SMM Morning Comments (Aug 16)

SHANGHAI, Aug 16 (SMM) –

Copper: LME copper tumbled to $5,773/mt and the SHFE 1810 contract dropped to 47,210 yuan/mt overnight as the dollar surged and as the risk of a strike at BHP’s Escondida copper mine in Chile eased. Escondida management reportedly said it struck a deal on Wednesday on a new labour contract with the union representing most of its workers. We expect LME copper to consolidate around $5,800/mt in the short term. Spot premiums are seen higher at 20-60 yuan/mt as prices of futures slumped.

Aluminium: LME aluminium touched a three-week low at $2,007/mt and closed at $2,022/mt on Wednesday. The decline was the smallest among its LME peers. It is likely to trade at $2,000-2,040/mt today amid bearish sentiment. The SHFE 1810 contract opened lower overnight and fell to 14,230 yuan/mt, its lowest in close to one month. With some support below, the contract then clawed back some losses and closed at 14,290 yuan/mt. We expect it to trade at 14,180-14,380 yuan/mt today with spot discounts at 90-50 yuan/mt.

Zinc: LME zinc fell through all the technical supports to finish Wednesday 6.8% lower at $2,283/mt, a new low since October 2016. The SHFE 1810 contract fell towards the lower limit overnight before it closed at 19,615 yuan/mt. We expect bearish sentiment to ease today and zinc prices to stem their declines. LME zinc is likely to trade at $2,280-2,330/mt and the SHFE 1810 contract at 19,500-20,000 yuan/mt.

Nickel: LME nickel slumped over 4%, breaking through $13,000/mt to a low of $12,770/mt, and closed at $12,880 yuan/mt on Wednesday. The SHFE 1811 contract fell past 108,000 yuan/mt to a low of 107,110 yuan/mt before it slightly rebounded and closed at 107,910 yuan/mt overnight. We expect nickel prices to continue their weak and rangebound pattern today. LME nickel is likely to hover around $12,800/mt and the SHFE 1811 contract at 106,500-108,000 yuan/mt. Spot prices are seen at 107,000-109,000 yuan/mt.

Lead: LME lead touched a fresh two-year low at $1,917.5/mt and closed at $1,949/mt on Wednesday. While potential sentiment recovery is likely to reverse some losses in the next couple of days, we see such weak performance to sustain and expect the metal today to only rebound after extending its decline. The SHFE 1809 contract opened lower and fell to a new one-year low at 17,500 yuan/mt, settling at 17,595 yuan/mt overnight. SHFE lead has trod on a downward path but it is less vulnerable than its LME counterpart. We expect the contract to recover some losses today.

Tin: LME tin broke its previous trading range and tumbled to the lowest in two years at $18,300/mt as the US dollar index rose to close to 97. It is likely to extend the decline in the short run with support at $18,000/mt. The SHFE 1809 contract also fell below its previous support to a low of 141,000 yuan/mt. Amid weakened LME tin, further downward room is seen for the contract. Support will be at 140,000 yuan/mt.