SMM Evening Comments (Aug 3): Shanghai Nonferrous Metals Market Closed in the Negative Range

SHANGHAI, Aug 3 (SMM) – Shanghai nonferrous metals market closed the day with losses as the previous released government reserves started to influence the daily chart, and COVID kept spreading.

Shanghai copper edged down 1.55%, aluminium declined 1.13%, lead decreased 1.74%, zinc went down 2.06%, nickel down 2.73%, and tin shrank 1.97%.

Copper: The most-traded SHFE 09 copper closed down 1.55% or 1110 yuan/mt to 70450 yuan/mt, with open interest down 7520 lots to 127000 lots.

From the fundamentals, data released yesterday signaled a slower growth in the manufacturing industry of China and US, pressuring the market amid worsened pandemic. Fed governor said that the policymakers would announce a plan to cut back the Fed's asset-purchase program in September, if the next jobs reports continue on-trend, and were already taking extra measures to constrain debt ceiling. Hawkish sentiment emerged. Tonight’s focus would be the PPI of the Eurozone. Theoretically, a higher index would benefit euro, while a lower-than-expected value would bear the currency. The market reaction will influence copper prices.

Aluminium: The most-traded SHFE 2109 aluminium closed down 1.13% or 225 yuan/mt to 19955 yuan/mt, with open interest down 22590 lots to 257000 lots. From the fundamentals, aluminium supply was still disrupted. The production restriction in south-east China and the Inner Mongolia became stricter, and demand was not weaker than expected. While transportation in Henan will still be disrupted in the short term, sustaining de-stocking of social inventories, offering support to aluminium prices. The repeated COVID in China may bring potential risks to the whole industry chain in terms of raw materials, transportation and production.

Zinc: SHFE zinc closed down 2.06% or 465 yuan/mt to 22120 yuan/mt, with open interest down 17848 lots to 93012 lots. According to National Health Commission, the country reported 90 newly-confirmed COVID cases with 61 indigenous cases. The market was concerned that the Delta mutant may bring more confirmed cases. From the fundamentals, power restriction may become normal, and the supply side will be influenced anyway, thus underpin the zinc prices. Focus of recent period shall be the overall pandemic control.

Lead: The most-traded SHFE 2109 lead closed down 1.74% or 280 yuan/mt to 15790 yuan/mt, with open interest up 1375 lots to 75399 lots. In spot market, the rapid decline in lead prices added the wait-and-see attitude with rare transactions at primary lead smelters and on-demand purchasing. The futures kept a down-trend while spot was comparatively more resilient. Battery companies in regions with higher risks of COVID infection faced increased difficulties in purchasing and delivering, raising concerns among smelters about re-stocking. Discounts of secondary refined lead at smelters quickly expanded, and stood at 500-600 yuan/mt over SMM1# lead. However, the downstream was unwilling to take in the products, resulting in thinned market transactions. From the fundamentals, as the battery companies’ consumption maintained its stable recovery, a high-season could still be expected. LME lead remained high premiums, encouraging exports. In the short term, lead futures are likely to stabilise and stop declining.

Tin: The most-traded SHFE 2109 tin closed down 1.97% at 229290 yuan/mt, with open interest down 2767 lots. The previous release of government reserves started to influence the daily chart. From the fundamentals, actual production is hard to estimate amid tightened pandemic control in Yunnan, operation resumption in leading companies, and recovered downstream purchasing willingness due to declined premiums.

Nickel: The most-traded SHFE 2109 nickel closed down 2.73% or 4000 yuan/mt at 142270 yuan/mt below the 10-day average support, with open interest down 14230 lots to 127990 lots. LME nickel and commodities trended down under the impact of COVID. In the short term, the nickel prices will stay low while waiting for uptrend opportunities.