SHANGHAI, Dec. 10 (SMM) – Encouraging US economic indicators rekindled worries over QE3 tapering. This sent the US dollar index up to near 81, causing US stock markets to snap three-day winning streak and weighing base metals prices down. However, the US Federal Reserve (Fed)’s Beige Book released later in the week showed US economy continued to grow at a modest to moderate pace between early October and mid-November. Confidence over US economic recovery overshadowed concerns over a wind-down of massive monetary stimulus. This, coupled with recovery in Chinese manufacturing, helped base metals recoup some of their previous losses. SMMI dipped 0.04%. Copper and aluminum prices dropped at first, but then rose, closing last week flat with a week ago. Tin led losses among base metals, with SMMI.Sn down 1.74%, dragged down by falling LME tin. Nickel was the only metal that gained. Jinchuan Group raised nickel ex-works prices by RMB 500/mt twice to RMB 95,500/mt, but higher prices watered down buying interest.
Copper Positive manufacturing indicators from China helped Chinese A-shares stabilize last week and later rise by over 1%. SHFE copper prices also gained traction, with the SHFE/LME copper price ratio rising to 7.2. SHFE copper prices saw increasing volatility, testing a low of RMB 50,000/mt but following LME copper prices up before meeting strong resistance at RMB 51,000/mt. Most market players exited the market later in the week, leaving total trading volumes and positions for SHFE copper little changed.
Financial pressures eased slightly at the beginning of December. Spot copper was offered last week at premiums of RMB 50-130/mt over SHFE 1312 copper contract prices. Supply in spot markets remained stable, and speculators sold at higher prices to raise cash.
SMM expects SHFE copper prices to follow LME copper price trends and remain between RMB 50,200-51,200/mt.
AluminumHSBC’s final reading for November manufacturing PMI in China was up, but SHFE 1402 aluminum contract prices still failed to break through the RMB 14,000/mt level. Prices for the most active SHFE aluminum contracts jumped above the 10-day moving average only after LME aluminum prices rose sharply. In China’s spot markets, tighter supply allowed Hangzhou suppliers to demand higher prices. Sellers in Shanghai and Wuxi, however, discounted to lure buyers, sending prices down to RMB 14,230/mt last Tuesday. Cargo holders raised quotes to over RMB 14,270/mt after SHFE aluminum rebounded, though. Traders and downstream producers entered the market following the price rally.
In the coming week, LME aluminum prices are expected to move in a USD 1,750-1,800/mt price band, while SHFE 1402 aluminum contract prices are expected between RMB 14,020-14,150/mt. Spot premiums will narrow since delivery date of SHFE 1312 aluminum contracts is nearing.
LeadThe most active SHFE lead prices hovered most of the week between RMB 13,850-13,950/mt, moving around the 5-day moving average. Positions shrank by 1,300 lots, while trading volumes were also down. Compared to LME lead prices, SHFE lead prices this week should be more resistant to declines, but will still lack upward momentum. Tight domestic liquidity is expected to keep transactions in check in metal markets. SHFE lead prices are forecast to trade mostly between RMB 13,850-13,950/mt, hovering between the 5-day and 20-day moving averages.
Traded prices for spot lead in Shanghai, Tianjin and Guangdong province were all down by RMB 50/mt. Lead smelters in Henan province were reluctant to move goods, but smelters in Yunnan and Hunan provinces traded normally due to tight year-end cash flows. Downstream producers generally remained on the sidelines and showed little buying interest. Fundamentals are weak in China’s spot lead market, but lead smelters will still trade normally due to liquidity pressures, while producers downstream will purchase goods only on an as-needed basis. If lead warrants in Shanghai and Guangdong province remain traded at a discount over the most active SHFE lead prices, deliverable lead supply is expected to fall this week. An increasing number of lead smelters in the Gejiu region are stopping production due to the lack of crude lead supply and low lead prices. Low-priced lead supply in Guangdong province is expected to fall this week.
ZincPMI data from several countries were released early last week, with the PMI from US topping expectations and raising fears of an end to QE3, which pushed up the US dollar index to 81 and weighed down zinc prices . China's latest PMI shows manufacturing activity in that country is growing steadily, but LME zinc prices lacked direction due to mixed PMI readings, hovering around the 5-day moving average and at USD 1,875/mt. Since US ADP November employment data, new home sales, and initial jobless claims from two weeks ago were all much higher than expectations and since the US Federal Reserve's (Fed) Beige Book rated US economic growth as “slight to mild”, concerns over an early exit to QE3 were eased, which pushed up LME zinc prices to as high as USD 1,907/mt, and later moving around USD 1,890/mt.
As LME zinc prices hovered at low levels and due to the approach of the resumption of IPOs in China, both the Shanghai Composite Index and Shenzhen Component Index fell, which also weighed down SHFE 1402 zinc contract prices below the 5-day moving average, moving between RMB 14,730-14,770/mt. However, after LME zinc prices rose by nearly 1% last Thursday, SHFE 1402 zinc contract prices rebounded to RMB 14,780/mt, but met resistance at the 20-day moving average.
In China's spot markets, #0 zinc prices were little changed. With sluggish downstream demand, spot zinc prices did not rise despite higher SHFE zinc prices, with spot premiums narrowing from RMB 90-120/mt early in the week, to RMB 40-80/mt, and with zinc prices between RMB 14,820-14,880/mt. #1 zinc prices struggled between RMB 14,800-14,820/mt. Cargo holders were mostly moving goods to generate cash, but downstream buyers continued to purchase on an as-needed basis.
#0 zinc prices in Guangdong province were between RMB 14,790-14,810/mt, and with prices in Shanghai only RMB 45-65/mt higher. In Tianjin, traded prices fell to RMB 14,950/mt, with zinc prices for goods produced on older production lines remaining largely unchanged at RMB 15,950/mt.
The US economic recovery continues to show strength, with the latest US non-farm employment data for November expected to come in positive, which will drive up zinc prices. Meanwhile, concerns are growing that the Fed will wind down QE3 sooner than later, while PMIs in euro zone countries were mixed. Bank credit is now due at the year's end, so liquidity in markets and at enterprises will begin to tighten. As a result, LME zinc prices will move between USD 1,885-1,910/mt this week. SHFE zinc prices will follow LME zinc prices and move between RMB 14,780-14,870/mt.
Downstream buyers will purchase spot zinc on an as-needed basis, with spot premiums expected to contract to RMB 30-70/mt ahead of the delivery date. Cargo holders will actively liquidate inventories to generate cash.
TinSpot tin prices in China continued falling and came to a low of RMB 138,500-141,000/mt last Thursday. However, spot prices moved higher on Friday to RMB 140,000-142,000/mt as cheap resources were depleted. Transactions were hardly made in the first trading days of last week. The falling LME tin prices and tight finances across the sector which prompted tin smelters to increase supplies added to drag on prices. But trading picked up slight on Thursday with traders reporting decent sales in the afternoon. This was followed by the price hikes on Friday when goods offered below RMB 140,000/mt were rarely seen in the market. However, high-priced resources were still not favored.
NickelIn China’s spot nickel markets, Russian nickel gained favor over Jinchuan nickel. Downstream consumption was sluggish and some alloy producers stayed out of the market last week since they previously bought sufficient nickel (plate) when Jinchuan nickel prices were RMB 94,000/mt. Traded prices for Jinchuan nickel last week were RMB 93,600-95,300/mt, which were RMB 900-1,000/mt higher than Russian nickel.
In this coming week, markets will closely watch the outcome of the ECB’s policy meeting. LME nickel prices are expected to move in a USD 13,500-13,850/mt band.