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SMM Evening Comments (Aug 13): Shanghai Nonferrous Metals Closed with Major Losses on Surging US PPI
Aug 13,2021 19:00CST
Data Analysis
Shanghai nonferrous metals market closed the day with mixed performances maid a surging US PPI in July.

SHANGHAI, Aug 13 (SMM) – Shanghai nonferrous metals market closed the day with mixed performances maid a surging US PPI in July.

Shanghai copper fell 0.4%, aluminium inched up 0.1%, lead slid 0.58%, zinc lost 1.50%, tin slid 1.45%, and nickel was basically flat (+0.06%).

Copper: The most-traded SHFE copper contract closed down 0.40% or 280 yuan/mt to 69970 yuan/mt, with open interest down 1595 lots to 118000 lots.

On the macro front, US producer price index (PPI) in July rose by the highest year-on-year growth rate since 2010 above expectation. And the first claims of unemployment benefits last week fell for three consecutive weeks. The market expectations for a tapering QE increased further amid continued recovery in both the labour and manufacturing markets, high inflation, job vacancies that exceed unemployed population, and subsidies due in September. As a result, US dollar index climbed and pressured copper futures. Also, an unprecedented total of $1.087 trillion at the Federal Reserve’s overnight reverse-repurchase facility was placed on Thursday amid an overabundance of US dollars.

On the fundamentals, the world’s largest copper mine Escondida reached an initial agreement with the labour union. However, Caserones and Andina in Chile were still under greater risks of strike as negotiation failed.

Tonight the market shall pay attention to University of Michigan Consumer Sentiment Index for September to understand the consumer sentiment on the initially approved infrastructure bill, which will offer guidance over the trend of SHFE copper.

Aluminium: The most-traded SHFE 2109 aluminium closed up 0.1% to 20130 yuan/mt, with open interest down 313 lots to 246000 lots. Social inventories reversed its previous fall and added slightly as concentrated aluminium arrivals due to improved transportation, constraining the momentum in prices. While the market shall still watch the influences on fundamentals brought by power restriction, COVID-19 pandemic, aluminium ingots imports and released government releases. The SHFE aluminium is expected to hover around 20,000 yuan/mt tonight.

Lead: The most-traded SHFE 2109 lead closed down 0.58% or 90 yuan/mt to 15410 yuan/mt, with open interest up 1892 lots to 82782 lots.

In spot market, spot prices fell slightly while the market maintained quotations with premiums. Downstream purchase was mainly driven by rigid demand, transactions with narrow premiums were not bad. As the delivery date approaches and power curtailment sustained at smelters, cargo holders remain unchanged in their stance - no to selling while keeping prices firm. The market is more willing to deliver under warrant. Social inventories are likely to rise this week. And SHFE lead is expected to fluctuate at low amid high inventories as a result of slowing consumption recovery.

Tonight the market may watch the 15400 yuan/mt support.

Zinc: SHFE zinc closed down 1.50% or 340 yuan/mt to 22360 yuan/mt, with open interest down 21998 lots to 65673 lots.

On the macro front, the China government has removed export tariffs on some steel products twice, bringing considerate influences on galvanized products consumption in the long term. A possible added tariff could impact zinc consumptions even further. Zinc prices fell sharply as capital exit the market for risk-averse reasons overnight.

On the fundamentals, power restrictions in Guangxi escalated in early August, but later eased slightly after continuous rainfall. Enterprises reported the arrival of released government reserves, but pick-up of cargos was delayed in places with middle to high-risks of COVID-19 infection, which might influence the implementation of the third batch of government reserves release. SHFE zinc is expected to correct amid congestion in the short term.

Tin: The most-traded SHFE 2109 tin closed down 1.45% at 238440 yuan/mt, with open interest down 6291 lots. In terms of capitals, long capitals reduced their positions in mid-day, bringing down prices, thus evidencing yesterday’s analysis. The market movement yesterday indicated a close-to-end sharp rise in prices of the current round. While the price fall failed to solicit short capital to enter the market, demonstrating weakening sentiment over follow-up downtrend in prices. SMM expects that the SHFE lead will fluctuate between 230000-240000 yuan/mt in the short term.

Nickel: The most-traded SHFE 2109 nickel closed up 0.06% or 90 yuan/mt at 146810 yuan/mt, with open interest up 672 lots to 126174 lots. Year-on-year growth rate of US PPI on an annual basis touched new high, supporting US dollar and ramp-up in interest rates of US bonds, pressuring on non-ferrous market. Demand for nickel from new energy sector stayed high, while refined nickel inventories kept falling, supporting nickel prices at high. There is no obvious bearish factor regarding nickel prices in the short term.

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