SMM Evening Comments (Jul 22): Shanghai nonferrous metals rose for the most parts amid intensified market concerns of COVID-19

SHANGHAI, Jul 22 (SMM) – SHFE nonferrous metals generally increased as the spread of Delta variant of the COVID-19 virus intensified the market concerns.

Lead saw the largest gain by 1.14%, copper increased 1.07%, aluminium rose 0.53%, and nickel gained 0.64%, while zinc fell 0.69%, and tin fell 0.42%.

Ferrous complex basically fell. Iron ore jumped down 5.32%, HRC slid 0.29%, and rebar rose 1.09%.

Copper: The most traded SHFE 2109 gained 1.07% to close at 69,000 yuan/mt today, with open interest up 6,091 lots to 97,000 lots.

The rapid spread of the Delta variant of the COVID-19 virus and concerns of declining global demand triggered a massive sell-off. Crude oil futures prices soared to over $70 per barrel, and commodities and stock markets continued to rebound. The surging oil prices boosted copper futures to some extent with the return of risk appetite. The Ministry of Commerce analysed that the increase in raw material prices was mainly triggered by rising international prices, and the rapid growth of domestic and overseas demand further pushed up the prices, which brought high pressure to production and foreign trade companies. It will closely follow up and monitor the price trends of bulk commodities with localities and relevant departments, promote import diversification, as well as build stable foreign trade channels for bulk commodities. The US initial jobless claims will be the focus tonight, which may provide upward momentum for SHFE copper.

Aluminium: The most liquid SHFE 2109 aluminium contract increased 0.53% to end at 19,135 yuan/mt today, with open interest increasing 6,378 lots to 231,933 lots.

The current aluminium consumption showed signs of weakening, but the inventories of aluminium ingots was still going down. The social inventories of aluminium ingots declined 23,000 mt to 809,000 mt. National Food and Strategic Reserves Administration announced to release 90,000 mt of aluminium reserves in the second batch today. Aluminium prices may rise under the stimulus of market sentiments. Attention needs to be paid to the progress of power curtailment, the floods in Henan, inventory inflexion points, and long-short. SMM expects aluminium prices to fluctuate at high levels in H2 2021, with the support of costs and low inventories in the year. On the other hand, expectations of overseas interest rate hikes and domestic regulatory measures is forcing the prices down. Aluminium prices are expected to move between 19,000-19,300 yuan/mt.

Lead: The most active SHFE 2109 lead contract rose 1.14% to close at 16,005 yuan/mt today, with open interest up 9,039 lots to 62,560 lots.

Spot prices continued to rise today, and small order trade was sluggish. Transactions were mostly made on long-term orders. Discounts of refined lead and secondary lead both expanded slightly. Road traffic gradually recovered in Henan, but the increase in the lead ingot social inventory still tended to be slower, which may support lead prices to move at high levels. The pressure line at 16,000 yuan/mt remain the focus tonight.

Zinc: The most active SHFE 2108 zinc contract dropped 0.69% to close at 22,185 yuan/mt today, with open interest down 9,936 lots to 67,246 lots.

Nickel: The most liquid 2108 nickel contract gained 0.64% to end at 139,020 yuan/mt today, with open interest down 11,333 lots to 74,129 lots.

Tin: The most traded SHFE 2108 tin contract fell 0.42% to end at 226,230 yuan/mt today, with open interest down 1,969 lots to 24,547 lots.       

After a significant price fall and position reduction in the previous two trading days, the volatility of prices and open interest narrowed. The market participation over SHFE 2109 contracts increased rapidly, and August contracts are expected to fluctuate at high levels, with open interest decreasing. At fundamentals, upstream supply is tight, and the end demand is expected to remain strong in the long term. The market is likely to fluctuate higher.