SMM Evening Comments (Jul 16): Shanghai nonferrous metals rose across the board amid wider power curtailment

SHANGHAI, Jul 16 (SMM) – SHFE nonferrous metals all went up today as China’s power curtailment expanded to many regions, and US expectation of interest rate hikes intensified.

Tin led the gains by surging 3.04%, copper rose 1.11%, aluminium increased 0.65%, lead inched up 0.03%, zinc gained 2.42%, and nickel advanced 1.95%.

Ferrous complex closed mixed. Iron ore increased 1.89%, rebar gained 0.23%, HRC lost 0.12%.

Copper: The most traded SHFE 2108 copper contract gained 1.11% to end at 69,340 yuan/mt today, with open interest up 2,990 lots to 85,000 lots.

Fed Chairman Powell reaffirmed his easing policy stance. Powell called the current price increase a "unique" phenomenon in history, and said that Fed is closely watching whether its expectations of temporarily high inflation are correct. In addition, Powell said Fed may require banks to test climate change risks. St. Louis Fed President urged the shrink of debt purchase reduction after the hawkish statement, saying that the employment and inflation targets have been reached. Chicago Fed expects that the policy will be adjusted before the end of the year, and the interest rate hike will happen in 2024. The market still had expectations of interest rate hike. At the same time, the Monetary Policy Committee of Bank of England suggested that stimulus measures may need to be reduced soon to prevent inflation from overheating. US retail sales data in June and the Eurozone trade account after the May seasonal adjustment will be the focus tonight. SHFE copper may give the market confidence amid the consumption data of US and Europe.

Aluminium: The most liquid SHFE 2108 aluminium contract closed 0.65% higher at 19,470 yuan/mt today, with open interest down 1,854 lots to 215,755 lots.

Lead: The most active SHFE 2108 lead contract rose 0.03% to close at 15,895 yuan/mt today, with open interest down 1,022 lots to 55,078 lots. SHFE lead was still dominated by short positions. The arbitrage funds may lead the market after profiting from the higher LME prices. The SHFE/LME price rebounded slightly.

Today's spot prices rose slightly. With sufficient supply in the spot market, high-priced transactions were relatively scarce, and smelters were less active to quote. Social inventories accumulated with the settlement of July contract this week. Domestic weak consumption could not support the rise of lead futures. Attention needs to be paid to the impact of export trends and short-term power curtailment on the inventory increase. Tonight’s focus will be whether SHFE lead will remain fluctuating at high levels amid reduced positions.

Zinc: The most active SHFE 2108 zinc contract ended 2.42% higher at 22,465 yuan/mt today, rising for the third consecutive week, with open interest up 2,235 lots to 79,857 lots.

Powell’s statement did not alleviate the market's concerns about inflation, and the market sentiment sitll diverged seriously. Some hawks believe that, based on the experience after the 2008 crisis, the current operation of the US economy has met the conditions for reducing the scale of asset purchases.

At fundamentals, the power curtailment had spread throughout the country, and the impact varied. According to SMM survey, the overall production will be cut by about 20%, but some regions under greater impact have reduced the production by 25. The duration of the current popwer rationing is to be determined. In the short term, the released zinc reserves will reach the downstream users next week, and the inventories are expected to increase, so the rise of zinc prices is expected to be limited.

Nickel: The most active SHFE 2108 nickel contract finished the day 1.95% higher at 141,370 yuan/mt today, with open interest up 7,328 lots to 123,309 lots.

The sharp rise in stainless steel prices drove nickel prices to make the breakthrough. Expectations of production restrictions and insufficient supply of ferrochrome continued to affect stainless steel prices. At the same time, the market is expecting nickel shortages, which supported nickel prices. During the European session, LME nickel fluctuated above $18,900/mt. US retail sales data will be the focus tonight.

Tin: The most traded SHFE 2108 tin contract rose 3.04% to hit at new high at 228,260 yuan/mt today, with open interest down 308 lots to 38,155 lots.       

The price increase expanded today, once reaching the daily limit amid the intensive reduction of positions. However, the wide fluctuation did not attract funds to enter the market, indicating the less opinion differences on the trend of the August contract between the bulls and bears, and their willingness to buy recent contracts declined. Tin prices have been in the upward trend for a long time. However, considering that the main downstream industries are approaching the off-peak season, the continued high spot prices of tin ingots will also erode the profit margins of production enterprises. Therefore, the cost of maintaining a continuous increase in prices is gradually increasing, and the short-term sharp rise may come to an end.