SMM Morning Comment For SHFE Base Metals (September 7)

SHANGHAI, Sep 7 (SMM) –

Copper

Market Concerns About US Economic Recession Increased, Dragging Down Copper Prices [SMM Copper Morning Comment]

Last Friday evening, LME copper opened at $9,111.5/mt, rising at the start and peaking at $9,175.5/mt. It then fell all the way down, touching $8,952.5/mt near the close, and finally closed at $8,954/mt, down 1.61%. Trading volume was 18,000 lots, and open interest was 279,000 lots. Last Friday evening, the most-traded SHFE copper 2410 contract opened and peaked at 73,000 yuan/mt, then declined all the way, touching 71,780 yuan/mt near the close, and finally closed at 71,810 yuan/mt, down 1.07%. Trading volume was 55,000 lots, and open interest was 162,000 lots. Macroeconomically, the data released by the US last Friday was mixed. US non-farm payrolls increased by 142,000 in August, the largest gain since June. The unemployment rate ended a four-month increase and slightly dropped to 4.2%. Non-farm payrolls for June and July were revised down by a total of 86,000. After the release of this data, market concerns about a US economic recession increased. Major European stock indices all closed down, marking their worst performance since early August. This sentiment also offset the support for oil prices from OPEC and delayed supply increases, causing international oil prices to drop during the day, hitting their lowest level since June last year. Copper prices followed suit and declined. On the fundamental side, supply side, concentrated arrivals of imported cargoes led traders to actively sell, increasing the supply of copper cathode and putting spot premiums under pressure. Demand side, downstream buyers actively stocked up before the weekend, and with the Mid-Autumn Festival holiday approaching, the pace of downstream inventory buildup was tight, leading to an expected increase in consumption demand. Price-wise, last Friday's US non-farm payrolls data raised doubts about the US Fed's rate cut size this month. This Wednesday, the US will release the August CPI data, which may determine the size of the Federal Reserve's rate cut this time. Before this data is released, copper prices are expected to remain at low levels.

Aluminum

Expectations of US Fed Rate Cut Strengthen Again, Future Supply May See Increase [SMM Aluminum Morning Comment]

SMM, Sep 9: Last Friday night, the most-traded SHFE aluminum 2410 contract opened at 19,330 yuan/mt, reaching a high of 19,365 yuan/mt and a low of 19,095 yuan/mt, and closed at 19,110 yuan/mt, down 200 yuan/mt or 1.04%. Last Friday, LME aluminum opened at $2,384/mt, hit a high of $2,394/mt and a low of $2,340/mt, and closed at $2,341.5/mt, down $36.5/mt or 1.53%.

Summary: On the macro side, the US Fed's September rate cut is almost a certainty, and China continues its efforts to boost consumption. On the fundamentals side, recent supply has been relatively stable. Demand is gradually shifting to peak season, with domestic spot market transactions improving, and consumption beginning to recover. Aluminum destocking trend may have appeared, mainly driven by positive fundamentals; however, the market is concerned about the potential increase in supply in the fourth quarter, leading to insufficient confidence among longs. It is expected that aluminum prices will maintain a fluctuating trend in the short term, with ongoing attention needed on macroeconomic changes and the sustainability of downstream aluminum consumption.

Lead

Last Friday night, the weakness in LME lead continued. The benefit of the "trade-in" policy still needs a transmission period [SMM Lead Morning Comment]

Last Friday night, LME lead opened at $1,994/mt. It fluctuated downward during the Asian session, then consolidated around the daily moving average upon entering the European session, and trended downward to a low of $1,961/mt. Before the close, it slightly rebounded and ended at $1,970/mt, down $18/mt, a decrease of 0.91%.

Last Friday night, the most-traded SHFE lead 2410 contract opened at 16,880 yuan/mt and immediately trended downward due to the weak performance of LME lead, reaching a low of 16,600 yuan/mt, before closing at 16,660 yuan/mt, down 235 yuan/mt, a decrease of 1.39%.

On the macro side, the mixed impact of U.S. employment data is still being digested, while the strengthening US dollar index has pressured base metals to fluctuate downward. Additionally, the benefit of the domestic "trade-in" policy still requires a transmission period. Before there is a significant improvement in lead consumption, the delivery of the SHFE lead 2409 contract is on schedule, and holders' enthusiasm for moving inventory and delivery remains high, turning invisible inventories into visible inventories, which weighs on domestic lead prices. Meanwhile, some secondary lead enterprises are expected to resume production, exacerbating the supply tension of battery scrap, keeping its prices high, and increasing losses in secondary lead smelting, thus serving as a crucial support for lead prices. Looking forward, attention should still be given to the impact of macro disturbances, the narrowing of the price spread between primary and secondary refined lead, and the consumption transmission effect of the "trade-in" policy on the lead-acid battery market for electric bicycles and automobiles.

Zinc

Market Sentiment Unchanged, SHFE Zinc Fluctuates at Low Levels [SMM Morning Comment]

SMM, Sep 9: U.S. August non-farm payrolls saw the largest increase since June this year; the unemployment rate ended a four-month rise; US Fed Governor Waller: Will support early rate cuts if appropriate, and larger rate cuts if necessary; U.S. Treasury Secretary Yellen: Currently does not see warning signs of financial risks; Israeli negotiators believe that the possibility of reaching a Gaza hostage agreement is "close to zero"; the National Development and Reform Commission urgently allocated 200 million yuan to support Hainan and Guangdong in post-typhoon emergencies; PBOC halted gold purchases for the fourth consecutive month, with foreign exchange reserves remaining above $3.2 trillion for nine consecutive months; China Securities Regulatory Commission: Extended the restriction period for former employees' stock holdings.

Last Friday, LME zinc opened at $2737/mt, fluctuated around the daily moving average after the opening, climbed during the midday, reached a high of $2780/mt, then fell back, reaching a low of $2702/mt at the end of the session, and finally closed down at $2705/mt, a decrease of $25.5/mt, or 0.93%. Trading volume decreased to 11,819 lots, and open interest increased by 5,177 lots to 230,000 lots. Last Friday, LME zinc formed a bearish candlestick, with LME zinc inventory declining by 900 mt to 238,375 mt, a decrease of 0.38%, the upper 5-day moving average formed resistance. US August non-farm payrolls data was lower-than-expected, intensifying concerns about the economic slowdown, and the bearish macroeconomic conditions continued to pressure zinc prices, causing LME zinc to sink.

Last Friday, the most-traded SHFE zinc 2410 contract opened at 22,920 yuan/mt, initially climbed to 23,040 yuan/mt, then declined, reaching a low of 22,635 yuan/mt at the end of the session, and finally closed down at 22,690 yuan/mt, a decrease of 160 yuan/mt, or 0.70%. Trading volume increased to 112,000 lots, and open interest decreased by 819 lots to 94,479 lots. Last Friday, SHFE zinc formed a bearish candlestick, with the lower Bollinger Bands providing support. On the fundamentals side, weak demand continued to drag, with market bearish sentiment unchanged, SHFE zinc maintained low-level fluctuations.

Tin

The price of SHFE tin futures dropped back slightly during the night session, most downstream enterprises undertook quantitative restocking last week [SMM Tin Morning Comment]

SMM, September 9: SHFE tin futures trended downward during the night session last Friday, closing at 249,680 yuan/mt. During the early session last Friday, trading companies quoted prices for domestic tin ingot brands with little change in discounts and premiums compared to recent days. Small brand tin ingot prices were quoted at SHFE 2410 contract +0 to +500 yuan/mt, delivery brand prices were SHFE 2410 contract +400 to +800 yuan/mt, Yunnan Tin brand prices were quoted at SHFE 2410 contract +800 yuan/mt, and imported tin brand spot prices were SHFE 2410 contract -400 yuan/mt. Last Friday, tin prices jumped initially and then pulled back, most downstream enterprises made small purchases. Some trading companies concluded transactions totaling 10-20 mt, while others traded approximately one truckload. Overall, the spot market transactions were mediocre last Friday.

Nickel

Last week, nickel prices significantly declined, with the most-traded contract closing at 123,920 yuan/mt on Friday. Last week, macro sentiment weakening its support and fundamentals being pressured by increasing inventories pushed nickel prices into a downward trend. From an information perspective, new updates from Indonesia suggested that the market was currently very close to expecting new RKAB quota approvals, and there was strong anticipation for a gradual decline in nickel ore premiums. Meanwhile, the Indonesian government also mentioned last week that they expected LME nickel prices in the short to medium term to be maintained at $15,000-$16,000/mt. They convened relevant parties in the nickel industry to discuss solutions for ore supply and considered adjusting the current tax-free period policies for nickel projects. Macro-wise, the US August ISM services index was 51.5, slightly above the expected 51.4, with the previous value of 51.4. New orders index grew rapidly, but the employment index remained stagnant. Additionally, the US August ADP non-farm payrolls data released last Thursday showed an unexpected drop to 99,000, the lowest in three and a half years, with July data revised downward, indicating a sharp slowdown in the labour market. This caused the dollar and US debt to fluctuate downward, and it was evident that the market was betting on the US Fed accelerating its rate cut pace. Fundamentally, this year's nickel prices have been significantly influenced by Indonesian ore. Although the Indonesian ore situation remains unclear, market expectations are relatively optimistic, and cost side support may weaken in the future. In H2, the pace of new electro-deposited nickel projects has accelerated globally, leading to a significant accumulation of global refined nickel inventories. Last week, LME inventories exceeded 120,000 mt, and domestic social inventories increased by nearly 1,000 mt. This indicated that the demand side remained weak in the face of substantial refined nickel supply. In conclusion, nickel prices are expected to fluctuate downward in the short term due to fundamental pressure. However, we must remain vigilant of macro sentiment resurgence and pay attention to the night-time non-farm payrolls data updates.