SHANGHAI, Nov. 5 (SMM) – Last week, the China Federation of Logistics and Purchasing announced China's manufacturing PMI rose above the 50 mark to 50.2 in October, while the HSBC also reported PMI increased significantly to 49.5, an indication that China's economy begin rallying. This helped the Shanghai Composite Index return to 2,100. The US financial market was closed for October 29-30 due to the Hurricane Sandy. The US private sector created more jobs than expected in October, spelling favorable nonfarm payrolls, which heightened risk appetites in markets. In response, the US dollar index hovered around 80 and caused base metals to stop falling and narrow weekly losses. SMMI declined 0.52% during the week, as nickel continued leading the decline, with SMMI.Ni down 0.8%. SMMI.Pb fell 0.66%, SMMI.Al slipped 0.59%, and SMMI.Cu dipped 0.57%. Zinc and tin remained flat and were the first to pare declines.
Copper Last week, China's central bank again conducted record high reverse repurchases, while HSBC announced China's PMI for October was the highest in the past eight months, causing the Shanghai Composite Index to surge by 2% and return to the 2,100 level. SHFE copper prices proved more resistant to declines compared to LME copper, but still slipped to RMB 56,110/mt despite strong buying support at the lows. Later in the week, SHFE copper prices returned above RMB 57,000/mt and the 5-day moving average, with technical indicators pointing up.
In spot markets last week, as the SHFE/LME copper price ratio improved to around 7.3, cargo-holders became more willing to sell at the month's end. Hedged copper also came into markets, keeping market supply sufficient, and causing copper discounts to remain between RMB 100-200/mt. Market pessimism grew earlier in the week and led to cautious purchases, but buying by both traders and downstream producers increased later in the week when cash flows eased. Market transactions initially fell, but later surged.
If LME copper prices remain strong in the coming week, SHFE copper prices will challenge RMB 57,800/mt.
Aluminum The SHFE 1301 aluminum contract became the most active contract last Thursday. The positions of the 1301 contract were almost on a par with those of the 1212 contract due to thin trading and position liquidation. The three-month contract retreated below RMB 15,300/mt, turning investors bearish. The most active contract regained RMB 15,300/mt later in the week as LME aluminum rebounded, but still met strong resistance at RMB 15,400/mt.
Liquidity was very tight in spot market in late and early month. Downstream producers showed limited buying interest in the first half of the week. Cargo holders rushed to move goods as falling SHFE aluminum prices sparked strong bearish sentiment, driving spot aluminum prices down to a new low for the year at RMB 15,130/mt. SHFE aluminum prices showed limited upward momentum later in the week, along with cargo holders' eagerness to move goods, causing spot aluminum prices to stagnate between RMB 15,130-15,150/mt. As overall liquidity improved, some downstream producers and middlemen went bargain-hunting, mildly improving overall trading.
SMM expects spot aluminum prices will stabilize in this coming week, with the low-end edging up. LME aluminum prices will test support at USD 1,900/mt, the three-month SHFE aluminum contract prices should test resistance at RMB 15,400/mt, but spot aluminum prices are expected to stagnate around RMB 15,200/mt, with spot discounts between RMB 50-100/mt.
Lead Last week, SHFE lead prices , influenced by LME lead price movements and gains in Chinese domestic stock markets, rose from RMB 15,100/mt to RMB 15,300/mt, or up 1.2%. LME lead prices should higher to between USD 2,080-2,160/mt and the SHFE lead prices are expected between RMB 15,300-15,600/mt.
In China's domestic spot markets, prices for branded lead were around RMB 15,000/mt, with spot discounts over the most active SHFE lead contract price of RMB 150-200/mt. Prices for other brands remained low at RMB 14,850-14,950/mt. Smelters lowered prices to generate cash to ease end of month financial pressure, but downstream buyers only purchased in limited amounts due to poor downstream orders and bearish sentiment. Cargo holders will move goods at higher prices now that financial pressures are easing at the beginning of the new month. Selling interest at downstream buyers should also improve due to a growing bullish outlook for lead prices . However, transactions may remain modest with spot prices expected between RMB 15,000-15,300/mt, which will drive spot discounts over the most active SHFE lead contract prices higher to RMB 300/mt.
ZincSHFE three-month zinc contract prices tracked LME zinc prices , but briefly hit a low of RMB 14,600/mt early in the week, later rebounding to stand at the 5-day moving average on Wednesday. China's CFLP PMI released last Thursday morning was 50.2, while HSBC's final October PMI for China was 49.5, both adjusted upward and were strong signs that domestic manufacturing activity is improving. The Shanghai Composite Index then rose and broke through 2,100, which helped SHFE three-month zinc contract prices break through the 10-day moving average to RMB 14,870/mt.
In domestic spot markets, spot prices lacked upward momentum despite rising SHFE zinc prices , with prices generally between RMB 14,550-14,600/mt throughout the week. Smelters were unwilling to sell goods at this price level and downstream buying interest was also low due to cash flow problems at the end of the month. Spot discounts expanded as SHFE zinc prices continue to rise, up from the RMB 130-150/mt early in the week, to RMB 180-200/mt. Arbitrage traders were active on Thursday.
Last week, spot inventories fell slightly. Inventories in east China fell by 8,000 mt, to 401,400 mt, and stocks in south China fell by 4,050 mt, to 101,250 mt. Inventories in north China remained unchanged at 11,000 mt.
In the coming week, SHFE three-month zinc contract prices should remain strong due to a rising Shanghai Composite Index, with zinc contract prices moving between RMB 14,800-15,200/mt.
TinDomestic spot tin prices kept falling early last week due to the slump in LME tin prices , and touched a low of RMB 146,000/mt although LME tin stabilized last Tuesday and Wednesday as demand remained weak and market sentiment was still depressed. Last Thursday, LME tin prices showed a sign of rallying, driving spot prices to rise following a month of declines. Spot tin prices in Shanghai hit RMB 150,000/mt on the last two trading days last week, up RMB 2,500/mt. SMM has confirmed that most smelters were not willing to sell goods at prices below RMB 146,000/mt, curtailing supplies in the market. Traders became more active in purchasing, leaving fewer supplies for low-price goods in the market, driving up tin prices . However, downstream demand remained modest and transactions were mainly made among traders.
NickelLME nickel prices continued to move lower after opening at USD 16,050/mt, falling to a level last seen in September at USD 15,758/mt. However, positive news on Tuesday included expanded risk asset purchasing by Japan's central bank and progress in Greek government negotiations with the IMF, ECB and EU, as well as market rumors that Greece will receive the third round of bailout funds in November. In response, LME nickel prices rebounded over three consecutive days. Last Thursday, China's official manufacturing PMI for October was also reported as positive and US employment figures also improved. In this context, LME nickel prices consolidated gains, and as of last Friday, LME nickel priceswere fluctuating during Asian trading hours, waiting for more guidance from Friday's US non-farm employment data.
Last Monday, Jinchuan Group cut ex-works nickel prices by RMB 3,000/mt, to RMB 116,000/mt. In the Shanghai nickel spot market, #1 nickel averaged RMB 116,530/mt, down RMB 4,910/mt from a week ago. As LME nickel prices steadily fell, market sentiment was cautious and purchasing interest from traders and downstream producers was low. However, market confidence rose as LME nickel pricesrebound late last week. Some traders began to conduct arbitrage transactions, but downstream purchasing interest remained low.
In general, upbeat economic data from China and the US have improved market sentiment, but it is too early to say if LME nickel prices will maintain upward momentum. Friday's US non-farm employment data will affect LME nickel price movements, but SMM does not expect LME nickel prices will fall sharply in the coming week. SMM expects that LME nickel prices will find support at USD 16,000/mt and technical resistance at USD 16,600/mt in the coming week.
In China's nickel spot markets, if LME nickel prices continue to move higher, trading volumes of spot nickel should also grow as confidence improves and downstream inquires pick up.