SMM Morning Comments (Aug 5): Shanghai Base Metals Slid after Low Employment Data

SHANGHAI, Aug 5 (SMM) – Shanghai base metals basically went down on Thursday morning amid the low employment data and Fed’s hawkish statement. Meanwhile, their counterparts on LME trended mixed.

LME metals all fell on Wednesday. Copper fell 0.98%, aluminium dropped 1%, lead lost 0.92%, and zinc declined 0.5%.

SHFE metals basically went down in the overnight trading. Copper dropped 0.66%, led fell 0.66%, zinc lost 0.2%, while tin increased 0.49%.

Copper: Three-month LME copper dropped 0.98% to end at $9,466/mt on Wednesday, and is expected to trade between $9,440-9,530/mt today.

The most-traded SHFE 2109 copper contract shed 0.66% to end at 69,520 yuan/mt in overnight trading, and is expected to trade between 69,400-70,000 yuan/mt today, with sport premiums between 100-200 yuan/mt.

On the macro front, the US July ISM non-manufacturing index rose to 64.1, but the ADP employment data showed that the employment of 87 new jobs were far below expectations, triggering investors' concerns about economic recovery. In addition, Fed Vice Chairman Clarida expected to raise interest rates for the first time in 2023 and reduce asset purchase within 2021.

The hawkish statement drove up US dollar, and dragged down copper futures. In the spot market, imported copper continued to flow in, and the inventory increased significantly this week. The logistics has been affected by the pandemic, and the outbound volume from Shanghai has decreased significantly, which to some degree suppressed the downstream purchase. Many traders were selling off the goods in the market, and the premiums kept falling.

Aluminium: Three-month LME aluminium dropped 1% to end at $2,562.5/mt on Wednesday.

The most traded SHFE 2109 aluminium contract closed lower at 19,460 yuan/mt last night.

SHFE commodities generally fell back amid the concerns of the domestic pandemic. On the other hand, domestic social inventories was decreasing smoothly, which strongly supported the aluminium prices. The impact of the pandemic on bearish sentiments is worth attention.

Lead: Three-month LME lead fell 0.92% to settle at $2,371/mt on Wednesday. US dollar rebounded strongly after the fall, and the slower growth in Chinese and US manufacturing industries brought bearish sentiments to the market, suppressing the LME metals. Today’s focus will be the support from the 10-day moving average at $2,370/mt.

The most-active SHFE 2109 lead contract lost 0.66% to close at 15,795 yuan/mt in the overnight trading yesterday. Domestic economic growth was dragged down by the comeback of the global pandemic, and the COVID-19 cases were increasing across China. Bears increased positions amid lower LME metals prices. Whether the discounts of secondary lead will narrow further will be monitored today, and the support from the 40-day moving average is worth attention.

Zinc: Three-month LME zinc shed 0.5% to end at $2,962/mt on Wednesday, with open interest down 2,488 lots to 253,000 mt. Zinc stocks across LME-listed warehouses dropped by 450 mt or 0.18% to 244,500 mt. Fed vice chairman Clarida said that the prospect of the FOMC's interest rate hike in 2023 is consistent with the new policy framework. It is expected that by the end of 2022, the Fed requirements to raise interest rates will be met, and the inflation rise target may be temporary. LME zinc is expected to fluctuate between $2,930-3,000/mt today.

The most-liquid SHFE 2109 zinc contract shed 0.20% to settle at 22,010 yuan/mt in overnight trading, with open interest up 1,351 lots to 91,000 lots. The strengthened power curtailment cross China further limited the zinc ingot supply, which may support the zinc prices. The inventory increase will be monitored this week. The September contract is likely to move between 21,900-22,500 yuan/mt today, and spot prices for domestic #0 Shuangyan zinc is expected to fall by 200 yuan/mt.

Tin: The most traded SHFE 2109 tin contract rose 0.49% to end at 229,870 yuan/mt last night, with open interest down 333 lots.

The open interest only saw slight fluctuation caused by the the small scale speculations. The prices are likely to remain fluctuating at high levels. SHFE tin is expected to move with the support at 227,500 yuan/mt, and the pressure from around 232,000 yuan/mt.