SMM Morning Comments (Aug 8): Base Metals Closed Mostly with Gains amid Subsiding Recession Worries

SHANGHAI, Aug 8 (SMM) – LME and SHFE base metals closed mostly with gains amid a better-than-expected US labour market, which eased the market fears over a potential economic recession.

LME copper gained 1.89%, lead rose 1.79%, and zinc added 0.16%.

SHFE copper gained 1.76%, aluminium jumped 0.46%, lead rose 0.63%, and zinc fell 0.33%.

Copper: LME copper opened at $7,784/mt last Friday and rose quickly to $7,944/mt. After that, the contract fell to $7,752/mt and then climbed to $7,946.5/mt. At last, the contract closed at $7,889.5/mt, up 1.89%. Trading volume was 18,000 lots, and open interest stood at 236,000 lots.

SHFE 2209 copper contract opened at 60,080 yuan/mt last Friday night, and reached 61,200 yuan/mt after falling to 59,710 yuan/mt. At last, the contract closed at 60,760 yuan/mt, up 1.76%. Trading volume was 96,000 lots, and open interest stood at 163,000 lots.

On the macro front, according to the data of the US Department of Labour, the number of non-farm payrolls increased by 528,000 in July after seasonal adjustment, the largest increase since February 2022, far higher than the market's previous expectation of 250,000. The unexpectedly strong growth of non-farm payrolls and the declining unemployment rate in the US eased the market's worries about the economic recession.

On the fundamentals, the SMM survey showed that China's copper cathode output in July was 840,000 mt, down 1.98% MoM but up 1.15% YoY. The maintenance of some smelters, the technical upgrade, and the tight supply of blister copper decreased the copper cathode output. With the commissioning of Fuye headquarters, the output is expected to hit 900,000 mt in August, but it is still necessary to be alert to the potential production cut caused by the tight supply of blister copper. On the demand side, with the acceleration of investment in downstream infrastructure projects, new orders of the leading wire and cable enterprises keep rising, while the supply of copper scrap shrunk, thus the operating rates of copper cathode rod producers rose. At present, the low domestic inventory and the rising consumption will support copper prices to a certain extent.

Aluminium: Affected by US non-farm payrolls, the most-traded SHFE 2209 aluminium contract opened lower at 18,400 yuan/mt at last Friday’s night session, but then climbed to 18,600 yuan/mt before closing at 18,500 yuan/mt, up 0.46%.

LME aluminium opened at $2,403/mt last Friday and rose to $2,454/mt before closing at $2,421/mt.

On the supply side, there are no expectations for further production reduction, and some smelters are still resuming their production. On the demand side, orders of some downstream producers are still on a downward trend in the off-season in August, putting pressure on aluminium prices. However, concerns about the energy crisis and the low level of aluminium inventories will support aluminium prices. On the whole, it is expected that aluminium prices will move rangebound.

Lead: LME lead opened at $2,047/mt last Friday and rose as the US dollar index fell. LME lead finally closed at $2,079.5/mt, up 1.79%, after hitting the highest point at $2,082/mt. 

The most-traded SHFE 2209 lead contract opened at 15,200 yuan/mt last Friday night, hitting the highest point at 15,300 yuan/mt, and closed at 15,275 yuan/mt, up 0.63%.

Zinc: LME zinc closed at $3,470/mt last Friday, up $5.5/mt or 0.16%. The open interest added 2,761 lots to 199,000 lots. Overnight LME inventory rose 3,925 mt to 73,925 mt, a big increase of 5.61%. US labour market stayed strong according to the latest readings, reducing global economic recession expectations. Meanwhile, odds for a rate hike in September rose, aggravating the macro risks. And LME zinc is expected to remain rangebound.

The most traded SHFE 2209 zinc contract closed at 24,350 yuan/mt last Friday night, down 80 yuan/mt or 0.33%. The open interest fell 4,600 lots to 121,226 lots. On the supply side, zinc ingot export window almost closed after SHFE/LME price ratio dropped recently, and market players shall keep an eye on the inflow of Russian zinc ingot. On the consumption side, the fundamentals of commodities including ferrous metals, glass and cement have been improving, indicating the materialization of seasonal high in August and September. However, it remains to be seen whether the heightened market will sustain as the current rising operating rates were the result of centralized restocking demand after prices stabilized. In the spot market, the transactions were muted as the consumption side has not yet improved substantially. On the whole, the SHFE front-month and next-month contracts will remain strong.

Tin: The most-traded SHFE tin contract moved within 190,000-200,000 yuan/mt at last Friday’s night session. The domestic tin social inventory fell last week. Trades in the spot market were stable. LME tin inventory continued to accumulate last week. As SHFE tin prices performed slightly better than LME tin prices, the import profit window showed signs of opening again. However, the quotations of imported tin in the market were limited. Large amounts of tin will flow into the spot market this week following production resumption of smelters. Under the background of the expected increase in supply and support from rigid demand, SHFE tin may move sideways in the short term.

Nickel: On the macro front, due to the impact of the European energy crisis, nonferrous metal prices rose last week. On the supply side, due to high futures prices, premiums of domestic pure nickel lowered, narrowing the SHFE/LME price ratio. With regard to NPI, Indonesia plans to issue a nickel export tax regulation, which stipulates that the import cost of Indonesian NPI will be increased in the future. Before the implementation of the tariff policy, Indonesian NPI will flow into China in a large amount. Affected by the peak season of automobile industry, the output of nickel sulphate rose. On the demand side, the spot prices of stainless steel dropped again, and the transaction remained sluggish. The weak supply and demand will remain still in the short term. In terms of alloy, the terminals generally held a wait-and-see attitude amid the high futures prices, and the demand for pure nickel was weak.

[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.]