SMM Morning Comments (Aug 30): Shanghai Base Metals Generally Cruised Higher amid Expectations of Fed’s Modest QE Reduction

SHANGHAI, Aug 30 (SMM) – Shanghai base metals mostly cruised higher on Monday morning after Fed’s announcement of modest QE reduction. LME market is closed for the London Bank Holiday today.

LME metals closed mixed last Friday. Copper gained 1.3%, aluminium rose 1.3%, lead dropped 0.25%, and zinc fell 0.35%.

SHFE metals performed similarly in the overnight trading last Friday. Copper rose 1.18%, zinc increased 0.27%, nickel gained 0.63%, aluminium fell 0.14%, and lead dropped 0.42%.

Copper: Three-month LME copper gained 1.3% last Friday night to close at $9,420/mt.

The most-traded SHFE 2110 copper contract rose 1.18% last Friday night to close at 69,680 yuan/mt, and is expected to trade between 69,500-70,000 yuan/mt today, with spot premiums between 160-230 yuan,

Fed Chairman Powell announced at the Jackson Hole meeting last week that it may be appropriate to start a QE reduction in 2021, but there’s no hurry to raise interest rates. The speech showed that Fed will tighten the policy monetary in a modest and market-friendly manner, which largely alleviated market concerns. Copper futures rose significantly against the falling US dollar index. At fundamentals, the tight copper scrap supply remains the major bullish factor in the market. Scrap demand were largely switched to copper cathode due to the lower cathode prices. The imported copper can hardly flow into the domestic market in the short term due to the inefficient port operations, and domestic copper inventories will not continue to increase, which will support copper prices. Spot traders are actively restocking goods amid low domestic inventories at the end of the month. The overall trade is stable. However, the current BACK structure weighs on the premiums above 200 yuan/mt. Some market participants expect a large amount of imported copper to flow into themarket this week, and the third batch of the released national copper reserves will loosen the supply. Therefore, the upward room for the sport premiums is limited.

Aluminium: Three-month LME aluminium opened at $2,622/mt last Friday morning, with the lowest and highest prices at $2,618.5/mt and $2,697/mt before closing up $8/mt or 1.3%.

The most-traded SHFE 2110 aluminium contract opened last Friday’s night session at 20,950 yuan/mt, with the highest and lowest prices at 21,200 yuan/mt and 20,805 yuan/mt before closing at 20,860 yuan/mt, down 30 yuan/mt or 0.14%.

The State Reserve Bureau announced that it would release the third batch of aluminium ingots into the market, with a total volume of 70,000 mt, which is lower than the second batch of 90,000 mt and also lower than output cuts in Xinjiang. In addition, the National Development and Reform Commission recently issued a notice on improving the tiered electricity price policy for the aluminium industry, requiring that preferential electricity price policies be strictly prohibited. Market will continue to pay attention to energy consumption control policy, inventory changes and actual demand in the peak season.

Lead: Three-month LME lead dropped $4.5 or 0.25% last Friday to close at $2,286.5/mt. The pandemic brought more uncertainties in the global economy. US dollar index fluctuated upward, and LME lead weakened under pressure. SMM will monitor the support from 60-day moving average.

The most active SHFE 2109 lead contract was dragged down by LME lead and dropped 0.42% to end at 15,285 yuan/mt last night. Today’s focus will be the pressure from the 5-day moving average.

Zinc: Three-month LME zinc fell 0.35% to $2,987.5/mt on August 27, with open interest decreasing 1,121 lots to 249,000 lots. Zinc stocks across LME-listed warehouses fell by 1,375 mt or 0.57% to 238,275 mt. Powell hinted on last week of Friday that the central bank may start to reduce bond purchases before the end of the year, but he still believed that it is too early to raise interest rates and did not adopt a hawkish attitude. However, LME zinc trended lower as China’s third batch of government stockpiles was approaching. LME zinc is expected to fluctuate between $2,970-3,020/mt today.

The most-traded SHFE 2110 zinc contract settled 0.27% higher at 22,440 yuan/mt on last Friday night, with open interest falling 2,813 lots to 86,450 lots. SMM expects that this batch of government stockpiles will supplement the shortage of zinc ingot supply and inventories in September will increase slightly amid bearish expectations about consumption. The SHFE 2110 contract is expected to move between 22,000-22,700 yuan/mt today and spot premiums for domestic #0 Shuangyan zinc will be seen at 120-240 yuan/mt against the September contract.

Nickel: SHFE nickel prices closed at 144,380 yuan/mt last Friday evening, an increase of 900 yuan/mt or 0.63% from the previous trading day. Prices are likely to meet resistance from the 145,000 yuan/mt level.

Tin: The most-traded SHFE 2110 tin contract hovered around 240,000 yuan/mt during last Friday’s night session. Inventories at smelters remain low, and LME and SHFE tin warrants continued to decline, keeping supply tight. However, the willingness of downstream solder companies to purchase at high prices is low. The most-traded SHFE 2110 tin contract is expected to meet resistance at 242,000 yuan/mt on Monday and find support at 238,500 yuan/mt with the entry of more investors.