SMM Weekly Review and Forecast (Aug 31-Sep 4)

SHANGHAI, Sept. 8 (SMM) -- Last week, base metal prices fluctuated wildly, with prices dropping at first but later rebounding.  Earlier in the week, the plunging China's A-share stock markets and concerns of a tighter monetary policy in China depressed base metal prices, especially copper and nickel prices.  Later in the week, base metals gained back some lost ground, supported by positive economic data from the US, rebound in Chinese stock markets, as well as rising LME lead prices. Last week, SMMI was up 0.5%, with domestic lead and zinc leading the price increases of base metals. SMMI.Pb gained 3.21%, and SMMI.Zn advanced 3.28%. SMM.Ni fell by 3.24% due to weak performance in spot markets. SMMI.Cu and SMM.Al edged up 0.1% and 0.4%, respectively.   

    Copper

    At present, operating rates at domestic copper smelters maintain stable. Supply of imported copper remains limited due to no improvement in the SHFE/LME copper price ratio. SHFE copper prices will continue to hover at high levels, with no clear market directions, and copper spot prices will likely experience fluctuations around RMB 50,000/mt. Any further upward momentum not only depends on support from higher LME copper prices, but more from positive news in domestic markets. Traders became cautious in imports on uncertainty regarding tariffs, and this will make supply of scrap copper less stable in the short term. 

    Operating rates at domestic copper tube producers fell in September from a high level during July and August, resulting from unexpected increases in orders. According to a SMM survey of 20 copper tube producers, overall operating rates were 59.2% in September, up 5.3 YoY, but down 16.6% MoM, with large and medium producers experiencing marked declines.

    Aluminum

    Last week, SHFE aluminum prices fell slower than LME aluminum, with three-month contract aluminum prices finding solid support at RMB 14,800/mt. The narrow fluctuations in aluminum prices were also blamed for the withdrawal of funds. Total positions continued to fall and trading volumes were also down significantly. Trading sentiment in domestic spot markets was low, as uncertainty was keeping downstream producers out of markets. Overall transactions were lackluster. 

    Prices in commodity markets fell slightly over the past two weeks, since any positive impact from expectations of an early economic recovery has been absorbed. However, improving economic data from major countries has been supporting market expectations of stronger demand. In this context, CBI is optimistic towards aluminum prices in the midterm. Trading inventories in LME warehouses were limited, and UC RUSAL has decided to deliver goods to Japan once again. This will further tighten the company’s spot supply shortage, and any negative impact on output from a recent hydro-electric power station accident remains unknown. In this context, shortages in aluminum supply may occur in the short term. 

    Next week, LME aluminum prices will follow price trends of other base metals, hovering near USD 1,900/mt while waiting for positive news. SHFE aluminum prices should stabilize, with prices expected to fluctuate narrowly around RMB 15,000/mt, possibly testing RMB 16,000/mt.

    Lead 

    LME markets were closed on Monday, but later in the week LME lead prices strengthened.  Meanwhile, domestic lead spot markets looked mainly to securities and stock markets for direction. Market players became concerned towards the sustainability of lead price increases, since markets were resistant to prices above RMB 15,000/mt during most of the week, and transactions were largely done in the RMB 14,850-15,050/mt range. 

    On Friday, lead prices advanced after fluctuations for days, and smelters and cargo-holders became unwilling to move goods, believing prices would rise to RMB 16,000/mt, and leaving difficulties in buying products at low prices. 

    If LME lead prices remain strong, domestic lead prices are subjected to make further breakthroughs, and downstream producers could do noting but accept higher prices. 
 
    Zinc

    Last week, base metal markets wavered along with volatile stock markets. On Monday, domestic stock markets plunged due to panic sell-offs from concerns of tighter credit policy, base metal prices in China’s domestic markets were generally weaker in response.   However, SHFE zinc prices resisted downward pressure along with rising lead prices and solid support at RMB 14,500/mt from strong buying interest. Later, SHFE zinc prices tracked higher as stock markets rebounded. On Friday, most contracts hit daily rising limits, and SHFE three-month contract zinc prices closed at RMB 15,805/mt, approaching the previous high level of RMB 15,830/mt. However, downstream purchasing interest was depressed at this price level.

    Last week, #0 domestic zinc was traded around RMB 14,675/mt, with prices up to RMB 15,275/mt on Friday. The low-end of zinc traded price will likely increase due to support from higher lead prices. 

    In other news, supply of imports in the Shanghai market was limited over the past two weeks, and supply of imports in Guangdong was stable, with goods mainly from Australia, and India.  

    Tin

    Last week, trading sentiment in the Shanghai tin markets was low and prices experienced slight declines from a week earlier, due mainly to availability of low-priced goods from traders.  Although smelters were resistance to higher raw material prices, domestic tin ore prices showed no signs of falling amid the fluctuating LME tine movements. September is the traditional high production period, but depressed consumption and higher tin ore prices stimulated little production interest from smelters, who were mainly running for securing suppliers to its long-term downstream users. 

    Downstream producers represented low purchasing interest, with substitutes and reductions of raw material usages helping them maintain their current sales prices unchanged. The conditions will not improve until significant improvement in consumption.

    Next week, transactions in domestic tin markets will remain low, and prices will change slightly according to source of goods. 

    Nickel 

    Trading sentiment in domestic nickel spot markets was low, negatively affected by weakening LME nickel prices. The number of market players with pessimistic outlook increased along with a softer LME nickel price, concerns of cash flows from falling lending, and more influence from market fundamentals on the futures markets. Traded prices in domestic spot markets dropped below RMB 140,000/mt due to the plunging LME nickel prices over the past week.  Transactions in the Shanghai and Ningbo regions both were lukewarm, with deals mainly among traders, and a small number of end users made purchases. 

    On Tuesday, Jinchuan Group lowered nickel ex-works prices to RMB 145,000/mt, but domestic demand remained soft.  Spot prices were still lower than ex-works prices, creating difficulties for trades at RMB 140,000/mt. Overall transactions were lackluster. On Friday, Jinchuan Group cut nickel ex-works prices again to RMB 141,000/mt, and traded prices were in the RMB 140,000-140,500/mt, narrowing the price spread. 

    Utilization rates at major domestic stainless steel mills remain high in September. Taiyuan I/S, Baosteel, Zhangjiagang Pohang Stainless Steel Company, Lianzhong (Guangzhou) Stainless Steel Corporation, and Jiuquan I/S all plan to produce more than 500 kt of stainless steel in September. However, average operating rates at some private mills surveyed by SMM were around 70%, with no significant growth in orders from end users. In this context, time is needed to wait for full recovery in domestic market fundamentals. 

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