SMM Morning Comment For SHFE Base Metals July 31

SHANGHAI, Jul 31 (SMM) –

Copper

LME copper closed at $8,675/mt last Friday evening, a gain of 1.45%. Trading volume was 13,000 lots and open interest stood at 278,000 lots. SHFE 2309 copper contract finished at 69,400 yuan/mt last Friday evening, up 0.8%. Trading volume was 38,000 lots, and open interest stood at 189,000 lots. On the macro front, the annualised core PCE price index in the United States was 4.1% in June, which was lower than market expectations, fuelling market bets that the Fed may end the monetary tightening cycle. The US dollar index fell slightly, bolstering copper prices. As of Friday July 28, SMM data showed that copper inventory across major Chinese markets stood at 99,200 mt, down 9,800 mt from last Monday and down 16,700 mt from two Fridays ago. Inventories have fallen for three consecutive weeks. Due to the low arrivals of imported copper and domestic copper in east China as well as relatively strong downstream purchasing, inventories in east China declined. Inventory in south China dropped has declined amid weak supply and demand. Consumption is expected to increase. It is expected that copper prices will remain rangebound at high levels due to market expectations over Fed ending monetary tightening.

Aluminum

Last Friday night, the most-traded SHFE 2309 aluminium contract opened at 18,400 yuan/mt, with the lowest and highest prices at 18,305 yuan/mt and 18,415 yuan/mt before closing at 18,355 yuan/mt, down 20 yuan/mt or 0.11% from Thursday. LME aluminium opened at $2,204.5/mt on Friday, with its high and low at $2,229/mt and $2,195/mt respectively before closing at $2,227/mt, an increase of $18/mt, or 0.81%, from Thursday.

On the macro level, there are growing expectations that policy tightening by major central banks such as the Fed and the European Central Bank is nearing an end, boosting the outlook for global growth and energy demand. In terms of fundamentals, the resumption of aluminium production in Yunnan is speeding up, and it is expected that some large smelters in the region will be able to produce at full capacity by the end of August, potentially fueling the total domestic operating capacity to a record high. At present, the amount of resumed production is mainly liquid aluminum, and there is no large aluminum ingot oversupply pressure. In the short term, the inflection point of inventory has not yet appeared, and there is no imminent oversupply. On the demand side, favorable policies have promoted real estate, automobile, and other related consumption to gradually pick up, driving the operating rate of extrusion and other aluminum downstream factories to rise, but some sectors are still in the off-season, and the impact of follow-up policies still needs further observation. The low inventory in the off-season may give support to aluminium prices. SHFE aluminium may move range bound in the short term.

Lead

Last Friday, LME lead opened at $2,156/mt, and hit a session low of $2,148/mt at the beginning and then shook up to $2,167/mt, and finally closed at $2,155/mt, down 0.07%. Its open interest decreased by 735 lots to 120,000 lots compared with last Thursday, and its trading volume decreased by 1,186 lots to 3,948 lots.

Last Friday night, the most-traded SHFE lead 2309 contract opened at 15,975 yuan/mt and dived to a low of 15,940 yuan/mt after the opening, but then fluctuated around 15,970 yuan/mt and finally closed at 15,965 yuan/mt, up 0.06%. Its open interest increased by 574 lots to 106,000 lots compared with last Thursday, and its trading volume decreased by 34,609 lots to 21,289 lots.

On the macro level, we should pay attention to the official manufacturing PMI data in China and the Chicago PMI data in the United States on July 31. In terms of spot fundamentals, since late July, several smelters have resumed operation, and newly expanded production lines for secondary refined lead were gradually opened up, thus the supply of lead ingots gradually increased. The terminal consumption in the downstream battery market is average, while lead prices have risen, adding to the production costs of lead-acid battery companies. Recently, some enterprises have raised the price of batteries, and sales promotion in the battery wholesale market has weakened. At present, the operating rate of medium and large enterprises is mostly 70-80%. On the whole, the fluctuations of lead prices will expand in the short term.

Zinc

The government promised to consolidate the stabilization and recovery of the real estate market and boost the real estate industry. Since the second quarter of this year, international organizations and institutions such as the United Nations and the World Bank have raised their expectations for China's economy growth this year. Last Friday, the U.S. Labor Department said its employment index rose 1% in the second quarter.

LME zinc prices gained 1.59% to close at $2,493/mt last Friday evening. Trading volumes decreased to 7,992 lots and open interest was up 555 lots to 198,000 lots. Last Friday, LME inventories increased by 3,075 mt to 99,150 mt, an increase of 3.20%.

The most active SHFE 2309 zinc contract gained 165 yuan/mt or 0.80% to settle at 20,810 yuan/mt last Friday evening. Trading volumes decreased to 69,751 lots and open interest grew 2,108 lots to 121,000 lots. As of July 28, the total inventory of zinc ingots in seven major markets stood at 122,500 mt, 1,700 mt lower than that on July 24.

Tin

Last Friday night trading, SHFE 2309 tin contract price fluctuated downwards quickly after opening lower. It bounced back a little after hitting a low of 232,240 yua/mt. It finally closed down 1.79% at 233,150 yuan /mt.

Nickel

SHFE 2308 nickel contract opened at 169,210 yuan/mt at the night session on July 28, and closed at 171,910 yuan/mt, down 1,730 yuan/mt. Trading volume fell by 62,891 lots, and open interest decreased by 13,636 lots.

On the macro level, last week the Fed announced that it would raise interest rates in July, in line with market expectations. What deserves attention is Powell‘s speech stating that interest rates will not be cut within this year. Affected by this, SHFE nickel fell slightly on July 27. However, the domestic Politburo meeting last week pointed out that it will expand domestic demand and stimulate economic growth and other macro-good news, which boosted SHFE nickel afterwards.

In terms of fundamentals, the spot premium continued to decline last week, and the Jinchuan nickel premium plunged by about 44.9%, mainly due to the loose supply of the Jinchuan nickel plate and the customs clearance of Norilsk nickel last week. On the demand side, the production schedule of 300 series stainless steel declined last week, and the demand for pure nickel was limited. In terms of alloys, the civil-use orders of some alloy enterprises declined last week, but the military nuclear power sector remained stable, supporting the consumption of pure nickel.

Overall, the demand for pure nickel was weak, leading to oversupply last week. This week, we need to pay attention to the interest rate decision of the Bank of England and the seasonally adjusted non-farm employment data of the United States in July. On the supply side, it is expected that the supply of pure nickel this week will be ample, mainly because domestic pure nickel production will continue to climb in August. On the demand side, in terms of alloys, some alloy factories will conduct centralized procurement at the beginning of the month, which will support the demand for pure nickel at the beginning of August. On the electroplating side, due to the continuous fall in orders, affected by the environmental protection policies and high temperature, some factories have chosen to reduce or stop production, and there is limited support for the demand for pure nickel.