SMM Evening Comments (Jul 21): Shanghai nonferrous metals basically fell before the second batch of national reserve release

SHANGHAI, Jul 21 (SMM) – SHFE nonferrous metals, except for lead, all went down, as the amounts of national reserve to be released fell short of expectation, and the floods in Henan will recede in recent days.

Aluminium led the decrease by 1.59%, copper fell 0.16%, zinc dropped 1.38%, nickel lost 1.44%, and tin decreased 1.12%, while lead rose 1.27%.

Ferrous complex ended mixed today. Iron ore dropped 3.85%, rebar inched up 027%, and HRC increased 0.34%.

Copper: The most active SHFE 2108 copper contract dipped 0.16% to end at 68,020 yuan/mt today, with open interest up 2,151 lots to 90,900 lots.

The US newly started floor space in June exceeded expectations and hit a three-month high. US stocks were volatile yesterday, with bargain hunting in the market, and the stock index recorded its biggest gain since March. Market sentiment eased slightly. China’s second batch of national reserves release has been announced, but the total copper amount is only 30,000 mt, which will not have significant impact on China, a major copper cathode consumer.

Whether the US EIA data can boost oil prices and affect copper prices is worth attention tonight.

Aluminium: The most liquid SHFE 2109 aluminium contract shed 1.59% to end at 18,885 yuan/mt today, with open interest increasing 8,438 lots to 225,555 lots.

On the macro level, liquidity remained abundant. The current aluminium consumption showed signs of weakening, but the inventories of aluminium ingots was still going down. Attention needs to be paid to the progress of power curtailment, the floods in Henan, inventory inflexion points, and long-short sentiment changes. National Food and Strategic Reserves Administration announced to release 90,000 mt of aluminium reserves in the second batch today, which was significantly lower than market expectations. Aluminium prices are expected strengthen again under the stimulus of market sentiments and move between 18,900-19,200 yuan/mt.

Lead: The most active SHFE 2109 lead contract rose 1.27% to close at 15,890 yuan/mt today, with open interest up 3,356 lots to 53,521 lots.

Yesterday’s loss was reversed as bulls increased positions. Spot prices increased slightly today. Smelters’ quotations were scarce amid the long-term orders. Small order transactions were affected by the impeded transportation amid the heavy rain in Henan. Discounts of refined lead did not expand despite the rising lead futures, and downstream users still purchased on rigid demand with bearish sentiments. The increment in lead ingot inventories may shrink this week due to the power curtailment and impeded transportation, which is likely to support lead prices at high levels. The support line at 15,900 yuan/mt is worth attention tonight.

Zinc: The most traded SHFE 2108 zinc contract lost 1.38% to finished the day at 22,170 yuan/mt today, with open interest down 17,789 lotst to 77,200 lots. 

Rochelle Walensky, director of the US Centres for Disease Control and Prevention, said on the July 20 that expected 83% of the newly confirmed COVID-19 cases were infected with the delta mutant strain. The proportion is even higher in some regions, causing the market to worry more about the pandemic. 

Fundamentally, the current tight balance of supply and demand has not changed, and national reserve release may directly affect the current delicate balance. As the relevant details of reserve release have not yet been announced, the market has seen large-scale capital flows under concerns, causing the abnormal fluctuations in zinc futures. Zinc prices will remain weak in the short term.

Nickel: The most traded SHFE 2108 nickel contract fell 1.44% to close at 136,830 yuan/mt today, with open interest decreasing 11,770 lots to 85,462 lots. Nickel prices are still in the upward trend in the long term.

The National Development and Reform Commission held a national price work conference this morning, which focused on strengthening the price testing of bulk commodities, ensuring the supply, and stabilising prices of important livelihood commodities. At the same time, US dollar went up amid intensified concerns of pandemic, prices of bulk commodities basically fell today, dragging down nickel prices. LME nickel fluctuated lower today. Whether SHFE nickel will follow the LME market is worth attention. The US EIA crude oil inventories will be the focus tonight.

Tin: The most traded SHFE 2108 tin contract decreased 1.12% to end at 225,500 yuan/mt today, with open interest down 4,061 lots to 26,516 lots.