SMM Morning Comments (Aug 24): Base Metals Closed Mixed Disappointing Economic Readings

SHANGHAI, Aug 24 (SMM) – SHFE and LME base metals closed mixed amid disappointing economic readings. Overnight, August U.S. PMI continued to hit a new low in more than two years; Eurozone PMI hit a new low in 18 months, and remained in the contraction range for two months in a row; the two major economies - Germany and France – fell into contraction; Japan PMI fell below the 50-point mark as well.

LME copper rose 0.65%, aluminium jumped 1.65%, lead slid 1.49%, and zinc fell 1.13%.

SHFE copper rose 0.19%, aluminium jumped 0.83%, lead slid 0.13%, and zinc fell 0.18%.

Copper: LME copper opened at $8,066.5/mt yesterday, and once hit the lowest and highest price of $8,045/mt and $8,189/mt respectively. At last, the contract closed at $8,105/mt, up 0.65%. Trading volume was 18,000 lots, and open interest stood at 245,000 lots.

SHFE 2209 copper contract opened at 63,400 yuan/mt in overnight trading and hovered around the daily moving average. During the session, the contract climbed to 63,720 yuan/mt before falling to 63,190 yuan/mt. At last, the contract closed at 63,390 yuan/mt, up 0.19%. Trading volume was 33,000 lots, and open interest stood at 132,000 lots.

On the macro front, the US manufacturing PMI in August, the monthly sales of new houses and the activity data of the private sector in August released yesterday were weaker than expected, which threw cold water on the recent expansion of the US dollar. The market's expectation of the US Fed's aggressive interest rate hike has cooled down. The US dollar index fell overnight, but copper futures rose. The fundamentals have not changed much. Copper prices were supported by the tight supply, and the spot premiums remained firm. The spot transactions were dominated by the traders, but the downstream was not active in purchasing. Premiums will still be firm this week amid the low inventory.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,780 yuan/mt overnight and rose to 18,950 yuan/mt before closing at 18,840 yuan/mt, up 155 yuan/mt or 0.83%.

LME aluminium opened at $2,392.5/mt on Tuesday and closed at $2,428/mt, up $39.5/mt or 1.65%.

On the supply side, aluminium production cut keeps expanding with escalating power rationing in Sichuan province. It is estimated the total installed aluminium capacity in the province, which totals 1.07 million mt, will be completely shut down in the coming week. Overseas, two aluminium smelters located in Norway have kicked off the production cut cycle, which is likely to extend amid high energy prices. The downstream sectors are also hit by the power crunch. On the whole, aluminium prices will remain resilient amid potentially extending production cuts.

Lead: LME lead opened at $2,048/mt overnight, and moved around $2,020-2,030/mt trailing SHFE lead. The contract dropped in European trading with rising risk aversion, and hit a monthly low at $1,961/mt before closing at $1,977/mt, down 1.49%.

The most-traded SHFE 2209 opened at 15,055 yuan/mt, and then fell to 15,995 yuan/mt after LME fell. The contract then bottomed out in light of falling domestic social inventory and cost support. Nonetheless, the overall trend was in a downturn as the lead ingot export window closed and the spot discounts expanded. The contract finally closed at 15,030 yuan/mt, down 0.13%.

Zinc: LME zinc closed at $3,498/mt on Tuesday, down $40/mt or 1.13%. The open interest fell 886 lots 198,000 lots. Overnight LME inventory was added 1,700 mt to 76,435 mt.

The most traded SHFE 2209 zinc contract closed at 25,320 yuan/mt overnight, down 45 yuan/mt or 0.18%. The open interest fell 896 lots to 96,779 lots. On the fundamentals, zinc supply was pessimistic amid extending power rationing and high energy prices in the Europe. On the consumption side, the operating rates of galvanizing plants in Tianjin rose, while the market confidence was boosted by the upcoming seasonal high in the die-casting sector. In the spot market, the premiums were high amid tight supply, and the transactions among traders were fine.

Overnight, August U.S. PMI continued to hit a new low in more than two years; Eurozone PMI hit a new low in 18 months, and remained in the contraction range for two months in a row; the two major economies - Germany and France – fell into contraction; Japan PMI fell below the 50-point mark as well. The media said OPEC+ tended to cut production in the case of Iran increasing oil market supply, thus international crude oil rose more than 4% intraday, while Brent rose above $100/barrel for the first time in three weeks. The re-opening of important U.S. LNG export port was delayed, and U.S. natural gas futures dived intraday and once fell nearly 10%.

Tin: On the fundamentals, domestic warrants inventory kept falling amid purchases on rigid demand. LME inventory fell slightly again, ending the accumulation cycle earlier. The import window remained open, but the import profits were narrow. Hence the imports lacked the price advantage. In the futures market, the most-traded SHFE contract fell after hitting high, and moved around 200,000 yuan/mt. The investors are gradually shifting to forward contract, which will soon become the most-traded contract. To sum up, tight supply of some brands has kept the spot premiums high, and the demand side was still negative toward high-priced sources. The contract is expected to consolidate in the near term.

Nickel: On the supply side, at present, the domestic production of refined nickel maintains normal, and the SHFE/LME price ratio has recovered. In terms of NPI, the decline in ore prices earlier eased the NPI plants’ losses, but the plants were still suffering losses. On the demand side, the stainless steel trading improved compared with the beginning of the month driven by the rising futures prices. The impact of power rationing in Zhejiang, Jiangsu and other places on the processing plants may be gradually weakened. In terms of alloys, the military sector still had rigid demand, but the demand from the civilian sector was sluggish. To sum up, the current downstream demand is still poor, providing weaker 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.]