrast to depressed transactions recorded over the first four trading days. 

    Zinc

    SHFE zinc prices softened after transitioning into a new contract month, with prices hitting daily drop limits twice within the week. SHFE zinc prices hit a low RMB 14,250/mt, with prices moving in the RMB 14,250-14,750/mt range over the past week. Traded prices in zinc prices were generally below RMB 14,500/mt, meeting great resistance above the level. Supply in zinc markets remained ample, but zinc smelters showed low interest in sales at around RMB 14,200/mt. Currently, downstream demand remained relatively stable. It was worth noting that the weakening steel prices caused orders received by galvanized companies to fall, which negatively affect consumption for zinc. In general, downstream producers were cautious in view of purchases. 

    The average weekly price of #0 domestic zinc was RMB 14,430/mt, down RMB 365 from a week earlier. Imported zinc was done at RMB 14,380/mt on the average, down RMB 355/mt.  Spot discounts stayed around RMB 300/mt. In addition, supply of imports reduced along with falling prices in the futures market. Domestic zinc prices will continue to move around RMB 14,500/mt. 
 
    Tin

    Last week, domestic tin markets represented depressed performance, as LME tin prices remained on the downward track, and a wait-and-see attitude dominated domestic markets, with no trades done above RMB 120,000. Tin producers were forced to lower offers despite of high tin ore prices, but were still reluctant to sell goods at low prices. 

    As traders believe prices will drop more, and downstream producers have built stocks during the price increases over the previous two weeks, profits in imported tin will improve, and downstream producers will have more alternatives, if LME tin prices soften further.

    Transactions in domestic tin markets were sparse over the past week. As goods held by traders are limited, whether or not major producers are able to maintain prices stable depends on LME tin market movement.  

    Nickel

    Last week, declines in A-shares in China's domestic stock markets depressed market confidence, hampering spot sales to some extent. Domestic traders were increasingly reluctant to sell imports in view of the price spread between imported and domestic goods. In addition, traders became wary of trades among them due to absence of strong downstream demand, and as prices remained on the downward track. Generally speaking, a wait-and-see attitude dominated the market, with lackluster transactions. On Thursday, Jinchuan Group lowered ex-works prices to RMB 146,000/mt, but spot prices remained lower than ex-works prices, resulting in traders' unwillingness to move goods. Price cuts by Jinchuan Group failed to boost trades in spot markets. 

    At present, operating rates at domestic large stainless steel mills remained above 90% or even full capacity. However, market players took a cautious attitude towards the question whether stainless steel prices would move higher in the future, given recent high stainless steel prices and nickel price declines along with other base metals. According to SMM survey of small-size stainless steel mills, orders they received for September and October experienced slight declines, with decreases mainly from traders. In this context, monthly output at small stainless steel producers will likely drop in September and October.

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