SMM Evening Comments (Oct 22): Shanghai Nonferrous Metals All Closed with Losses amid Pessimistic Sentiment Caused by Falling Commodity Prices

SHANGHAI, Oct 22 (SMM) – Shanghai nonferrous metals all closed with losses as the pessimistic sentiment, created by the falling commodity prices, has extended to the non-ferrous metals sector.

Shanghai copper slid 2.1%, aluminium plunged 7.26%, lead edged down 0.06%, zinc plummeted 4.45%, tin lost 2.56%, and nickel shed 3.43%.

Copper: The most-traded SHFE 2112 copper closed down 2.1% or 1550 yuan/mt to 72390 yuan/mt, with open interest up 7205 lots to 155196 lots.

On the macro front, the overnight US jobless claims last week recorded 290,000, the lowest since the breakout of the COVID. The market again eyed on the timeline of Fed’s tapering bond purchases and interest rate hike amid an improving job market and the high inflation rate, and the risk aversion sentiment warmed up.

On the other hand, the thermal coal, coke, coking coal and rebar futures corrected down significantly as the central government has been determined to regulate the coal prices. The most-traded sodium carbonate futures even hit a limit down in the overnight trading, and the international crude prices also plunged. The pessimistic sentiment has been spread to the non-ferrous metals board, pushing down almost all non-ferrous metals futures.

On the fundamentals, the social inventory of copper dropped by 144,000 mt from a week ago to 94,700 mt as of Friday. The inventory in Guangdong and Shanghai fell by 1,500 mt and 11,400 mt, respectively to 9,900 mt and 64,600 mt, mainly as the volume of imported copper that completed customs clearance shrank amid unfavourable SHFE/LME price ratio. While the LME and SHFE copper inventories have been falling to historical lows, which supported SHFE copper.

Tonight, the market shall watch the initial readings of Markit manufacturing PMI in UK and US for October.

Aluminium: The most-traded SHFE 2112 aluminium closed down 7.26% or 1690 yuan/mt to 21580 yuan/mt, with open interest down 15156 lots to 211081 lots.

The coal prices have been falling greatly this week, especially thermal coal which has dropped close to the limit down three times. As such, the electricity costs of aluminium production are likely to trend down in the future, weighing on aluminium prices. Meanwhile, SMM social inventory of aluminium has been rising, and the downstream sector was also impacted by the power rationing, meaning that the market was increasingly unable to support aluminium pirces. In the spot market, the traded prices of spot aluminium in Foshan, Wuxi and Gongyi were all in discounts over SHFE aluminium, triggering market concerns over the demand prospect.

Lead: The most-traded SHFE 2111 lead closed down 0.06% or 10 yuan/mt at 16030 yuan/mt, with open interest down 4818 lots to 34966 lots.

The smelters in Henan received the power rationing notice this week, and the production restriction plan will be carried out accordingly. The social inventory of lead ingots took the downward trend, but the smelters’ offers for small orders were scarce.

Zinc: The most-traded SHFE 2112 zinc closed down 4.45% or 1150 yuan/mt at 22695 yuan/mt, with open interest down 7043 lots to 79350 lots.

On the macro front, the initial manufacturing PMI reading for October across the Eurozone came in higher than expected, indicating an expanding economy and steady economic recovery. On the fundamentals, the social inventory of zinc ingots across the seven major markets in China totalled 147,300 mt, up 100 mt from Monday October 18 and 8,200 mt from last Friday October 15. The zinc social inventory has been at a historical low level despite the weekly increase, which will underpin zinc prices.

Tin: The SHFE 2111 tin closed down 2.56% or 7440 yuan/mt at 283660 yuan/mt, with open interest down 1935 lots to 19520 lots.

On the fundamentals, the spot inventory was still low, which is unlikely to rebound in the short term. According to SMM research, the power rationing’s impacts to downstream demand have been limited, and a falling spot price could immediately activate the demand, indicating optimistic demand prospect in the long term.

Nickel: The most-traded SHFE 2111 nickel closed down 3.43% or 5370 yuan/mt to 151330 yuan/mt, with open interest down 19772 lots to 64326 lots.

The LME metals were congested, and SS2111 corrected down slightly. SHFE nickel mostly followed the broad trend. On the fundamentals, the new energy sector maintained its upside momentum, with considerable demand for nickel. While the NPI was more greatly affected by the energy consumption control policy, so its recovery has lagged behind. NPI prices will remain high amid supply shortage caused by slow recovery and high costs, which will later support nickel prices.