SMM Morning Comments (Aug 6): Shanghai Base Metals Trending Higher with Strong Fundamental Support

SHANGHAI, Aug 6 (SMM) – Shanghai base metals mostly went up on Friday morning amid strengthened power curtailment and coming peak season of consumption. Meanwhile, their counter parts on the LME performed similarly.

LME metals basically went up against the lower US initial jobless claims on Thursday. Copper rose 0.15%, aluminium gained 0.94%, zinc increased 1.84%, and lead shed 1.05%.

SHFE metals closed mixed in the overnight trading. Copper fell 0.12%, lead dropped 0.29%, and zinc shed 1.22%, while aluminium gained 0.15%, and tin rose 0.03%.

Copper: Three-month LME copper rose 0.15% to end at $9,480/mt on Thursday night, and is expected to trade between $9,430-9,520/mt today.

The most-traded SHFE 2109 copper contract edged down 0.12% last night to close at 69,480 yuan/mt, and is expected to trade between 69,400-70,000 yuan/mt today, with spot premiums between 70-150 yuan.

According to US Department of Labour, in the week ended July 31, the number of initial jobless claims fell 14,000 from the previous week to 385,000, a decrease in the second consecutive week, indicating the continued improvement in the labour market. Fed official Waller was optimistic about the economic outlook, and expected the earlier taper of the loose monetary policy. Bank of England also said that it is necessary to tighten the policy to control inflation. The booming hawkish sentiment this week supressed the increase in copper prices.

In the spot market, a large amount of imported copper passed the customs clearance, so the domestic social inventories are likely to increase this week. However, the holders of imported copper kept selling off the goods in the week, and the spot premiums were halved yesterday. As the domestic pandemic was still severe, downstream purchase remained quiet, and the market trade was dominated by traders.

Aluminium: Three-month LME aluminium gained 0.94% to end at $2,586.5/mt on Thursday.

The most active SHFE 2109 aluminium contract inched up 0.15% to end at 19,795 yuan/mt last night amid reduced positions by bears.

The power curtailment at aluminium plants expanded in Guangxi, and the supply further narrowed. The market was more confident in the further decrease in the inventories. On the macro front, the rebounding US dollar also help aluminium futures to stabilise and regain the losses in the week. SHFE aluminium is expected to fluctuate between 19,500-19,900 yuan/mt today. Attention needs to be paid to the US nonfarm payrolls and the production and transportation of central and east China in the pandemic.

Lead: Three-month LME lead shed 1.05% to settle at $2,346/mt in the overnight trading on Thursday. LME lead nearly gave up all the gains last week due to the slightly rebounding US dollar.

Bulls kept reducing positions for two consecutive trading days, and the upward momentum was insufficient. But the lead stocks across LME-listed warehouses continued to hit a record low. Today’s focus will be the support level at the 20-day moving average.

The most-active SHFE 2109 lead contract lost 0.29% to close at 15,735 yuan/mt in the overnight trading yesterday. The price decline was limited amid reduced positions by bears, but the prices still kept falling in the late trading. The impact of the pandemic prevention and control as well as the blockade on market sentiments is worth attention. Today’s focus will be the support from 15,700 yuan/mt.

Zinc: Three-month LME zinc gained 1.84% to settle at $3,016.5/mt on Thursday night, with open interest increasing 34 lots to 253,000 lots. Zinc stocks across LME-listed warehouses dropped by 450 mt or 0.18% to 244,500 mt. Whether the overseas monetary policy will tighten is worth attention, which may affect LME zinc. LME zinc is expected to fluctuate between $2,960-3,010/mt today.

The most-liquid SHFE 2109 zinc contract slid 1.22% to settle at 22,360 yuan/mt in the overnight trading, with open interest down 3259 lots to 85,000 lots. Power curtailment strengthened in August, and the supply fell short of expectations. The expectations of high consumption in the peak season may support aluminium prices to stand high. The SHFE 2109 contract is expected to move between 22,200-22,700 yuan/mt today, and spot premiums for domestic 0# Shuangyan zinc will be seen at 130-140 yuan/mt against the September contract.

Tin: The most traded SHFE 2109 tin contract rose 0.03% to end at 229,680 yuan/mt last night, with open interest up 233 lots.

The prices had a gap higher opening, and open interest increased, which broke through the sluggish transactions in the previous trading days, indicating that long funds were attempting to enter the market. Whether long-term funds can restore confidence to enter the market is worth attention. SHFE tin is expected to move with the support at 227,500 yuan/mt, and the pressure from around 232,000 yuan/mt.