SMM Morning Comments (Aug 17): Shanghai Base Metals Trending Mixed amid Falling Chinese Economic Data

SHANGHAI, Aug 17 (SMM) – Shanghai base metals trended mixed on Tuesday morning as the significantly slowed down economic data in China triggered market concerns. Meanwhile, their counterparts on LME mainly went up.

LME metals mostly declined on Monday night. Copper dropped 0.85%, aluminium fell 0.25%. Lead decreased 0.75%, and zinc went up 0.08%.

SHFE metals were mixed in the overnight trading. Copper dipped 0.06%, lead decreased 0.32%, aluminium inched up 0.4%, and zinc gained 0.85%, and nickel rose 90 yuan/mt.

Copper: Three-month LME copper dropped 0.85% on Monday night to close at $9,439/mt, and is expected to trade between $9,410-9500/mt today.

The most-traded SHFE 2109 copper contract dipped 0.06% last night to close at 69,690 yuan/mt, and is expected to trade between 69,500-70,000 yuan/mt today, with spot premiums between 140-210 yuan/mt.

On the macro front, Fed officials stated that they would consider supporting the implementation of the bond purchase reduction plan in September under the expectation of strong employment recovery, and plan to end bond purchases before mid-2022. Market sentiment has been disrupted. In addition, China’s credit growth and social financial data in July announced yesterday were lower than expected, and data on industrial prosperity, total retail sales of consumer goods, and fixed asset investment growth in July have all declined. The marked concerns about China’s economy in H2 are heating up. The rebound in the US dollar index also puts some pressure on the copper futures.

At fundamentals, the Alashankou port has been completely shut down due to the emergence of confirmed cases, and the logistics of all products including copper cathode and copper concentrates have been interrupted. According to SMM data, China imported 444,800 mt of copper concentrate from Kazakhstan and 141,300 mt of copper cathode from Kazakhstan in the first half of 2021, but the support for copper prices is limited. The buyers make less purchase in the spot market, and the holders are waiting for high prices to sell, causing the prices to fall rapidly.

Aluminium: Three-month LME aluminium dropped 0.25% to close at $2,604.5/mt on Monday.

The most active SHFE 2109 aluminium contract inched up 0.40% to end at 20,230 yuan/mt last night, with the open interest of bears down 3,838 lots to 235,000 lots. The September contract is expected to trade between 20,100-20,500 yuan/mt today, with the spot discounts between 40-0 yuan/mt.

Social inventories of aluminium ingots increased slightly with the higher arrivals amid the slowly restored transportation in Henan, but was still at a low level. The production reduction in east Inner Mongolia expanded, which provided strong support for the fundamentals. SHFE aluminium is expected to remain volatile at high levels.

Lead: Three-month LME lead fell 0.75% to end at $2,314.5/mt in the overnight trading yesterday.

The most-liquid SHFE 2109 lead contract decreased 0.32% to end at 15,405 yuan/mt last night, with open interest down 836 lots to 81,955 lots.

Social inventories of lead ingots continued to increase, weighing on lead prices, while the cost support remained effective. SHFE lead is expected to consolidate below 15,500 yuan/mt in the short term.

Zinc: Three-month LME zinc inched up 0.08% to end at $3,027.5/mt last night, with open interest down 1,649 lots to 253,000 lots.

Zinc stocks across LME-listed warehouses dropped by 3,900 mt to 235,800 mt. Falling economic data in China triggered the market concerns about Chinese economic recovery. On the other hand, the global pandemic further intensified, but no measure such as blockades was taken, and the economic recovery was suppressed, so the LME market prices stood high. LME zinc is expected to fluctuate between $3,000-3,050/mt today.

The most traded SHFE 2109 lead contract gained 0.85% to close at 22,590 yuan/mt in the overnight trading, with open interest up 673 lots to 67,000 lots.

The power curtailment has been loosened in Guangxi, Hunan, and Yunnan, but the affected output in August is still higher than expected. The output of zinc ingot is expected to be 494,400 mt in August, and the supply will remain tight. With the seasonal recovery of downstream operations, zinc consumption will increase month-on-month, and zinc ingot inventories are expected to remain at a low level. The SHFE 2109 contract is expected to move between 22,300-22,800 yuan/mt today, and spot premiums for domestic 0# Shuangyan zinc will be seen at 160~180 yuan/mt against the September contract.

Tin: The most traded SHFE 2109 tin contract surged to 241,500 yuan/mt and then fluctuated within a narrow range around 240,000 yuan/mt in the overnight trading yesterday.

The continuous decline of warehouse receipts in SHFE and LME supported the prices. However, with the resumption of production in some domestic smelters and mines, the tight supply will be eased to a certain extent. Considering that the 240,000 yuan/mt is in the middle of the fluctuation range at high levels, the follow-up performance of this upsurge remains to be seen. The funds actions will be monitored today, and the prices are expected to trade between 238,000-243,000 yuan/mt.

Nickel: The most active SHFE 2109 nickel contract gained 90 yuan/mt to settle at 146,300 yuan/mt last night, with open interest down 4,715 lots to 118,000 lots.

The transaction willingness in the spot market is weak amid high prices, and there’s no further momentum to push up the prices. SHFE nickel is expected to remain fluctuating at high levels.