SMM Morning Comments (Aug 20): Shanghai Base Metals Declined after Low US Unemployment Data

SHANGHAI, Aug 20 (SMM) – Shanghai base metals all went down on Friday night following the record low of the US weekly initial jobless claims. Meanwhile, their counterparts on LME basically went up.

LME metals all closed lower on Thursday night. Copper dropped 1.88%, aluminium edged down 0.74%, lead slid 1.78%, and zinc fell 1.39%.

SHFE metals all declined in the overnight trading. Copper shed 1.57%, aluminium decreased 0.77%, lead dropped 1.36%, zinc lost 0.6%, and nickel fell 1.66%.

Copper: Three-month LME copper dropped 1.88% on Thursday night to close at $8,885/mt, and is expected to trade between $8,920-9,010/mt today.

The most-traded SHFE 2110 copper contract shed 1.57% last night to close at 66,310 yuan/mt, and is expected to trade between 66,300-67,000 yuan/mt today, with spot premiums between 210-300 yuan/mt.

Last week’s US initial jobless claims announced overnight recorded 348,000, falling to the lowest level in 17 months, showing that the job market is still improving gradually. US dollar hit a new high since November last year amid the Fed’s hawkish comments and the spreading Delta variant of COVID-19. Copper spot prices kept falling, and downstream users were worried about the further decline, so they were less willing to restock at high premiums. Holders had to sell at lower prices. The basis BACK structure expanded significantly yesterday, which stimulated traders to actively sell spots and purchase futures. Spot supply surged yesterday, premiums fell from high levels, and sellers were active in the market.

Aluminium: Three-month LME aluminium edged down 0.74% to settle at $2,544/mt on Thursday.

The most liquid SHFE 2109 aluminium contract decreased 0.77% to end at 19,875 yuan/mt last night.

Lead: Three-month LME lead slid 1.78% from the previous night to close at $2,256/mt on Thursday night after hitting a new low in one and a half months at $2,241/mt amid the concerns of pandemic.

The most active SHFE 2109 lead contract hit a two-month low at 15,110 yuan/mt in the overnight trading on Thursday, and closed at 15,185 yuan/mt, down 1.36% from the previous night.

Zinc: Three-month LME zinc dropped 1.39% to close at $2,944/mt on Thursday night, with open interest down 2,157 lots to 246,000 lots.

Fed hinted that it might tighten monetary policy this year, which triggered pessimistic sentiments in the market. LME zinc is expected to fluctuate between $2,920-2,970/mt today.

The most-liquid SHFE 2110 zinc contract lost 0.6% to settle at 22,275 yuan/mt in overnight trading, with open interest increasing 4,688 lots to 72,000 lots.

The pessimistic sentiment and weak expectations caused the price decline. The power curtailment in Guangxi was further alleviated, and local operating rates recovered to around 90%, which will increase the spot supply in Guangdong. However, Chihong (Hulunbuir) reduced production. Zinc output is expected to recover to around 496,500 mt in August. The government will continue to release national metal reserves to ensure supply and stabilise prices. Zinc prices will move under pressure in the short term. The SHFE 2110 contract is expected to move between 22,000-22,600 yuan/mt today, and spot premiums for domestic 0# Shuangyan zinc will be seen at 200-210 yuan/mt against the September contract.

Nickel: The most traded SHFE nickel contract fell 1.66% to close at 138,870 yuan/mt yesterday night.

The expectations of Fed’s tightening monetary policy strengthened, and the liquidity is expected to narrow. This coupled with the policy of ensuring supply and stabilising prices, suppressed the prices of non-ferrous metals. However, the spot buyers are more willing to make purchase after nickel prices went down. The support from the 60-day moving average is worth attention.

Tin: The most traded SHFE tin contract plunged after opening in the night yesterday, dragged down by the plumping LME tin. After that, the prices rebounded rapidly to 234,330 yuan/mt, and then fluctuated around 232,000 yuan/mt.

Bulls and bears both reduced positions around 228,000 yuan/mt last night. Due to the low prices and the intensive decline in open interest, the long and short sides are not eager to start a confrontation. The funds actions will be monitored today, and the prices are expected to trade between 228,000-236,000 yuan/mt.