SMM Evening Comments (Aug 9): Shanghai Nonferrous Metals Market Closed with Major Losses amid Pressure

SHANGHAI, Aug 9 (SMM) – Shanghai nonferrous metals market closed the day with major losses ahead the release of national indices.

Shanghai copper declined 0.43%, aluminium inched up 0.35%, lead fell 1.84%, zinc edged down 0.16%, tin down 0.53%, and nickel tumbled 3.10%.

Copper: The most-traded SHFE 09 copper closed down 0.43% or 300 yuan/mt to 69470 yuan/mt, with open interest down 3328 lots to 117000 lots.

On the macro front, China released its CPI in July on an annual basis, which is slightly less than expected. US nonfarm payrolls data in July increased 943000, a record high in growth rate within the year; and the unemployment rate fell to 5.4%, one step closer to Fed’s target of tapering bond purchases. Kaplan, Chair of Dallas Federal Reserve, suggested the Fed shall proceed to a phased cut-back on bond purchases as soon as possible, while a large-scale debt purchase may cause excessive risks. The comparatively hawkish rhetoric pushed up US dollar index, pressuring on SHEF copper prices even during the daytime. The average daily new COVID cases in the US bounced back to over 100,000, a level high seen in winter six months ago when the pandemic was severe. Former Treasury Secretary Summers said that the delta variant has weighed on inflation, lifting market expectations on reduced debt-purchase.

The market shall pay attention to M2 currency supply in July on an annual basis, which was 8.06% in June. Rise in M2 currency supply will pressure on exchange rate. Whether the central government decides to maintain the current monetary policies will affect the copper market.

Aluminium: The most-traded SHFE 2109 aluminium closed up 0.35% to 19910 yuan/mt, with open interest up 3163 lots to 252000 lots. The supply and demand were both sluggish. From the supply side, power restrictions on aluminium production intensified, while the effect of previous floods remained. Recent resurgence in COVID has largely affected transportation, slowing down de-stocking of social aluminium ingots, thus prices hovered at high level. Follow-up focuses include impacts of power curtailment and COVID on both supply and demand. As the arrivals will rise after transportation situation improves, de-stocking may slow down further or even be revised to re-stocking. SHEF aluminium is likely to stay strong.

Zinc: SHFE zinc closed down 0.16% or 35 yuan/mt to 22395 yuan/mt, with open interest down 7132 lots to 78530 lots. On the macro front, the year-on-year growth rates of China CPI and PPI were both above expectations, mainly contributed by great increase in prices of crude oil, coal and relative products. The US dollar index climbed last week amid better-than-expected US nonfarm payroll report, driving down LME zinc prices. On the fundamentals, the overall inventories remained low on Monday in spite of mild re-stocking. The market shall pay attention to re-stocking magnitude this week as some downstream entities have started to receive release government reserves. Near-term zinc prices shall experience limited decline.

Lead: The most-traded SHFE 2109 lead closed down 1.84% or 290 yuan/mt to 15460 yuan/mt, with open interest up 4867 lots to 83943 lots. Spot prices declined further today, precious metals prices tumbled, profits at smelters narrowed, and quotations were sluggish, resulting in thinned spot transactions and increased wait-and-see sentiment. Market participants shall watch the major support of SHEF lead prices at 15450 yuan/mt, and look for a stabilised price range.

Tin: The most-traded SHFE 2109 tin closed down 0.53% at 229020 yuan/mt, with open interest down 587 lots. The recent traded price fell into the 228000-235000 yuan/mt price range at high, and the market lacks forces to break the current price balance. Market participants shall watch the activities of long and short capitals to enter the market for market games, thus breaking the congestions at high.

Nickel: The most-traded SHFE 2109 nickel closed down 3.1% or 4490 yuan/mt at 140220 yuan/mt, with open interest down 4910 lots to 121000 lots. On the macro front, US nonfarm payroll report in July increased greatly, pushing up US dollar index. However, the worries over Fed’s policies have kept the commodities market sentiment on edge. On the fundamentals, nickel supply and demand were both tight, with transportation of raw materials being affected by the pandemic. Stainless steel production schedule remains hectic, and the fundamentals still offer some support to nickel prices. The downward room will be limited.