SMM Morning Comments (Aug 18): Shanghai Base Metals Trending Lower in Cooled Market Sentiments

SHANGHAI, Aug 18 (SMM) – Shanghai base metals mostly went down on Wednesday morning amid the cooled down market sentiments by the uncertainty of economic recovery. Meanwhile, their counterparts on LME all increased.

LME metals all closed lower on Tuesday night. Copper plunged 2.28%, aluminium shed 1.09%, lead edged down 0.93%, and zinc lost 0.81%.

SHFE metals basically fell in the overnight trading. Copper dropped 1.78%, aluminium decreased 80 yuan/mt, lead fell 0.42%, and nickel lost 1.12%, while zinc gained 0.85%.

Copper: Three-month LME copper plunged 2.28% on Tuesday night to close at $9,224/mt, and is expected to trade between $9,220-9,320/mt today.

The most-traded SHFE 2109 copper contract dropped 1.78% last night to close at 68,550 yuan/mt, and is expected to trade between 68,600-69,200 yuan/mt today, with spot premiums between 210-280 yuan/mt.

US retail sales in July unexpectedly fell by 1.1% month on month, highlighting the imbalance in the economic recovery. As the rapid spread of the delta variant of COVID-19 caused the pandemic to rebound, Fed Chairman Powell warned about the uncertainty to economic recovery, and investors’ risk aversion sentiments increased. US stocks registered the largest decline in a month, and the US dollar index jumped up to 93 points. Copper futures plumped.

The overall spot trading was quiet yesterday. Buyers and sellers had large differences in prices. Under the influence of domestic power curtailment, the supply of standard-grade copper in the market was tight, causing holders to generally keep prices high. The second batch of the released copper reserves had reached downstream processing companies, so the purchases were basically maintained on rigid demand. Before the delivery of the long-term orders in the near future, the supply and demand sides will enter a see-saw game, and the premiums will be hovering around 200 yuan/mt.

Aluminium: Three-month LME aluminium shed 1.09% to end at $2,576 yuan/mt on Tuesday.

The most-liquid SHFE 2109 aluminium contract decreased 80 yuan/mt to settle at 20,270 yuan/mt in overnight trading, with open interest down 14,434 lots to 221,226 lots.

Domestic policies of dual control will limit the development of the companies with high energy consumption, and the new aluminium production capacity is released slowly. The improved transportation led to the intensive arrivals of aluminium ingot, and the social inventories of lead ingots will continue to rise slightly. The power curtailment may further impact the supply of aluminium. However, the peak season of consumption will come in only half a month, and the inventories may fall again. Bulls are less willing to close positions with profits. SHFE aluminium is expected to remain fluctuating at high levels, and spots are likely to trade at narrow discounts.

Lead: Three-month LME lead edged down 0.93% to close at $2,293/mt last night, and is expected to fluctuate lower.

The most traded SHFE 2109 lead contract fell 0.42% to close at 15,350 yuan/mt in the overnight trading, with open interest up 1,940 lots to 84,232 lots. SHFE lead is trending lower despite the cost support in the short term, and is likely to fall below the cost line.

Zinc: Three-month LME zinc lost 0.81% to settle at $3,003/mt on Tuesday night, with open interest decreasing 353 lots to 253,000 lots. Zinc stocks across LME-listed warehouses dropped by 3,700 mt to 235,800 mt. The concerns of pandemic dragged down US stocks to register the largest fall in a month. Fed Chairman Powell warned about the uncertainty to economic recovery, and stated that the Fed tools are limited. The US retail sales fell 1.1% in July, which cooled down the optimistic sentiments in the market. LME zinc is expected to fluctuate between $3,000-3,050/mt today.

The most traded SHFE 2109 zinc contract gained 0.85% to close at 22,720 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 contracted went down after opening last night, and rebounded after hitting 241,000 yuan/mt. The overall prices fluctuated around 243,000 yuan/mt.

Warehouse receipts of SHFE and LME remained low recently. Although the production resumption of Yunnan Tin Group and Yinman Mining relieved the market expectation of short supply, the overall supply remained tight.

The contract prices fell back soon after setting a record high, and open interest dropped rapidly, which indicated that long funds lack confidence in the continued rise of the prices in the short term.

The funds actions will be monitored today, and the prices are expected to trade between 241,000-245,000 yuan/mt.

Nickel: The most traded SHFE 2109 nickel contract fell 1.12% to close at 144,200 yuan/mt in the overnight trading yesterday, with open interest down 2,437 lots to 109,000 lots.

The spot trade of nickel plate was sluggish, and the rising US dollar index suppressed metals prices, so SHFE nickel went down. The overall prices trend is expected to remain volatile. The support from 142,000 yuan/mt is worth attention.