SMM Evening Comments (Aug 12): Shanghai Nonferrous Metals Mostly Closed in the Positive Territory amid A Slowing US CPI

SHANGHAI, Aug 12 (SMM) – Shanghai nonferrous metals market closed the day with broad gains amid a slowing US CPI in July.

Shanghai copper added 0.70%, aluminium inched down 0.1%, lead rose 0.36%, zinc climbed 1.47%, tin gained 1.77%, and nickel surged 4.52%.

Copper: The most-traded SHFE 09 copper contract closed up 0.70% or 490 yuan/mt to 70410 yuan/mt, with open interest down 583 lots to 119700 lots.

On the macro front, US CPI in July was basically in line with market expectations of a slowing increase though remained at high levels, easing concerns that the Fed might be forced to take actions to contain inflation. US dollar index fell and copper prices rose greatly in response to the market dynamics. In China, the growth rate of social financing and credit supply in July was both below expectation, the lowest since last February and October respectively, indicating more challenges over economy recovery.

On the fundamentals, workers at Caserones in Chile decided to go on strike starting from Tuesday. And another strike is likely to happen soon as negotiations with Andina failed. While Escondida, the largest copper mine in the world, saw a lower possibility of strike. Uncertainties across mines remain.

Tonight the market shall pay attention to US first claims of unemployment benefits of last week (estimated at 375000 and finalised at 385000 in the previous period), which will offer a hint regarding the labour market’s momentum, and potentially pressuring copper market.

Aluminium: The most-traded SHFE 2109 aluminium closed down 0.1% or 20 yuan/mt to 20090 yuan/mt, with open interest down 6077 lots to 258000 lots. Social inventories of aluminium ingots increased slightly, containing the strong momentum of SHFE aluminium. More capitals exited the market. The market shall closely watch the influences of power restriction and COVID-19 pandemic, as well as the imports of aluminium ingots and supplement from released government reserves.

Lead: The most-traded SHFE 2109 lead closed up 0.36% or 55 yuan/mt to 15510 yuan/mt, with open interest down 3439 lots to 80890 lots. In spot market, prices corrected upward slightly and quotations with premiums emerged from yesterday’s close to zero quotations. However, downstream mostly held a wait-and-see stance and transactions with premiums were scarce. Cargo holders were reluctant to sell and held prices firm as the delivery date approached. Social inventories are likely to increase this week though SHFE lead has come to a temporary rally.

Zinc: SHFE zinc closed up 1.47% or 330 yuan/mt to 22795 yuan/mt, with open interest up 87671 lots to 167299 lots. On the macro front, US CPI in July slowed down, indicating that the inflation might stop increasing. While some hawkish officers suggested that Fed should taper bond purchase as early as this October. Commodities including non-ferrous posting gains. On the fundamentals, high prices froze the downstream market. Premiums rose slightly in Shanghai, and climbed more significantly in Guangdong due to disruptions to the supply side. Generally speaking, the zinc prices are likely to maintain momentum.

Tin: The most-traded SHFE 2109 tin closed up 1.77% at 242070 yuan/mt, with open interest up 35 lots. In terms of capitals, open interest once added by around 1 thousand in mid-day but all closed by end of the trading day. It could be interpreted as a switch of positions by long capitals. Hence, it could be reasonably estimated that leading long capitals are planning to exit the market to take profits in light of low social inventories and decreased godown warrants. A higher possibility of the end to prices increase could be expected in the near term should quick surge in prices and fall in open interest emerge at the same time.

Nickel: The most-traded SHFE 2109 nickel closed up 4.52% or 6350 yuan/mt at 146720 yuan/mt, with open interest up 14972 lots to 126000 lots. A temporary inflation in the US further evidenced by the slowing US CPI in July has pushed up nickel prices. The earthquake happened in Mindanao, the Philippines that may later trigger a tsunami influenced the market, supporting the ramp-up in nickel prices. Demand of nickel from stainless steel and new energy sectors has brought down inventories at exchanges. And the prices are likely to remain high in the short term.