SMM Morning Comment For SHFE Base Metals (Oct 22)

SHANGHAI, Oct 22 (SMM) –

Copper

Consumption remained weak, and premiums were under pressure； copper prices retraced gains overnight [SMM Copper Morning Comment]

LME copper opened at $9,696.5/mt overnight, initially reaching a high of $9,707/mt before declining throughout the session, hitting a low of $9,548/mt. It then consolidated and closed at $9,562/mt, down 0.63%, with a trading volume of 18,000 lots and an open interest of 276,000 lots. The most-traded SHFE copper 2412 contract opened at 77,650 yuan/mt, initially reaching a high of 77,770 yuan/mt before declining throughout the session, hitting a low of 76,660 yuan/mt. It then consolidated and closed at 76,860 yuan/mt, down 0.71%, with a trading volume of 45,000 lots and an open interest of 161,000 lots. Macro side, the PBOC cut the one-year and five-year loan prime rates by 0.25 percentage points each. Copper prices surged yesterday but retraced gains overnight due to weak consumption. Additionally, US Fed officials indicated that the neutral rate might be higher than before, and if the job market weakens, interest rate cuts might need to be accelerated. Fundamentally, supply side, domestic arrivals decreased. Although copper prices rose significantly, warehouse warrants continued to flow out, putting pressure on premiums. The price spread between futures contracts widened, reducing the willingness to sell among holders. Overall trading remained weak. As of Monday, October 21, SMM copper inventories in major regions across China decreased by 9,800 mt compared to last Thursday, reaching 219,400 mt. Post-holiday inventories finally declined. However, total inventories were 135,100 mt higher compared to 84,300 mt in the same period last year. In summary, consumption remained mediocre with no significant recovery in sight, and copper prices are expected to lack support today.

Aluminum

Social inventory continues to decline; macro front still releasing positive signals [SMM Aluminum Morning Meeting Summary Oct 22]

Overnight, the most-traded SHFE aluminum 2412 contract opened at 20,855 yuan/mt, reaching a high of 20,890 yuan/mt and a low of 20,725 yuan/mt, and closed at 20,745 yuan/mt, up 25 yuan/mt or 0.12% from the previous close. On Monday, LME aluminum opened at $2,615.5/mt, hit a high of $2,656.5/mt, a low of $2,592/mt, and closed at $2,595.5/mt, down $18/mt or 0.69%.

Summary: Macro front, domestic policies continue to boost the market, while tensions in the Middle East and between South and North Korea have driven up prices of gold and commodities. Fundamentals side, the bauxite supply crisis has led to a rapid increase in alumina prices, significantly raising costs in the aluminum industry. Overall demand remains stable with no significant short-term fluctuations. In summary, the supply-demand mismatch in the aluminum market is not prominent, and short-term attention should be focused on changes in macro sentiment.

Lead

Fundamentals Remain Mediocre, Lead Prices May Continue to Consolidate [SMM Lead Morning Comment]

Overnight, LME lead opened at $2,065.5/mt. With fundamentals showing mediocre performance, LME lead mostly consolidated, operating between $2,065-2,085/mt. Near the close, the US dollar index surged, suppressing base metals, and LME lead reversed and fell, finally closing at $2,049.5/mt, down 0.99%.

Overnight, SHFE lead warehouse warrant inventory decreased. The most-traded SHFE lead 2411 contract opened at 16,740 yuan/mt, showing strong performance initially and reaching a high of 16,850 yuan/mt. Subsequently, the tug-of-war between longs and shorts intensified, and SHFE lead jumped initially and then pulled back, falling to 16,610 yuan/mt. By the close, the decline in SHFE lead slowed, and SHFE lead finally closed at 16,635 yuan/mt, down 0.66%. Its open interest was 33,392 lots, a decrease of 632 lots from the previous trading day.

Macro side, China cut interest rates, with the LPR down by 25 basis points, the largest single reduction in history. Dallas Fed President Logan, Minneapolis Fed President Kashkari, and Kansas City Fed President Schmid all supported gradual rate cuts, slowing the pace of the significant rate cut in September. Market expectations for rate cuts next year decreased, and US Treasury yields surged.

Fundamentals side, recently, battery scrap prices remained high, and secondary lead smelters saw thin profits. Some mainstream regions reported secondary refined lead at a premium of 0-50 yuan/mt over the SMM 1# lead average price, while high-bismuth lead could be at a discount of 100-50 yuan/mt ex-factory. Last week, some primary lead smelters unexpectedly underwent maintenance, leading to a regional reduction in lead ingot supply. Coupled with the price spread between secondary lead and primary lead, downstream procurement favored primary lead, and primary lead smelters' inventories generally declined. This week, attention should be paid to the resumption of lead smelters and the progress of environmental protection checks in Anhui.

Zinc

Overnight, the US dollar surged, accelerating the decline of LME zinc [SMM Zinc Morning Comment Oct 22]

Overnight, a US Fed official stated that if the job market weakens, it may be necessary to accelerate interest rate cuts; sources reported that after Sinwar's assassination, a committee in Doha will lead Hamas; Israel requested the White House to end the Lebanon war; the PBOC lowered the one-year and five-year LPR to 3.10% and 3.60%, respectively; the PBOC conducted the first swap convenience operation for securities, fund, and insurance companies, with an operation amount of 50 billion yuan; the average interest rate reduction for existing mortgage borrowers this year may exceed 1 percentage point.

Overnight, LME zinc opened at $3,090.5/mt. Initially, longs increased their positions, pushing LME zinc to rise along the daily moving average, with the focus shifting to around $3,135/mt. Near the European trading session, it peaked at $3,145/mt. Subsequently, longs took profits and exited, causing LME zinc to plunge, with the focus shifting back to the daily moving average. During the night session, shorts entered and longs exited, accelerating the decline of LME zinc, with the focus shifting again to $3,070/mt, hitting a low of $3,061/mt, and finally closing down at $3,061.5/mt, a decrease of $27.5/mt, or 0.89%. Trading volume increased to 9,986 lots, and open interest decreased by 267 lots to 252,000 lots. Overnight, LME zinc recorded a long upper shadow bearish candlestick, with the 20-day moving average providing support below. Overnight, LME inventory decreased by 1,850 mt to 237,175 mt, a drop of 0.77%, continuing the reduction trend. With the US election approaching, the market is bullish on the US dollar, and the strengthening dollar pressured the overall non-ferrous metals, causing LME zinc to jump initially and then pull back.

Overnight, the most-traded SHFE zinc 2412 contract opened lower at 25,085 yuan/mt. Initially, there was a tug-of-war between longs and shorts, with SHFE zinc fluctuating around the daily moving average. Subsequently, shorts increased their positions, pushing SHFE zinc down, with the focus shifting to 24,845 yuan/mt, hitting a low of 24,815 yuan/mt, and finally closing down at 24,820 yuan/mt, a decrease of 385 yuan/mt, or 1.53%. Trading volume decreased to 53,245 lots, and open interest increased by 1,941 lots to 89,797 lots. Overnight, SHFE zinc recorded a bearish candlestick, with the daily K-line focus shifting down, and the MACD bearish candlestick expanding. Overnight, non-ferrous metals generally declined. On the fundamentals side, refined zinc imports in September increased significantly to 52,700 mt, and October imports are expected to remain high. Social inventory continues to accumulate, and zinc prices are expected to fluctuate downward.

Tin

The SHFE tin prices moved downwards after a higher opening in the night session, and the spot market saw active transactions [SMM Tin Morning News Oct 22]

SMM, October 22: Yesterday, the most-traded SHFE tin contract closed at 253,850 yuan/mt, down 2,010 yuan/mt, a decrease of 0.79%, with the highest at 258,980 yuan/mt and the lowest at 253,000 yuan/mt. During the morning session yesterday, the domestic tin ingot brands' premiums and discounts quoted by trading companies did not change much compared to recent days. Among them, small brand tin ingot quotations against the SHFE 2411 contract were +0~+200 yuan/mt, delivery brand quotations against the SHFE 2411 contract were +200~+600 yuan/mt, Yunnan tin brand quotations against the SHFE 2411 contract were +600~+800 yuan/mt, and imported tin brand spot quotations against the SHFE 2411 contract were -700 yuan/mt. Yesterday, tin prices fluctuated rangebound, and some downstream enterprises made small purchases. Some trading companies transacted 10-20 mt, while a few trading companies transacted 1-2 trucks. Overall, the spot market transactions were relatively active yesterday.

Nickel

On October 21, Jinchuan nickel was quoted at a premium of 1,600-1,700 yuan/mt, with an average of 1,650 yuan/mt, down 50 yuan from the previous trading day. Norilsk nickel was quoted at a discount of 300-100 yuan/mt, with an average of 200 yuan/mt, unchanged from the previous trading day. On the morning of October 21, the futures market fluctuated, and there was no significant change in the spot premium compared to the previous working day. Nickel briquette prices were 128,200-128,900 yuan/mt (out of stock), up 200 yuan/mt from the previous trading days. The price spread between nickel briquette and nickel sulphate was about 930 yuan/mt (nickel sulphate prices were 930 yuan/mt lower than nickel briquette prices).