SMM Weekly Review and Forecast (Sep 14-18)

SHANGHAI, Sept. 22 (SMM) -- China's economic statistics for August remain positive, and A-share market returning to 3,000 points has strengthened market confidence. Coupled with a weaker US dollar, and high levels of Dow Jones Index and precious metals, base metal prices were able to fluctuate upward. Last week, SMMI advanced 2.22%, with copper and zinc showing strong performance. SMMI.Cu led the increases by 3.09%, and SMMI.Zn gained 2.67%.  Lead, the best performer over the previous week represented volatile movements, with the largest fluctuations of 1.9%, and finally SMMI.Pb closed flat with the previous week.

    Copper

    SHFE copper prices followed LME copper price trends, but weak demand dampened copper price increases in domestic markets. The SHFE/LME copper price ratio fell further, expanding losses for imports. Premiums for imported copper moved in the USD 30-90/mt range, and spot discounts continued. Supply of domestic copper remained stable, but low copper price ratio limited supply of imports. Any changes in scrap copper prices were slow to develop, while supply remains stable. 

    Following increases in orders at copper plate, sheet and strip producers, operating rates in copper cable and wire producers also experienced increases. 

    According to a CBI survey, the average operating rate at 20 producers were 83.6% in September, up 7.7% MoM, and up 14.4% YoY. Copper cable and wire producers said grid construction, construction projects, as well as improved exports of downstream producers were attributed to increasing demand for cable and wire. The strategy adopted by downstream producers to build stocks for the upcoming National Day holiday this year is different from last year, as copper prices plunged during last year's holiday. Most producers generally build stocks based on existing orders, and stock replenishment appears to be more flexible this year, and price has become a major influential factor for decision and timing for purchases. 

    Recently, copper prices have continued to hover at high levels. Downstream purchasing interest is brisk when copper prices below RMB 47,000/mt, while no purchasing activity is reported when prices were around RMB 50,000/mt, a sign of cautious sentiment among buyers.  

    Aluminum

    Compared with LME aluminum prices, SHFE aluminum prices lacked upward momentum due to poor market fundamentals, with prices continuing to fluctuate around RMB 15,000/mt, but with solid support at RMB 14,900/mt. Downstream producers have gradually accepted existing aluminum prices, and purchasing interest was reported high at prices below RMB 15,000/mt. In general, transactions were moderate over the past week. 

    Steady improvements in economic statistics from the US and EU will strengthen market confidence. Since foreign aluminum enterprises generally sign long-term contracts for electric power and alumina, it usually takes longer to shut down or restart units compared to Chinese producers. The economic recovery in the US and EU, especially in the automobile sector, has quickly pushed up local spot premiums. In light of the low liquidity in LME inventories, CBI remains optimistic towards aluminum prices in the short and mid-term. 

    CBI predicts LME aluminum prices will remain firm at USD 1,950/mt next week, possibly testing USD 2,000/mt. Domestic consumption is recovering slowly and supply surpluses will not be eased in the short term, which will depress any SHFE aluminum price increases. In this context, SHFE aluminum prices will continue to move in the RMB 14,900-15,300/mt range in the coming week. 

    Lead

    Supported by rising LME lead prices, transactions at RMB 15,000-15,200/mt in the Shanghai market evaporated earlier in the week, with the low-end of domestic lead prices advancing to RMB 15,500/mt. Domestic lead producers maintained firm prices due to high costs, and strong market sentiment, pushing up prices above RMB 16,000/mt in the middle of the week. Trading was brisk, supporting prices of RMB 15,900-16,000/mt on Thursday, but no higher in view of high inventories. On Friday, falling LME lead prices depressed trader and downstream producer sentiment, with sell-off activity at RMB 15,500/mt re-emerging in the market, but transactions were very sparse. 

    Zinc

    SHFE zinc prices opened lower, and rose later, but weakened during the last trading day.  Earlier in the week, SHFE zinc prices plunged due to China's surging lead and zinc output in August and the US special safeguard provisions on Chinese tires. Prices rebounded later on positive industrial output data and further increases in urban fixed asset investment. However, trading sentiment was cautious prior to the National Day holiday.  Total positions reduced by 20,682 lots to 100,608 lots over the past week, which also limited price increases. 

    In spot markets, buying interest around RMB 14,500/mt was brisk, while purchasing activity waned when prices rose above RMB 15,000/mt. The average weekly price of #0 domestic zinc was RMB 14,883/mt, down RMB 307/mt on a weekly basis. Downstream purchases are not as strong as expected despite of the upcoming holiday. Compared with previous years, downstream producers have become more cautious with regard to purchases this year, with buying behaviors generally done at lower prices. Supply in domestic spot markets was dominated by #0 domestic zinc, and supply of #1 domestic zinc and imports has been low for the past month. 

    Operating rates at domestic zinc smelters have been high since August and September, but utilization rates at newly-increased/expanded projects has been low, making limited contribution to total output. However, SHFE zinc price increases will be limited during 4Q along with improvement in raw material supply and problem solving in other aspects. 

    Tin

    Last week, domestic tin producers maintained prices in the RMB 119,000-120,000/mt range, but transactions were sluggish, as downstream producers generally accepted offers around RMB 117,000-118,000/mt. Select producers showed some interest in moving goods amid weak markets, offering a small volume of low-priced goods during first two trading days of the week, but generated low buying interest from traders. In general, transactions were sparse, with slim profits, and mainstream traded prices were in the RMB 117,500-118,500/mt range. 

    As the National Day holiday approaches, government at all levels have made requirements of production safety during the holiday, and some chemical and other enterprises have already arranged production ahead of schedule, making preparations for going for holiday in advance. Therefore, little possibility exists for tin prices to advance in the coming week.  

    Nickel

    On Wednesday, Jinchuan Group lowered nickel ex-works prices to RMB 133,000/mt, and market prices were in the RMB 133,000-134,000/mt from Wednesday to Friday, closing the gap between them. LME nickel prices moved higher over the past week, hitting as high as USD 17,848/mt on Thursday, and prices for imported nickel followed the upward trend, but transactions remained lackluster. Cargo-holders said mixed views towards market outlook, production cuts at stainless steel mills and weak demand had depressed market confidence, and traders made small purchases even if prices were lower, and downstream producers were cautious with regard to purchases. Cargo-holders showed unwillingness to move goods in view of high costs. 

    Domestic large stainless steel mills have planned to shut down units for maintenance. Sources reported one major domestic producer has already conducted the unit maintenance. Private stainless steel producers are also joining in production cuts, both of while are having a negative impact on existing low demand. Producers say recent NPI price declines are a result of weak nickel prices and lower purchase volume by mills. Based on current market conditions, the traditional high demand period in September and October will be not as strong as before this year.  

Copyright © 2009, CBI (Shanghai) Co., Ltd. All Rights Reserved.

None of this material may be used for any commercial or public use in any form or means, without the prior written consent of CBI China. For reproduction issue, please contact us by email: metalresearch@cbichina.com or tel:86-21-51550040