SMM Morning Comments (Aug 24): Shanghai Base Metals Mostly Rose amid Weakened US PMI

SHANGHAI, Aug 24 (SMM) – Shanghai base metals basically went up on Tuesday morning amid weak US manufacturing and service industry PMI and improved market sentiments. Meanwhile, their counterparts on LME were trending mixed.

LME metals basically closed higher on the previous trading day. Copper increased 2.06%, lead rose 0.86%, and zinc gained 0.24%.

SHFE metals generally cruised higher in the overnight trading. Copper gained 1.48%, aluminium rose 2.08%, lead gained 0.13%, and nickel increased 0.95%, while zinc fell 0.31%.

Copper: Three-month LME copper gained 2.06% on Monday night to close at $9,238/mt, and is expected to trade between $9,180-9,260/mt today.

The most liquid SHFE 2110 copper contract won 1.48% to settle at 68,580 yuan/mt last night, and is likely to trade between 68,300-68,900 yuan/mt today, with spot premiums between 150-200 yuan/mt.

On the macro level, the COVID-19 vaccine jointly developed by Pfizer and BioNTech in US has been fully approved by the regulatory authorities, and the market's concerns about the impact of the pandemic on economic recovery have been alleviated. Data showed that the US Markit manufacturing and service industry PMI was sluggish in August, of which the growth rate fell to an eight-month low. The poor data cooled the market's expectations of the Fed's advanced tightening of monetary policy. Market risk sentiment continued to improve. The US dollar index fell after its biggest weekly gain in more than two months last week. Crude oil prices also posted its largest hike in nine months. Copper futures rose significantly overnight. The stabilised SHFE copper boosted the spot purchase. Prices of copper scrap was high amid tight supply, close to the copper cathod prices. Downstream users were more willing to restock copper cathode at lower prices. Holders regained their confidence in high prices, and spot premiums stabilised.

Aluminium: The most-active SHFE 2110 aluminium contract increased 0.39% to end at 20,385 yuan/mt last night.

Social inventories only slightly increased by 2,000 mt in China from a week ago to 743,000 mt. The Ningxia Energy Conservation and Resolving Overcapacity Office delivered a first-level pre-warning for the completion of the energy consumption control target since this year. The main leaders of the development and reform, industry and information departments of the Ningdong Energy and Chemical Base, Shizuishan City, Zhongwei City, and Wuzhong City have conducted an interview with the heads of five companies in the district with a sharp increase in energy consumption and put forward rectification requirements. The news once again stimulated the bullish sentiment of the aluminium market. Aluminium prices are expected to fluctuate between 20,000-20,500 yuan/mt today.

Lead: Three-month LME lead increased 0.86% to close at $2,280.5/mt on Monday. Shorts continued to avoid risk by reducing positions amid falling US dollar, which drove up LME lead to close higher on the second consecutive trading day. SMM will monitor whether LME lead can keep rising and break through $2,300/mt.

The most active SHFE 2109 lead contract edged up 0.13% to settle at 15,440 yuan/mt last night. Shorts also slightly lightened their positions in the SHFE market and boosted the lead prices. Today’s focus will be whether the prices can stabilise around 15,450 yuan/mt.

Zinc: Three-month LME zinc rose 0.24% to close at $2,940/mt in the overnight trading, with open interest losing 1,334 lots to 245,000 lots, and is expected to trade between $2,910-2,960/mt today. LME zinc stocks increased by 6,500 mt or 2.79% to 239,100 mt last night.

The most-liquid SHFE zinc contract slid 0.31% to settle at 22,235 yuan/mt in the overnight trading, with open interest up 3,770 lots to 81,219 lots. On the fundamentals, some smelters in north China suspended production due to safety accidents, with the affected output being about 12,000 mt on a monthly basis. Supply is likely to increase as power curtailment has been eased in Guangxi and Yunnan, coupled with future arrivals of government stockpiles. Domestic social stocks increased slightly amid weak consumption. The most-traded SHFE 2110 contract is expected to move between 22,000-22,500 yuan/mt today.

Nickel: SHFE nickel prices closed at 141,910 yuan/mt on Monday evening, an increase of 1,340 yuan/mt or 0.95% from the previous trading day. Trading volume was 228,000 lots and open interest was 79,000 lots.

SHFE nickel prices rebounded sharply early this week amid low domestic inventory. SHFE nickel inventory under warrants stand at only 3,314 mt currently. The buying interest in the spot market picked up significantly as nickel prices fell below 140,000 yuan/mt. Nickel prices will still be supported in the near term.

Tin: The most traded SHFE tin contract hit 237,080 yuan/mt and then moved between 234,000-246,000 yuan/mt in the overnight trading yesterday.

Spot supply was short, and the warehouse receipts in SHFE and LME continued to fall, so the expectations of tight supply still supported the prices. Prices kept fluctuating in the mild upward trend recently.

Longs and shorts did not increase positions intensively, and there is unlikely to be large-scale game between the two sides. SHFE tin is expected to trade between 235,000 yuan/mt and 237,000 yuan/mt.