SMM Morning Comments (Aug 16): Base Metals Closed Mostly with Losses amid More Signs of Economic Recessions

SHANGHAI, Aug 16 (SMM) – LME and SHFE base metals closed mostly with losses with signs indicating an economic slowdown. A survey by the New York Fed showed that the New York State Manufacturing Index plunged 42.4 points in August to -31.3. A reading below zero indicates a contraction in New York State manufacturing. These figures further reflect the slowdown in the economy at a time when the Federal Reserve is raising interest rates.

LME copper fell 1.65%, aluminium lost 1.21%, lead added 0.09%, and zinc shed 0.35%.

SHFE copper inched up 0.05%, aluminium lost 1.86%, lead slid 0.3%, and zinc gained 0.1%.

Copper: LME copper opened at $7,880/mt yesterday, and once climbed to $8,022.5/mt. At last, the contract closed at $7,978/mt, down 1.65%. Trading volume was 17,000 lots, and open interest stood at 249,000 lots.

SHFE 2209 copper contract opened at 61,040 yuan/mt in overnight trading and rose to 62,080 yuan/mt. At last, the contract closed at 61,970 yuan/mt, up 0.05%. Trading volume was 59,000 lots, and open interest stood at 158,000 lots.

On the macro front, last night, the New York Fed Manufacturing Index and US builder confidence dropped to the lowest level since the pandemic outbreak, and the signs of economic slowdown became an obstacle to the rising of the US dollar.

On the supply side, the output of some smelters decreased due to the hot weather in east China, and the arrival of imported copper at ports at the weekend was limited, thus the domestic inventory dropped slightly. The demand performed better, and the domestic still saw a tight supply. The impact of the follow-up power rationing is of utmost concern. In the spot market, the output of smelters such as Daye, Fuye, Tongling, etc. reduced to varying degrees after the delivery of the SHFE 2208 copper contract. It is expected that the spot premiums will still remain rangebound at high levels. Copper prices may also fluctuate at a high level though the prices will still bear certain pressure during the session.

Aluminium: Overnight, the most-traded SHFE 2209 aluminium contract opened at 17,975 yuan/mt and fell to 17,725 yuan/mt as longs exited amid pessimistic macro sentiment, closing at 17,975 yuan/mt, down 340 yuan/mt or 1.86%.

LME aluminium opened at $2,439.5/mt on Monday and closed at $2,403.5/mt, down $29.5/mt or 1.21%.

The domestic real estate data and employment rate data released on Monday showed poor performance, sending SHFE aluminium lower. The production reduction by aluminium smelters in Sichuan Province has expanded to 390,000 mt due to power shortage. The domestic aluminium output may fall slightly month-on-month in August. Domestic downstream consumption is still in the off-season. Downstream factories in Sichuan, Chongqing, Jiangsu and Zhejiang are also facing risks of production cuts due to power shortages. The domestic aluminium ingot social inventory remains in a state of accumulation, and spot discounts sustained. Aluminium prices will fluctuate widely in the short term amid weak supply and demand and pessimistic macro front.

Lead: LME lead opened at $2,180.5/mt overnight and rose by 0.09% to $2,175/mt, after hitting the highest point at $2,185.5/mt and the lowest point at $2,137.5/mt. The open interest increased by 567 lots to 90,915 lots from the previous trading day.

The most traded SHFE lead contract opened at 15,060 yuan/mt overnight and fell by 0.3% to 15,055 yuan/mt, after hitting the highest point at 15,065 yuan/mt and the lowest point at 14,975 yuan/mt. The open interest increased by 109 lots to 55,089 lots from the previous trading day.

Zinc: LME zinc closed at $3,597/mt on Monday, down $12.5/mt or 0.35%. The open interest fell 2,922 lots to 201,000 lots. Overnight LME inventory fell 300 mt to 74,200 mt. Currently, LME zinc was still strong with active participation of longs with intensifying energy shortage.

The most traded SHFE 2209 zinc contract closed at 24,740 yuan/mt overnight, up 25 yuan/mt or 0.1%. The open interest added 411 lots to 124,000 lots. On the supply side, smelters in Sichuan province were forced to reduce the production amid power shortage, and the August refined zinc output guidance was lowered again. On the consumption side, the downstream sectors were sluggish, and the operating rates of galvanising producers dropped again following a brief growth. In the spot market, market transactions were still muted as zinc prices were still not yet the best offer for downstream buyers despite recent falls. SMM zinc ingot social inventory fell 6,900 mt from last Friday to 132,300 mt as of Monday August 16. Zinc prices are unlikely to experience steep rises or falls in the near term.

Overnight, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell 6 points to 49 in August, the eighth consecutive monthly decline and the lowest level since 2014 (excluding the pandemic period). A survey by the New York Fed showed that the New York State Manufacturing Index plunged 42.4 points in August to -31.3. A reading below zero indicates a contraction in New York State manufacturing. These figures further reflect the slowdown in the economy at a time when the Federal Reserve is raising interest rates. China reduced its holdings of US debt for the seventh consecutive month, with its open interest hitting another 12-year low.

Tin: Overnight, SHFE tin moved in a narrow range. Investors began to roll their positions onto distant month contracts. Domestic tin inventory under SHFE warrants did not increase. Deliveries of the 2208 tin contract declined due to improved spot market. LME tin inventory rose slightly. The import profit window opened slightly. Imported tin was still quoted at a discount in the spot market. It is expected that the short-term tin prices will still hover sideways amid largely stable supply and demand pattern and suppressed enthusiasm of investors.

Nickel: On the supply side, the premiums of pure nickel maintained a downward trend amid the poor demand. Because of the narrow SHFE/LME nickel price ratio, the weekly arrival will not reach expectations. In terms of NPI, the supply and demand both declined, but the market still saw an oversupply. On the demand side, the operating rates of steel mills in some regions of east China dropped because of the power rationing, and the delivery time was delayed. As for alloy, most downstream manufacturers held a wait-and-see attitude amid the unstable futures. In general, the current demand for nickel is poor, and the inventory rises continuously, weakening the support for nickel prices.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]