SHANGHAI, Oct 10 (SMM) – LME base metals experienced a choppy week last week. On the macro front, US ISM manufacturing PMI in September was disclosed last Monday with a print of 50.9, significantly below the estimate of 52.2 and down 1.9 points from the previous reading of 52.8, which is also a new low since May 2020. The US dollar index dropped. On October 5, the US September ADP job report indicated an increase of 208,000, slightly better than the estimate of 200,000. On October 7, the September non-farm payrolls were released, which saw a growth of 263,000 after seasonal adjustment, higher than the estimate of 250,000.
LME copper fell 1.28%, aluminium gained 6.7%, and zinc fell 0.29%.
SHFE was closed during the National Day holiday and the past weekend.
Copper: SHFE copper trading was closed during the National Day holiday. Last Friday, LME copper opened at $7,542/mt and reached a high of $7,563.5/mt at the beginning of the session. After a slight fluctuation, it went straight down. The contract remained rangebound widely, and once dropped to $7,441.5/mt. At last, it closed at $7,462/mt, down 1.28% Trading volume was 10,000 lots, and the open interest stood at 239,000 lots.
On the macro front, the US manufacturing PMI for September released two days before the holiday was significantly lower than expected, and job vacancies fell more than expected in August, signalling a slowdown in the US labour market. Concerns about a US recession have risen, thus the US dollar index fell for two consecutive days, and LME copper edged higher. However, LME copper finally closed down amid pressure from the continuous hawkish US Fed officials’ remarks, the market’s bet on a strong US non-farm payroll, the rebounded US dollar brought by the decline in manufacturing activity in Europe and Asia in September, as well as the rising oil prices aroused by OPEC's larger-than-expected production cuts. In terms of fundamentals, LME copper inventories added 8,525 mt to 143,775 mt during the National Day, while COMEX copper inventories dipped 278 mt to 44,653 mt. And the increase in domestic inventory during the holiday was also relatively limited. The low global inventories supported copper prices to a certain extent. In addition, the London Metal Exchange (LME) has restricted Russia's Ural Mining and Metallurgy Company (UMMC) and its subsidiaries from new copper and zinc deliveries, which are expected to flow into China in the future.
To sum up, SMM believes that copper prices will remain rangebound at high levels in the short term, especially before the delivery of the SHFE 2210 copper contract. However, as inventories rise and the US Fed sticks to a hawkish rate hike, the European economy is expected to recess first in winter, and global economic growth will further slow down. At that time, copper prices may fall further under pressure.
Aluminium: LME aluminium rose from around $2,140/mt to $2,420/mt before falling back to around $2,300/mt during the National Day holiday. LME aluminium closed at $2,286/mt last Friday, up $145/mt or 6.7% during the National Day holiday.
Aluminium smelters in China and overseas reduced production. On the demand side, new orders in the domestic aluminium downstream processing sectors improved in September. Domestic and export orders both improved month-on-month. The PMI of domestic aluminium downstream processing sectors rose 12.4 points month-on-month to 57.9 in September. Based on the current orders and production schedules of downstream enterprises, aluminium consumption will still show a marginal improvement in October. High costs and losses of some smelters will also support aluminium prices. The short-term fundamentals of the domestic aluminium market are positive, while the overseas market is facing multiple macro uncertainties, which will lead to wild price swings. The market shall keep a close eye on the LME’s decision on whether Russian metals should be banned and the domestic downstream consumption after the holiday.
Lead: During the National Day holiday (October 3-7), LME lead met resistance after rising to the 30-day moving average. And on Tuesday, the UK said it would abandon its previously proposal and scrap the 45% top rate of income tax on high earners, influenced by the rise in the pound against the dollar, with the dollar index then falling under pressure. In addition, Nyrstar, one of the largest zinc smelter in Europe, plans to shut down its lead smelting facility Port Pirie, which produced 160,000 mt of lead in 2018, in Australia for 55 days to save cost and improve operating efficiency. As such, LME lead surged in the following two days on this news. Last Thursday, LME lead dropped from high. On Friday, US non-farm payrolls added 263,000, and the unemployment rate fell to 3.5%, triggering extensive concerns over extending aggressive rate hikes. The US dollar index rose again, weighing on LME lead, which moved rangebound at a high level at last.
Zinc: On the macro front, US ISM manufacturing PMI in September was disclosed last Monday with a print of 50.9, significantly below the estimate of 52.2 and down 1.9 points from the previous reading of 52.8, which is also a new low since May 2020. The US dollar index dropped. On October 5, the US September ADP job report indicated an increase of 208,000, slightly better than the estimate of 200,000. On October 7, the September non-farm payrolls were released, which saw a growth of 263,000 after seasonal adjustment, higher than the estimate of 250,000. Non-ferrous metals then fell on concerns over future rate hikes.
LME zinc closed last week at $2965.5/mt, down $8.5/mt or 0.29% from a week ago. The open interest fell to 193,000 lots. The support and resistance was around the 10-day moving average and 40/60-day moving average respectively.
Tin: LME tin closed at $19,405/mt last Friday, with a weekly decline of 5.57%. LME tin inventories decreased following continuous accumulation. Due to falling LME tin prices, some domestic traders quoted a large discount during the National Day holiday against the closing price of SHFE tin on September 30, with significant discounts for imported tin. Given the situation of weak supply and demand in the domestic tin market, SHFE tin may follow LME tin down today.
Nickel: On the macro front, the result of the Fed's interest rate meeting on September 22 was basically in line with market expectations. SHFE nickel prices continued to fall and hit the lowest point at 180,000 yuan/mt at the end of September. On the supply side, due to the decrease in futures prices, spot premiums rebounded, and the upstream shipments improved before the sellers quote against SHFE 2211. In terms of NPI, with the rise in NPI prices in September, the profits of NPI plants improved, hence the NPI plants were more willing to ship and the pressure of in-plant finished product inventory was relieved. On the demand side, steel mills plan to increase the production in October, but the increase in demand may be less than that in supply. Therefore, the spot stainless steel prices are expected to fall. In terms of alloy, in September, the demand for pure nickel did not decrease significantly while the rigid demand still existed. To sum up, the supply and demand of pure nickel warmed up, and nickel prices are expected to fluctuate in the short term.
[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.]
