SMM Morning Comments (Aug 23): Shanghai Base Metals Trending Higher due to Spreading Pandemic

SHANGHAI, Aug 23 (SMM) – SHFE metals all cruised higher on Monday morning amid the improved market sentiments due to the spreading pandemic. Meanwhile, their counterparts on LME all went up as well.

LME metals closed mixed last Friday night. Copper fell 1.87%, zinc dropped 0.37%, aluminium rose 0.31%, and lead increased 0.22%.

SHFE metals performed similarly in the overnight trading last Friday. Copper gained 1.38%, lead rose 0.83%, aluminium fell 1.03%, zinc dropped 0.76%, and nickel decreased 0.82%.

Copper: Three-month LME copper fell 1.87% last Friday night to close at $9,051.5/mt, and is expected to trade between $9,100-9,180/mt today.

The most-traded SHFE 2109 copper contract gained 1.38% last Friday night to end at 67,510 yuan/mt, and is expected to trade between 67,500-68,000 yuan/mt today, with spot premiums between 160-210 yuan/mt.

With the recent spread of Delta variant of COVID-19, investors were concerned about the economic recovery, and expectations of the Fed’s early tightening of liquidity have eased. Copper futures rebounded amid improved market sentiments. Spot market saw growing wait-and-see mood amid volatile futures. If premiums fall to around 100 yuan/mt, the purchase of long-term orders may increase, and the spot transactions may pick up.

Aluminium: Three-month LME aluminium opened at $2,544.5/mt last Friday morning and closed at $2,555/mt, an increase of $8/mt or 0.31%.

The most-traded SHFE 2110 aluminium contract opened at 20,035 yuan/mt during last Friday’s night session, with the highest and lowest prices at 20,260 yuan/mt and 20,000 yuan/mt before closing at 20,180 yuan/mt, down 205 yuan/mt or 1.03%.

Concentrated arrivals of aluminium ingots after transportation improved will extend the upward trend of aluminium ingot social inventory in the short term. The minutes of the Fed’s July policy meeting showed that most Fed officials believe that the inflation goal has been reached, sending the US dollar index to a new high in nine and a half months and weighing on commodities. However, the mention of energy consumption control, carbon reduction, and power curtailment during the NDRC’s press conference last week will give a certain boost to aluminium prices. Besides, low social inventory and slow recovery of production will also support aluminium prices. The most-traded SHFE 2110 aluminium contract is expected to move between 19,900-20,200 yuan/mt on Monday.

Lead: Three-month LME lead ended 0.22% higher at $2,261/mt on last Friday night. US dollar index fell back after the gains for four consecutive days last Friday amid improved market sentiments. Bears in the LME market also reduced positions to avoid risks, which boosted the prices. Whether LME lead can stabilise around $2,250/mt is worth attention today.

The most-active SHFE 2109 lead contract rose 0.83% to close at 15,240 yuan/mt in the overnight trading Last Friday, as the bears reduced positions to avoid risks. The spots in circulation were limited in the market, and the game still existed between the lead costs and high inventories. Whether SHFE lead can stabilise around 15,200 yuan/mt today is worth attention.

Zinc: Three-month LME zinc fell $11/mt or 0.37% to $2,933/mt, with open interest gaining 76 lots to 246,000 lots. Zinc stocks across LME-listed warehouses rose by 4,250 mt to 232,600 mt. LME inventories rose again while the cancelled warrants fell 9,550 mt. LME zinc is expected to fluctuate between $2,900-2,950/mt today.

The most-traded SHFE 2110 zinc contract rose to 22,390 yuan/mt on August 20, and SHFE zinc fell 170 yuan/mt or 0.76% to 22,260 yuan/mt, with open interest up 5,818 lots to 76,000 lots. Social stocks across domestic seven markets rose 6,100 mt to 128,600 mt on August 20. The governmental stockpiles in the near future will pressure on zinc prices. The SHFE 2110 contract is expected to move between 22,000-22,500 yuan/mt today, and spot premiums for domestic 0# Shuangyan zinc will be seen at 220-240 yuan/mt against the October contract.

Nickel: SHFE 2109 nickel contract prices fell 0.82% to end at 138,650 yuan/mt last Friday night. SHFE nickel prices are expected to stand at 135,000-144,000 yuan/mt this week and LME nickel at $18,000-19,000/mt.

On the fundamental front, supply of NPI and nickel ore will remain tight. However, recent continued declines in stainless steel prices would prompt NPI plants to lower prices, which will lower stainless steel costs. Demand from stainless steel mills remains strong as the current production schedules at mills stand at a record high. But demand weakened in July compared to June as power restrictions in Guangxi resulted in lower production. On the new energy front, demand is likely to weaken in August from July. Import profits of nickel briquette remain high. Continued increase in imports of nickel briquette has grown supply pressure, keeping spot premiums at low levels. The current operating rates at downstream producers stand at high levels, but production schedules for September at automakers decrease amid chip shortages. As such, nickel prices are expected to fall.

Tin: SHFE tin tested support at 230,000 yuan/mt during last Friday’s night session, and closed around 230,000 yuan/mt. Despite bearish macro sentiment, tight supply in the spot market will underpin tin prices. SHFE tin is expected to meet resistance at 234,000 yuan/mt on Monday and find support at 228,000 yuan/mt.