SMM Morning Comments (Sep 17): Base Metals Closed Mixed on Increased US Retail Sales Data

SHANGHAI, Sep 17 (SMM) – Shanghai base metals trending mixed on Friday morning amid eased market concerns about the slowdown in economic growth. Meanwhile, their counterparts on LME basically went up.

LME non-ferrous metals closed mixed in the trading on Thursday day or night. Copper dropped 2.88%, aluminium inched up 0.02%, lead fell 1.47%, and zinc rose 0.97%.

SHFE non-ferrous metals basically fell overnight. Copper lost 1.34%, aluminium dropped 0.13%, lead fell 0.65%, nickel shed 1.91%, while zinc rose 1.22%.

Copper: Three-month LME copper dropped 2.88% on Thursday night to close at $9,320/mt, and is expected to trade between $9,340-9,420/mt. The open interest reached 258,000 lots.

The SHFE 2110 copper contract edged down 1.34% last night to close at 69,270 yuan/mt, and is expected to trade between 69,000-69,600 yuan/mt today, with spot premiums between 100-350 yuan/mt. Open interests reached 113,000 lots.

The unexpected increase in US retail sales in August announced last night partially alleviated the market concerns about a sharp slowdown in economic growth. At the same time, strong sales data strengthened the market expectation that the Fed might speed up its reduction in debt purchases. Investors' cautious sentiment revived, boosting the US dollar index to rise sharply, and copper futures fell overnight. In terms of spot goods, there is only one trading day left before the Mid-Autumn Festival. Downstream users were resistant to the high prices, but the users with rigid demand had to make purchase as the market will not reopen until September 22. However, the long-term delivery period was forced to be shortened. In this case, the price difference between the standard-quality copper and the high-quality copper was widened to 200-250 yuan/mt. The price spread may stand at this level today as the users have not received the high-quality copper.

Aluminium: Three-month LME aluminium opened at $2,890/mt on Thursday morning and ranged between 2,850-2,910/mt before closing at $2,890.5/mt, an increase of $0.5/mt or 0.02%. Trading volume was 16,000 lots, and open interest decreased by 3,968 lots to 646,000 lots.

Overnight, the most-traded SHFE 2110 aluminium contract opened at 22,530 yuan/mt, with the highest and lowest prices at 22,805 yuan/mt and 22,425 yuan/mt before closing at 22,640 yuan/mt, down 30 yuan/mt or 0.13%. Trading volume was 15,080 lots, and open interest decreased by 3,527 lots to 142,000 lots.

On Thursday, social inventory of aluminium ingots rose by 15,000 mt from a week ago. There are rumours that power rationing will escalate. Power rationing has bigger impact on supply than on consumption. The market is concerned that the dual control of energy consumption, tight power supply and coal shortage will lead to further decline in supply.

Lead: Three-month LME lead ended 1.47% lower at $2,205/mt on Thursday after hitting the highest level at $2,254/mt. The market expected that the Fed might reduce stimulus measures next week, which is bearish for LME non-ferrous metals. Lead stocks across LME-listed warehouses increased slightly. LME lead fell for the fourth consecutive day. Today’s focus will be whether the price will risk the support at $2,200/mt, and whether longs will continue to leave the market.

The most-liquid SHFE 2110 lead contract fell 0.65% to end at 14,560 yuan/mt in the overnight trading, after briefly hitting the highest point at 14,735 yuan/mt and dropping to the lowest level at 14,480 yuan/mt. Today’s focus will be whether the price will risk 14,500 yuan/mt.

Zinc: Three-month LME zinc rose 0.97% to $3,075/mt with open interest down 2,017 lots to 257,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,250 lots to 227,550 mt. There are still some factors that hinder the recovery of the labour market. LME zinc prices are expected to stand at $3,020-3,070/mt.

SHFE zinc consolidated around 22,740 yuan/mt and rose 1.22% to 22,795 mt, with open interest up 1,539 lots to 76,612 lots. The National Food and Strategic Reserves Administration will continue to carry out zinc reserve releases based on market supply and demand and price trends. It is expected that zinc prices will have limited room for increase. SHFE 2110 contract is expected to move between 22,400-22,900 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 190-210 yuan/mt against the October contract.

Nickel: The most active SHFE 2110 nickel contract fell 1.91% or 2,810 yuan/mt to end at 144,460 yuan/mt last night. 

Recently, the full implementation of energy and production restrictions has affected the production of NPI and stainless steel across China significantly. As early as the beginning of July, the notice on the steel industry's "production in 2021 not exceeding the output in 2020" was announced, but the overall implementation in August was only in Guangxi. Since September, Jiangsu, Guangdong, Shandong and Guangxi have received production restriction notices again, requiring major stainless steel plants to strictly implement production reduction measures. In addition to stainless steel mills in some provinces, NPI plants have also received notices of production and electricity restrictions. According to SMM survey, the total output of stainless steel in September was 530,000 mt lower than that in August, including 200,000 mt for 200 series, a drop of 24.1% on the month. #300 series was reduced by 330,000 mt, down 22.4% month on month. As for NPI, the output in September is expected to be close to 13,000 mt in Ni content, which is 43% lower month-on-month. Among them, the output of high-grade NPI fell 38.2% and the output of low-grade NPI was reduced by 70.3%. The large decrease of low-grade NPI output is mainly due to the output decline at 200 series stainless steel mills integrated with NPI facility. The reduction of stainless steel is more obvious than that of NPI. Therefore, it will ease the current tightness of NPI to a certain extent. However, the overall tight supply of NPI has not completely reversed. Support from fundamentals remains. Although nickel prices have fallen sharply due to sentiment, the downside room is expected to be limited. Today, we will pay attention to whether the 40-day moving average can be an effective support.

Tin: Overnight, SHFE tin moved between 257,000-259,500 yuan/mt for most of the time. Supply is relatively stable. Many solder companies are pessimistic over demand in September. Output at solder companies rose slightly MoM in August, and is expected to continue to grow MoM in September. SHFE tin contract is expected to test resistance at 259,500 yuan/mt and find support at 257,000 yuan/mt today.