SMM Morning Comment For SHFE Base Metals August 21

SHANGHAI, Aug 21 (SMM) –

Copper

LME copper prices closed at $8,276/mt last Friday evening, a rise of 0.51%. Trading volume was 12,000 lots and open interest stood at 280,000 lots. The most active SHFE 2309 copper contract prices closed at 68,230 yuan/mt overnight, a drop of 0.1%. Trading volume was 17,000 lots, and open interest stood at 148,000 lots. Macroscopically, the issuance scale of U.S. treasury bonds has surged in the third quarter of this year. The new issuance scale of U.S. treasury bonds will hit a record high in the same period. The cost of issuance continues to rise. The market is more worried about the U.S. debt problem. SMM data showed that as of Friday August 18, copper inventory across major Chinese markets stood at 74,800 mt, down 7,800 mt from last Monday and down 17,700 mt from two Fridays ago. Inventories hit the lowest for the year. Due to the low shipments arrivals of domestic and imported copper as well as increased downstream purchases, inventories in east China declined. Inventory in south China also fell sharply due to limited arriving shipments and the large price difference between Shanghai and Guangdong, driving cargoes to go to east China. In terms of consumption, if copper prices remain at the current position, it is expected that demand will still have room to rise. Copper prices will stay low in the near future.

Aluminum

Last Friday night, the most-traded SHFE 2309 aluminium contract opened at 18,060 yuan/mt, with the lowest and highest prices at 18,030 yuan/mt and 18,075 yuan/mt before closing at 18,045 yuan/mt, down 15 yuan/mt or 0.08% from the previous trading day. LME aluminium opened at $2,144/mt last Friday with its high and low at $2,159/mt and $2,135/mt respectively before closing at $2,138/mt, a decrease of $4.5/mt or 0.21% from the previous trading day.

On the macro side, the minutes of the Federal Reserve meeting in July showed that the probability of interest rate hikes was increasing before November to fight rising inflation. Domestic stimulus policies relating to expanding demand and supporting real estate have not been implemented yet. In terms of fundamentals, the amount of domestic ingots is still relatively small. It is difficult for the market to witness a large number of concentrated arrivals of ingots in the short term. Domestic aluminum ingots social inventory declined to nearly 500,000 mt but with the resumption of production in Yunnan, more supplies will flow into the spot market. In mid-August, the downstream inventory restocking was active, which strengthened confidence over the extended destocking of aluminum products and boosted spot premiums. In the short term, low inventories will still support aluminum prices. However, the uncertain macro sentiment and the expected supply increase will put pressure on the upward trend of aluminum prices. SMM predicted that the short-term aluminum prices will remain volatile, and follow-up attention should be paid to consumption and inventory.

Lead

LME lead prices opened at $2,138/mt and closed at $2,146.5/mt last Friday evening, up 0.42%. Open interest increased by 2,124 lots from the previous trading day to 120,000 lots, and trading volumes fell 12 lots to 4,311 lots.

The most active SHFE 2309 lead contract prices ended at 16,100 yuan/mt, up 0.69%. Open interest decreased by 256 lots to 84,969 lots. Trading volumes fell 222,000 lots to 14,357 lots.

Zinc

LME zinc prices closed up $13.5/mt or 0.59% at $2,310/mt last Friday evening. The trading volume stood at 6958 lots, and open interest added 2372 lots to 207,000 lots. LME zinc inventories increased by more than 50,000 mt to 142,775 mt this week amid large quantities of deliveries to LME warehouses. Meanwhile, the contango of LME cash to the three-month zinc contract pointed to sluggish oversea demand. There may be additional deliveries to LME warehouses in the near term. Last Friday evening, the most active SHFE 2310 zinc contract prices closed at 19915 yuan/mt, up 25 yuan/mt or 0.13%. Trading volume stood at 47,000 lots, and open interest decreased by 342 lots to 96,000 lots. The decline in zinc prices has driven the buying sentiment of downstream enterprises, and the available spot cargoes decreased sharply. However, there has been little change in the downstream start-up.

Tin

On last Friday’s night session, SHFE 2309 tin contract price rose rapidly after the opening. Then it maintained a sideways range of fluctuations and finally closed at 212,980 yuan/mt, up 0.1%.

Spot premiums and discounts changed little on August 18 morning. Small brand tin ingots were offered at discounts of 200 yuan/mt, some of these shipped at premium 300 yuan/mt. Delivery brands were offered at premiums of 200-500 yuan/mt, among which some enterprises with less inventory shipping at the premium of 700 yuan/mt. Yunxi brand was offered at premiums of 900-1,200 yuan/mt, and discounts of 500 yuan/mt for imported brands. Although tin prices rebounded last Friday, the trading sentiment was still depressed as many downstream buyers had stocked enough raw materials earlier. Most traders reported a sharp drop in spot shipments last Friday compared with the previous trading day.

Nickel

On the macro front, the People's Bank of China issued the second-quarter monetary policy implementation report on August 17, indicating an intensified effort in macro policy regulation. The report mentioned that CPI is expected to gradually rise from August, showing a U-shaped recovery and a potential rebound in commodity prices. Furthermore, due to concerns stemming from the news about the Indonesia’s investigations into nickel ore mines, market sentiment has shifted towards worries about future nickel ore supply. As a result, nickel ore prices have remained relatively firm, leading to upward fluctuations in nickel prices. From a fundamental perspective, there was an accumulation trend in both social inventory and bonded zone inventory of nickel plates in the week ending August 18. Social inventory of nickel plates increased by 306 mt, while bonded zone inventory rose by 400 mt. According to SMM research, the supply was influenced by the sudden arrival of nickel plates from an overseas supplier in the week ending August 18, leading to an expectation of increased supply. On last Thursday evening, GEM applied to list its nickel brand on the LME, with a capacity of 10,000 mt per year. This marks the second domestically produced electrowinning nickel brand to apply for listing on the LME. It can be anticipated that as enterprises progressively meet the delivery requirements of the SHFE and LME, the deliverable products will expand once again. As a result, the risk of short squeeze in nickel futures is likely to decrease in the future. Simultaneously, with the increase in warrants, this could exert downward pressure on nickel prices. On the demand side, the demand for nickel plates in the alloy sector is still in the process of essential and periodic procurement. However, the purchasing sentiment has slightly decreased compared to the previous week. It is anticipated that the alloy demand in civil sector will be affected by lower raw material prices and declining orders, signaling the winding down of periodic procurement. For the stainless steel sector, there was robust trading activity in the 300-series stainless steel in the week ending August 18, which translated into improved sentiment among steel mills regarding raw material procurement. However, it's anticipated that production in the 300-series stainless steel might decline in the future. This is mainly due to the escalating costs of raw materials like nickel ore and NPI. This cost escalation could potentially lead to a decrease in demand for pure nickel. The pure nickel supply was influenced by overseas nickel plate arrivals, resulting in an ample supply, while demand growth was marginal. In summary, current nickel prices were primarily influenced by macro factors in the week ending August 18. It's expected that nickel prices will experience a volatile movement in the week ending August 25.