SMM Morning Comments (Sep 28): Most Base Metals Prices Declined as US Dollar Rose for Two Consecutive Days

SHANGHAI, Sep 28 (SMM) – Most of the base metals prices fell on Monday evening as the US dollar has risen for two consecutive days.

LME copper dropped 0.05%, aluminium edged down 0.89%, lead rose 0.12% and zinc fell 0.53%.

SHFE base metals dropped across the board in the overnight trading. Copper shed 0.1%, aluminium decreased 1.33%, lead dropped 0.31% and zinc lost 0.63%.

Copper: LME copper dropped 0.05% and closed at $9350.5/mt on Monday evening. Trading volumes were 13,000 lots and open interest were 261,000 lots. The SHFE 2111 copper contract lost 0.1% to end at 69,260 yuan/mt last night. Trading volumes stood at 34,000 lots and open interest stood at 117,000 lots. On the macro front, Fed Chairman Powell said yesterday that supply problems have caused prices to rise and employment problems did not meet their targets. The situation may take longer than expected. His remarks were biased, causing the US dollar index to fall. And copper prices rose during the day. However, the market still called for a reduction in the purchase of assets in the United States as early as November. Boosted by the rise in US Treasury yields, the US dollar strengthened at night and SHFE copper dropped slightly.

In terms of fundamentals, under the current situation of power rationing, the market is more concerned about downstream demand. The news of the fourth round of 30,000 mt copper reserves offered by the SRB was released yesterday, which affected market sentiment to a certain extent. At present, the performance of copper prices is relatively weak. In terms of spot markets, downstream producers in Jiangsu will cut output during the National Day holidays. The high pre-holiday premium has increased the willingness of sellers to generate cash and turn cautious. Spot quotes may show a continued downward trend. SHFE copper prices are expected to move between 68,600-69,300 yuan/mt today, and LME copper will trade between $9,280-9,380/mt; spot premiums are likely to fluctuate between 240-350 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2111 aluminium contract fell to 22,575 yuan/mt after opening at 22,800 yuan/mt, and closed at 22,655 yuan/mt, down 305 yuan/mt, or 1.33%.

Three-month LME aluminium opened at $2,941/mt yesterday and closed at $2,903/mt, a decrease of 0.89%.

The frequent entry and exit of longs has increased the price volatility. The impact of the power rationing has expanded to downstream producers, hurting demand and pushing up social inventory. The SRB announced yesterday that it would release 70,000 mt of aluminium ingots into the market, which will further increase inventory pressure. However, aluminium supply will remain tight in the short term when smelter output cuts begin to have an impact.

Lead: Overnight, LME lead closed at $2,169/mt, an increase of 0.12%. LME lead prices are expected to move rangebound today. Pay attention to the release of today's economic data from China and the US. Overnight, the SHFE 2111 lead contract closed at 14,495 yuan/mt, a decrease of 0.31%. Open interest increased by 8,248 lots from the previous day to 66,050 lots.

Nickel: SHFE nickel prices ended at 143,300 yuan/mt last night, with open interest down 3,413 lots to 39,663 lots. In terms of fundamentals, local power rationing and production restriction policies have been introduced. Production of nickel sulphate is affected, and output of downstream precursors and cathode materials was reduced significantly. Weaker demand pushed output cuts of nickel sulphate. This also weakened pure nickel consumption. For stainless steel, it is expected that the production restriction policy will still exist and the production recovery will be limited; as the holiday is approaching, the flow of funds is cautious, so it is expected nickel prices still maintain a weak and volatile trend.

Zinc: LME zinc fell to $3,098/mt after opening at U$3,120/mt yesterday. However, the prices stopped falling at the 5-day moving average. LME zinc closed the day at $3,095.5/mt, down $16.5/mt or 0.53%. Open interest increased by 1,482 lots to 266,000 lots. LME zinc inventory decreased by 1,925 mt to 215,250 mt, a drop of 0.89%. LME zinc is expected to move between $3,070-3,120/mt today. 

Overnight, the most-traded SHFE 2111 zinc contract fell to 22,745 yuan/mt after opening at 22,880 yuan/mt, but then rose to 22,955 yuan/mt before closing at 22,875 yuan/mt, down 145 yuan/mt or 0.63%. Trading volume was 82,774 lots, and open interest decreased by 3,867 lots to 110,000 lots. The State Reserve Bureau announced yesterday that it would release 50,000 mt of zinc ingots into the market. Low inventory may help zinc prices stop falling. The most-traded SHFE 2111 zinc contract is expected to move between 22,700-23,200 yuan/mt on today. #0 domestic Shuangyan zinc is likely to trade at premiums of 40-80 yuan/mt over the SHFE 2110 zinc contract.

Tin: Overnight, SHFE tin hovered narrowly around 270,000 yuan/mt. The scope of power rationing is gradually expanding. Jiangsu and Guangdong, where solder processing companies and electronics factories are concentrated, have also implemented power rationing. The production cuts and shutdowns caused by the power rationing will have big impact on the demand for tin in the short term. The SHFE 2111 tin contract has become the most-traded contract. The most-traded SHFE tin contract is expected to meet resistance at 267,000 yuan/mt and find support at 275,000 yuan/mt today.