SMM Morning Comments (Oct 25): Base Metals Closed Mixed after Longs Left Market

SHANGHAI, Oct 25 (SMM) – Shanghai base metals were trending mixed on Monday morning after the longs left the market for the rise aversion as the Chinese government regulated the commodity prices. Meanwhile, their counterparts on LME basically rose.

LME metals closed mixed in the trading last Friday. Copper fell 0.47%, aluminium dropped 0.96%, lead rose 1.25%, and zinc gained 0.18%.

SHFE metals basically fell in the overnight trading last Friday. Copper dropped 1.19%, aluminium lost 2.5%, zinc fell 0.87%, nickel shed 1.85%, and lead rose 0.5%.

Copper: Three-month LME copper opened at $9,902/mt and fell 0.47% to close at $9,740/mt in the overnight trading last Friday after hitting the lowest level at $9,690/mt, and is expected to trade between $9,770-9,860/mt today. The trading volume was 15,000 lots, and the open interest stood at 270,000 lots.

The SHFE 2111 copper contract opened at 71,990 yuan/mt and dropped 1.19% to close at 71,480 yuan/mt last Friday night after hitting the lowest point at 71,000 yuan/mt, and is expected to trade between 71,900-72,500 yuan/mt today, with spot premiums at 200-320 yuan/mt. The trading volume was 47,000 lots, and the open interest reached 94,000 lots.

The Fed Chairman Powell said last Friday that the Fed should soon start to reduce the scale of asset purchases, but it should not raise interest rates yet. Affected by the central government's regulation of commodity prices last week, the longs left the market under risk aversion, and the copper prices continued its downward trend in the overnight trading. The copper stocks stood low, and the cancelled warrants took up a high proportion, which supported the copper prices. The short squeeze still existed in the overseas market. The quotations are turned to against the SHFE 2112 copper contract, and the monthly long-term trade is coming to a end. If the prices remain volatile at high levels, the premiums are expected to fall further.

Aluminium: LME aluminium opened at $2,912.5/mt last Friday morning and closed at $2,875/mt, down $28/mt or 0.96%.

During last Friday’s night session, the most-traded SHFE 2112 aluminium contract opened at 21,855 yuan/mt, with the lowest price at 20,525 yuan/mt before closing at 21,460 yuan/mt, down 550 yuan/mt or 2.5%.

On the supply side, Qinghai cancelled the policy of orderly electricity consumption last Friday, so the local aluminium production is expected to increase. The domestic social inventory of aluminium ingots increased significantly to 957,000 mt last week, but the suspension of power rationing in Jiangsu Province from last Friday may lead to a rebound in demand. The spot transaction in east China was concentrated around 21,900 yuan/mt last Friday, and the spot discounts slightly narrowed to around 90 yuan/mt. The market will need to pay close attention to how the power issues develop. 

Lead: LME lead opened at $2,395/mt last Friday and fluctuated upward to hit the highest price at $2,432/mt, before closing at $2,425/mt, up 1.25%. LME continued to fluctuate in the high of Bollinger Band. The lead stocks across the LME-listed warehouses fell slightly in the previous trading day. However, the prices have no further upward momentum with the high base of the inventory.

The most traded SHFE 2112 lead contract opened at 16,065 yuan/mt last Friday night, and basically stood above 16,000 yuan/mt. The contract closed at 16,035 yuan/mt, up 0.5%. The open interest increased by 2,917 lots from the previous day to 43,688 lots.

Zinc: Three-month LME zinc gained 0.18% to close at $3,429/mt last Friday, with open interest down 120 lots to 257,000 lots. The Fed Chairman Powell said that the Fed should soon start to reduce the scale of asset purchases, but will not raise interest rates yet. LME zinc is expected to move between $3,430-3,480/mt today.

The most-traded SHFE 2112 zinc contract fell 0.87% to stand at 24,550 yuan/mt last Friday, with open interest increasing 1,357 lots to 80,707 lots. SMM inventory rose to 147,300 mt last Friday while the willingness of restocking by the downstream market was poor. Focus should paid on whether the downstream stockpile sentiment can improve after the zinc price declines, and whether the inventory can usher in an inflection point of declining. The SHFE zinc contract is expected to move within a range of 24,200-24,700 yuan/mt today, and spot discounts for domestic #0 Shuangyan zinc will be seen at 10-30 yuan/mt against the November contract.

Nickel: The most active SHFE 2111 nickel contract fell 1.85% or 2,800 yuan/mt to end at 148,610 yuan/mt last Friday evening. Trading volume was 378,000 lots, and open interest decreased by 8,944 lots to 56,000 lots. Today, we will pay attention to whether nickel prices will rebound from a low level under the support of the fundamentals.

The current tightness of NPI, coupled with the upward trend in cost-end prices (mainly rising electricity prices) and the reduction in NPI output caused by power rationing, the problem of NPI shortage is more difficult to solve. And the supply of NPI in Indonesia is still tight. As the rainy season in the Philippines leads to a decrease in imported nickel ore, the downstream buyers are expected to increase the proportion of pure nickel, stabilising nickel prices at low levels. Whether or not the nickel prices can return to high levels depends on whether the downstream consumption of the ternary industry can effectively keep up with the growth rate of upstream raw materials after the lifting of the power rationing. Expectations of raw material surplus are likely to weigh on the nickel prices. However, we should still pay attention to the accelerating increase in the proportion of lithium iron phosphate batteries. The growth rate of ternary batteries may be lower than expected. The short-term nickel prices are still optimistic, and the long-term concern is whether there will be a reduction in nickel briquette and powder output due to the surplus of nickel sulphate. SHFE nickel prices are expected to move between 148,000-160,000 yuan/mt this week and LME nickel will fluctuate between $19,800-20,800/mt.

Tin: During last Friday’s night session, SHFE tin fluctuated wildly and funds continued to withdraw from the market. Tin smelters are expected to increase production, but the refined tin is still in net exports. Inventory is still at a low level and there is no obvious sign of inventory accumulation in the short term. In the short term, the actual impact of power rationing on the demand side is limited. Demand will remain strong in the long term. Investors are beginning to roll their positions into forward month contracts as delivery of the 2111 contract approaches. SHFE tin will probably move within current range amid largely balanced tin market and weaker sentiment in the commodity market. The most-traded SHFE tin contract is expected to meet resistance at 293,000 yuan/mt and find support at 280,000 yuan/mt on Monday.