SMM Base Metals Weekly Price Review and Forecast (Apr. 27-30, 2015)

SHANGHAI, Apr. 28 (SMM) –

The PBOC announced to cut RRR starting from last Monday, and trading volumes in China’s A-share market hit new record last week, with volatility increasing. Base metals presented diverged trends. SMMI.Pb extended gains last week and posted a 0.56% rise on tight supply and rallying LME lead. SMMI.Zn dropped 0.58%, but spot zinc trades were enlivened. SMMI.Cu registered a 0.49% decline, with spot premiums expanding early last week but narrowing later. SMMI.Ni fell by 0.42%, but spot nickel prices declined more slowly. SMMI.Al only edged down 0.22% as the removal of the export tariffs on certain aluminum semis allowed spot aluminum prices to regain earlier losses.

Copper
SHFE copper started at RMB 44,200/mt and then slipped to RMB 43,000/mt, down by 2%. Selling pressures strengthened at RMB 44,000/mt. SHFE 1507 copper contract became the most active one. Trading volumes declined 222,000 lots, and positions grew early but dropped over 17,000 on Friday. Trading activities declined during night session.

Many traders sourced goods in the market to deliver term contracts early last week, and supply of spot copper, particularly standard-quality and hydro-copper, tightened as a result. Spot premiums expanded in response.

SHFE copper will meet resistance at RMB 44,000/mt, testing support from RMB 43,000/mt.

Aluminum
SHFE 1507 aluminum contract, the most active one, rebounded after falling to RMB 13,000/mt. July aluminum on the SHFE jumped to RMB 13,280/mt as export tax adjustment cheered market up, but failed to break through the 20-day moving average. In China’s spot market, buyers became even more cautious after spot prices fell below RMB 13,000/mt, causing spot discounts to widen slightly. SHFE aluminum rose significantly in the second half of the week, but spot prices rose slower. Downstream demand picked up before the weekend.

SHFE 1507 aluminum contract has found solid support at RMB 13,000/mt, but any potential upside room will be limited since the positive impact of favorable export policy on market sentiment will fade and LME aluminum is weak. The most active SHFE aluminum contract is expected to move between RMB 13,150-13,300/mt. In China’s spot market, downstream producers will buy only to need. Mounting inventories will cause spot aluminum to trade at discounts of RMB 100-140/mt over SHFE front-month contract.

Lead
The most active SHFE 1506 lead contract saw increased volatility, but mostly around RMB 13,500/mt. Near-term contract positions rose on tighter spot lead supplies, but long-term contracts suffered from sales.

China’s spot lead price rose RMB 310/mt last week. Lead smelters rushed to sell at high premiums, but spot lead supply remained tight as a whole. Downstream producers purchased to need. Spot lead in Shanghai was at a premium of RMB 50-100/mt to the SHFE 1506 lead contract. Henan reported spot lead trades at prices higher than SMM #1 lead. Lead smelters refrained from selling in Jiangxi and Hunan.

SHFE 1506 lead contract failed to break through the resistance at RMB 13,750/mt last week, and the technical indicators are less positive. But tight spot supply will lend some support to prices. Prices for the June-delivery SHFE lead are likely to move sideways.

Zinc
Last week, the most active SHFE zinc contract shifted from the 1506 to the 1507, and the July delivery contract stalled at RMB 16,500-16,600/mt, surrendering its earlier momentum.

The discount on #0 zinc ingot in the Shanghai spot market dropped from RMB 140-90/mt to RMB 100-70/mt against SHFE 1506 zinc last week. Some zinc smelters refrained from selling, but most sold as usual, leaving spot market supply sufficient. Large traders controlled several common brands, though, creating slightly tight supplies in those products. Spot market trading rose as traders aggressively sought bargains. Downstream producers purchased on need with volumes little changed week on week.

#0 zinc ingot in Tianjin remained at a discount of RMB 10/mt against SMM #0 zinc ingot. Traders and zinc smelters in Tianjin sold actively, keeping spot market supply healthy. Galvanizing plants maintained stable operations. News heard that a new round of environmental protection inspections will be in place again in Tianjin, which will cast a shadow over expectations over demand.

Guangdong’s #0 zinc ingot expanded from RMB 0-10/mt premium to RMB 20-30/mt against SMM #0 zinc ingot. Inventories in Guangdong dropped last week as some zinc smelters conducted maintenance. Spot market zinc supply tightened. Zinc smelters sold only at highs, supporting spot prices. Traders went bargain hunting while downstream producers maintained steady order volumes. Guangdong saw an uptick in trade volume last week.

SHFE 1507 zinc contract prices should test support at RMB 16,500/mt and mainly move between RMB 16,400-16,700/mt.

Tin
SHFE 1507 tin contract rose above the 10-day moving average. The most active contract gained less favor as its price spread with LME tin narrowed. Both longs and shorts exited the market.

Tin prices in Shanghai spot market fell early in the week, but began to rebound Wednesday afternoon. LME tin prices rose, and downstream producers needed to restock after holding to the sidelines for days, driving spot tin prices up to RMB 111,000-112,500/mt. However, prices stopped rising last Friday as demand cooled.

Nickel
SHFE 1507 nickel contract prices touched a high of RMB 96,900/mt. Shorts closed positions in large amounts, dragging total positions down to about 111,000. SMM #1 nickel prices averaged RMB 93,950/mt, falling by RMB 160/mt on a weekly basis. Supply of imported nickel remained large, while goods availability of Jinchuan Group tightened again. Downstream buyers only purchased as needed. Jinchuan Group’s price offers declined RMB 500/mt to RMB 95,000/mt after the company adjusted prices twice.

A large number of imported nickel will be shipped to Chinese ports, but the low Shanghai/LME nickel price ratio will leave most of them in the bonded zones. SMM expected China’s spot nickel prices to edge higher to RMB 94,000-97,000/mt this week.