SMM Evening Comments (Oct 20): Shanghai Nonferrous Metals All Closed with Losses as the Coal-related Futures Hit Limit Down

SHANGHAI, Oct 20 (SMM) – Shanghai nonferrous metals all closed in the negative zone as the coal-related futures have hit the limit down after the NDRC decided to regulate the coal prices with all efforts.

Shanghai copper slid 2.16%, aluminium plunged 6.27%, lead lost 0.57%, zinc plunged 6.46%, tin shed 2.04%, and nickel lost 0.49%.

Copper: The most-traded SHFE 2112 copper closed down 2.16% or 1960 yuan/mt to 73240 yuan/mt, with open interest up 4899 lots to 144200 lots.

On the macro front, the US new housing reading in September dropped out of expectation after the industrial manufacturing data in September fell with the fastest decline in the past seven months, evidencing the slow economic recovery in Q3. Meanwhile, the National Development and Reform Commission decided to regulate the coal prices with all efforts, and the coal futures all touched the limit down subsequently. While the LME has also taken measures to optimize the trading rules, slowing the increase of copper futures.

On the fundamentals, the proportion of LME cancelled warrants surged to over 90% again yesterday, and the LME copper warrants inventory was less than 20,000 mt. The LME copper 0-3 backwardation soared to above $1,100/mt, the highest in the past 27 years. The tightening supply of copper will underpin the prices in the near term.

Tonight, the market shall watch the MoM growth of MBA mortgage loan applications (finalised at 0.2% in the previous session).

Aluminium: The most-traded SHFE 2112 aluminium closed down 6.27% or 1530 yuan/mt to 22855 yuan/mt, with open interest down 22942 lots to 222,100 lots.

The aluminium prices plunged today mainly because the longs ran away from the market in panic as the thermal coal futures touched limit down and the aluminium ingots inventory continued to rise. Generally speaking, the power rationing will have a greater impact on aluminium prices in the short term.

Lead: The most-traded SHFE 2111 lead closed down 0.57% or 90 yuan/mt at 15725 yuan/mt, with open interest down 6363 lots to 43064 lots.

The lead prices fell slightly, and the shipments made by the smelters were modest. However, the trading market differed on the future trajectory of lead prices, and the quotations of lead ingots in different places also diverged greatly. The goods from delivered SHFE 2110 contract might be transferred to social warehouses as the lead prices trended up this week. Therefore, the social inventory remains as the market focus.

Zinc: The most-traded SHFE 2111 zinc closed down 6.46% or 1755 yuan/mt at 25415 yuan/mt, with open interest down 16820 lots to 60719 lots.

The SHFE 2111 contract opened at a low level, and broke down below the 5-day moving average, losing the gains since the beginning of this week. While the weak US dollar index and domestic reverse purchase offered some supporting. LME zinc inventory surged yesterday, while the SHFE inventory continued to rise. More downstream producers picked up goods amid plunging prices, and the traders actively took in goods for fear of rising prices in the near term.

Tin: The SHFE 2111 tin closed down 2.04% or 5890 yuan/mt at 283520 yuan/mt, with open interest down 2006 lots to 23115 lots.

On the fundamentals, the spot supply continued to pick up today, and the transaction volume increased further. However, the currently low inventory and rising demand after the prices corrected down will still support the prices logically.

Nickel: The most-traded SHFE 2111 nickel closed down 0.49% or 740 yuan/mt to 149580 yuan/mt, with open interest down 5610 lots to 82943 lots.

US Fed Governor Waller said that if inflation keeps rising at its current pace in coming months, he would stand for the interest rate hike ahead of schedule. And the US dollar index rallied. On the fundamentals, the domestic nickel ore inventory rose at a slower pace, thus the supply remained tight. The ferronickel plants have also been restricted by the power rationing, pushing up the demand of nickel plate as an alternative. The demand from the stainless steel sector weakened maid production restriction, but the output in October will stablise as a whole, thus the influence weakened marginally. The demand from the new energy sector was still robust.