SMM Morning Comments (Aug 9): Shanghai Base Metals Fell across the Board due to Strong US Employment Data

SHANGHAI, Aug 9 (SMM) – Shanghai base metals mostly trended lower on Monday morning amid higher-than-expected US nonfarm payrolls. At the same time, their counterparts on LME performed similarly.

LME base metals basically went down in the trading on Friday. Copper fell 0.11%, aluminium lost 0.12%, lead dropped 1.05%, and zinc decreased 0.86%.

SHFE metals all closed lower except for tin in the overnight trading last Friday. Tin rose 0.75%. Copper lost 0.15, aluminium shed 0.43%, lead fell 1.72%, and zinc declined 0.97%.

Copper: Three-month LME copper fell 0.11% last Friday night to close at $9,470/mt, and is expected to trade between $9,360-9,450/mt today.

The most-traded SHFE 2109 copper contract slid 0.1% to close at 69,700 yuan/mt last Friday night, and is expected to trade between 68,900-69,500 yuan/mt today, with spot premiums between 120-190 yuan/mt.

It was released on August 6 that the number of US nonfarm payrolls increased 943,000 in July, making a largest increase in nearly a year, highlighting the robust recovery of the labour market. It increased the possibility that Fed may taper the debt purchases earlier, and US dollar soared, suppressing copper futures. In the spot market, premiums stabilised around 100 yuan/mt after traders actively entered the market at low prices, and the transaction willingness as well as the prices rose significantly. However, downstream users still held a wait-and-see stance. With the approaching of delivery this week, the focus will be whether the price spread between the contracts of different months will boost the trade and drive the premiums above 100 yuan/mt.

Aluminium: Three-month LME aluminium dropped 0.12% to end at $2,583.5/mt last Friday.

The most active SHFE 2109 aluminium contract shed 0.43% to close at 19,840 yuan/mt last Friday night.

The higher-than-expected US nonfarm payrolls in July boost US dollar to surge, and non-ferrous metals generally went down. However, the decline in SHFE aluminium was relatively slighter, mainly because the expanding power curtailment limited the aluminium supply in Inner Mongolia, Yunnan, Guangxi, and Guizhou. The inventories of lead ingots kept falling despite the off season due to the flood in Henan and the impeded transportation in the pandemic. The impact of the pandemic and power curtailment will need attention. The decrease in aluminium inventory may narrow today, and SHFE aluminium is expected to trade between 19,700-19,900 yuan/mt.

Lead: Three-month LME lead ended 1.05% lower at $2,282/mt in the overnight trading of last Friday. US dollar fluctuated upward, and the US initial jobless claims are expected to increase, leading to a large decrease in LME lead. The support from the 10-day moving average at $2,260/mt is worth attention.

The most-liquid SHFE 2109 lead contract plunged 1.72% to end at 15,445 yuan/mt last Friday night. The market expectation of earlier interest hikes strengthened amid spreading global pandemic and rising US nonfarm payrolls. Social inventories of lead ingot increased, dragging down SHFE lead. Whether the prices can stabilise and test the 40-day moving average is worth attention today.

Zinc: Three-month LME zinc edged down 0.86% to end at $2,990.5/mt last Friday, with open interest up 875 lots to 245,000 lots. Zinc stocks across LME-listed warehouses rose by 4,700 mt or 1.92% to 249,025 mt. LME metals generally fell last week, and the strong US employment data drove up the dollar. Buyers with other currencies increased their purchase costs. US CPI related data in July will be the focus today. LME zinc is expected to fluctuate between $2,970-3,020/mt today.

The most-liquid SHFE 2109 zinc contract slid 0.97% to settle at 22,360 yuan/mt in the overnight trading last Friday, with open interest down 5,040 lots to 80,622 lots. The sharp decline in the overseas market last Friday led to the decline in domestic market. Social inventories still stood low, and the spot premiums were supporting zinc prices. However, part of the released 50,000 mt of zinc reserve will arrive at the downstream buyers this week, which may suppress bulls’ confidence. Zinc prices are expected to remain volatile. The SHFE 2109 contract is expected to move between 22,150-22,650 yuan/mt today, and spot premiums for domestic 0# Shuangyan will be seen at 150 yuan/mt against the September contract.

Tin: The most traded SHFE 2109 tin contract rose 0.75% to end at 231,980 yuan/mt in the overnight trading last Friday, with open interest up 325 lots.

The recent multiple active attempts by the bulls to enter the market indicated that some funds were eager to break the rangebound volatility. Whether major funds will maintain the positions is worth close attention. SHFE tin is expected to move with the support at 230,000 yuan/mt, and the pressure from around 236,000 yuan/mt.