SMM Evening Comments (Aug 8): Shanghai Nonferrous Metals Closed Mixed amid Better-than-expected US Labour Market and Returning Rate Hike Expectations

SHANGHAI, Aug 8 (SMM) – Shanghai nonferrous metals closed mixed in day trading. The Labor Department data showed that the seasonally-adjusted non-farm payrolls rose by 528,000 in July, well above the market's previous expectation of an increase of 250,000, and the fears over economic recession subsided. But it aroused the expectations of rate hikes in the future.

Shanghai copper gained 2.04%, aluminium inched down 0.05%, lead added 0.72%, zinc fell 0.35%, tin advanced 0.28%, and nickel lost 2.18%.

Copper: The most-traded SHFE 2209 copper closed up 2.04% or 1,220 yuan/mt at 60,930 yuan/mt, with open interest down 1,865 lots to 162,318 lots.

On the macro front, the Labor Department data showed that the seasonally-adjusted non-farm payrolls rose by 528,000 in July, the largest increase since February this year and well above the market's previous expectation of an increase of 250,000. The unemployment rate fell to a pre-pandemic low of 3.5%, compared with 3.6% in June. Federal Reserve Governor Jerome Bowman said the Fed should consider multiple 75 basis point rate hikes in the future to bring high inflation back down to the central bank's target.

In the spot market, the spot premiums dropped again today. Standard-quality copper was originally in premiums of 300 yuan/mt in morning trade to test the market response, while the buyers refrained from purchasing. Then the premiums dropped quickly to 240-250 yuan/mt, but there were still few transactions. The premiums then fell to 200 yuan/mt in the second trading session, which finally attracted some buyers. The spread between good and standard-quality copper was almost zero, with premiums of the former standing at 210-250 yuan/mt.

Aluminium: The most-traded SHFE 2209 aluminium closed down 0.05% or 10 yuan/mt to 18,415 yuan/mt, with open interest down 8,831 lots to 166,701 lots.

On the fundamentals, there is no further production cuts on the supply side, while the production resumption has been progressing smoothly. On the demand side, new orders were at a low level amid the seasonal low in August, pressuring aluminium prices. Nonetheless, current aluminium prices gained support from supply concerns triggered by European energy crisis and low inventory, and will remain rangebound in the near term.

Lead: The most-traded SHFE 2209 lead closed up 0.72% or 110 yuan/mt at 15,290 yuan/mt, with open interest up 2,384 lots to 59,769 lots.

The US dollar met pressure around the middle of the Bollinger band, exerting less pressure on non-ferrous metals, hence LME lead was quite resilient. SHFE lead also gained support from rising LME lead. In the spot market, lead ingot social inventory rose slightly with the arrival of deliverables approaching the delivery of SHFE 2208 lead contract.   

Zinc: The most-traded SHFE 2209 zinc closed down 0.35% or 85 yuan/mt at 24,345 yuan/mt, with open interest down 6,646 lots to 119,177 lots.

On the fundamentals, SMM zinc ingot social inventory stood at 136,600 mt as of August 8, up 2,200 mt from last Friday, but it was still at a low level. The spot transactions were muted amid high premiums after traders started to quote against SHFE 2209. Market players shall stay alert to a potential short squeeze amid low inventory and strong backwardation between SHFE 2208 and 2209.

Tin: The most-traded SHFE 2209 tin closed up 0.28% or 550 yuan/mt at 196,380 yuan/mt, with open interest down 4,164 lots to 49,973 lots.

In the spot market, quotes from the smelters were relatively stable in the morning, and a few smelters were less firm to the prices and lowered the quotes amid falling SHFE tin prices. There were less quotes for non-deliverable brands from the traders were, and the spread of premiums among different brands narrowed. The spot transactions were lacklustre, and the Guangdong market was even worse than the Shanghai market. The downstream purchased on rigid demand.

Nickel: The most-traded SHFE 2209 nickel closed down 2.18% or 3,790 yuan/mt at 169,820 yuan/mt, with open interest down 11,591 lots to 82,161 lots.

On the fundamentals, refined nickel production kept rising, while the import profits narrowed. For NPI, the inflow of Indonesia NPI to China is expected to rise in the near term amid stainless steel production cuts locally and expected nickel export tariffs to be imposed this October. In China, the stainless steel production dropped in July, and is unlikely to rebound significantly in August. Nonetheless, the terminal demand has been improving slowly. In the near term, nickel prices are likely to drop slightly with the mixture of bullish and bearish factors.

[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.]