SMM Weekly Review and Forecast (Sep 7-11)

SHANGHAI, Sept. 15 (SMM) -- During the G20 meeting, finance ministers promised to continue stimulus measures to boost the global economy, which means current fiscal and monetary policies will continue into next year. The US Federal Reserve usually implements a tighter policy after unemployment rate reports declines, while the US unemployment rate in August rose to 9.7%, a new record high in 26 years. Unemployment rates in the Euro-zone, Britain, Japan, and other major economies are also on the increases, which further made market players believe that world's major economies would maintain their stimulus packages.  The G-20 meeting reduced demand for the US dollar risk-avoidance, and the US dollar index plunged, and the stock and commodity markets strengthened as a result. 

    Last week, SMMI was up 0.07%, with lead outperforming others. SMMI.Pb advanced 1.24%, and the increases ever hit 3.11% within the week. SMMI.Zn fell 2.34%, and SMMI.Ni was down 1.48%.

    Copper

    SHFE copper prices followed, with prices climbing to RMB 50,930/mt on Wednesday.  However, spot discounts remained based on caution among downstream producers.  Purchasing interest was low, with discounts between negative RMB 150/mt and negative 50/mt. 

    Output at copper smelters with scrap copper as raw material increased due to scrap copper price advantages. Supply of imported refined copper failed to improve due to the current SHFE/LME copper price ratio. 

    Although operating rates at copper tube producers have been lower in September, copper plates, sheets and strips report increased operating rates, and are planning to build stocks ahead of China's National Day Holiday in early in October. Overall market transactions were low, as copper prices continued to fluctuate at high levels. 

    The SHFE/LME copper price ratio has remained low since mid-May, and LME copper prices were still stronger than SHFE copper prices, and copper imports were still unprofitable. Currently, premiums for imported copper have fallen to USD 30-90/mt, from 70-90/mt, with significant declines at the low end.  

    Traders say the lingering low copper price ratio is to blame for declines in premiums, and importers held mixed opinions as to the future ratio and premium trends. Traders with a pessimistic outlook moved to sell goods at low prices, but still have high offers heard, with limited transactions.

    Since August, LME copper inventories have increased by 35,925/mt, with Asian Busan warehouse reporting increases of 26,275 mt. Market players believe inventories in Asia will continue to grow in view of the decline in China's copper imports. However, it is impossible to predict whether or not copper now in Chinese bonded areas will be shipped to other regions in large amounts. 

    Aluminum

    SHFE three-month contract aluminum prices followed suit, and experienced narrow fluctuations, but expectations over consumption recovery helped its low-end rise to RMB 15,000/mt. Both transactions and total positions remained low, and performance in spot markets was lackluster as well. Spot premiums and discounts moved around RMB 0/mt along with the coming arrival of the delivery data.

    After constant declines, any downward room will be limited for the US dollar, and it is expected to strengthen next week. There is lack of positive news in base metal fundamentals, and any upward momentum for LME aluminum prices will be small.  However, continuous declines in LME aluminum inventories is worth paying attention to, and SMM still believes aluminum ingot spot markets in Europe and US will likely report supply shortages. 

    Next week, LME aluminum prices will test USD 1,900/mt. Along with rising low end level, SHFE aluminum prices will experience narrow fluctuations in the RMB 14,900-15,300/mt range in the coming week. Changes in end users' demand will serve as the major factor for recent aluminum price trends. 

    Lead

    Domestic lead prices followed rising LME lead prices, trades in the RMB 15,900-16,400/mt range. Earlier in the week, the higher prices were gradually accepted by downstream producers, with transactions brisk among traders. Domestic lead producers maintained prices at RMB 16,000/mt, and long positions dominated the market. As of September 10th, LME lead prices had fallen for two consecutive days, slipping to RMB 15,500/mt, wiping out any previous gains. 

    In this context, some traders showed interest in moving goods, so as to reduce risks. As goods purchased by end users over the previous two weeks have not been completely consumed yet, buying interest was low at prices above RMB 15,500/mt. Therefore, lead prices need to find a new support level. 

    Zinc

    SHFE zinc prices strengthened from the rising LME zinc trend, with prices generally fluctuating in the RMB 15,000-16,000/mt range. On September 11th, SHFE zinc prices fell sharply due to falling LME zinc and lead prices, with 0909 contract down about 2%.  Falling prices exerted direct impact on trading sentiment in spot markets during the last day of the week. Downstream producers were eager to make purchases when prices were around RMB 15,000/mt. Although some market players believe the round of price declines is not enough, most producers are generally optimistic towards price trends in the commodity market after the National Day holiday. Therefore, purchases for goods priced at low levels were brisk.      

    Last week, the average weekly price of # 0 domestic zinc was RMB 15,190/mt, down RMB 275/mt from a week earlier, with low-end level at RMB 15,000/mt on Friday. 

    Tin

    Production at tin mines and smelters in Guangxi and Yunnan provinces should have been affected to some extent, as they have put environment protection and production safety inspections on the agenda, given domestic lead poisoning case and the upcoming National Day holiday in early October. 

    On Tuesday evening, rising LME tin prices and price increases to RMB 120,000/mt by Yunnan Tin Group boosted market sentiment. Activity among traders increased despite of slim profits.

    Falling LME tin prices on Thursday depressed trading sentiment in the Shanghai tin market, with traded prices of tin ingot in the RMB 117,500-119,000/mt range. Supply of goods in the market was mainly from Yunnan Tin Company Group (YT brand) and Yunnan Chengfeng Non-Ferrous Metals Company (Yun Heng brand), and a limited number of goods under the miscellaneous brand.

    Last week, sales prices in Guangdong were better than those in Shanghai, an indication of improvement in soldering tin production in the Guangdong region. High tin ore prices strengthened smelter confidence in holding back goods. In this context, tin prices are expected to maintain stable in the coming week. 

    Nickel

    Last week, LME nickel prices moved around USD 18,000/mt, and nickel prices in domestic spot markets experienced small fluctuations, but traded prices failed to stay at RMB 140,000/mt. Cargo-holders said recent transactions were mainly done by traders, with end users reported a very limited number of deals. In afternoon session, Tuesday, LME nickel prices ever climbed above USD 18,700/mt, and inquiries were growing, but traders became reluctant to sell. Supported by previous costs, cargo-holders became unwilling to move products in view of low prices and soft demand. Presently, price spread between domestic and foreign markets is approximately RMB 5,000/mt, though the gap has been narrowed.

    According to recent data, stainless steel stocks in the Wuxi market were 194.5 kt, up 32.9 kt or 20.33%, including 15.4 kt of #200, 137.2 kt of #300, and 41.8 kt of #400. 

    In light of falling stainless steel prices, sluggish demand, and growing stocks, some large stainless steel mills plan to shut down units for annual maintenance in order to maintain current prices. Private stainless steel mills are believed to have similar plans, but unconfirmed. Production cuts at stainless steel mills will directly influence purchases of raw materials, and prices for NPI, nickel, and other raw materials will face downward pressure in the future as a result. 
 
 

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