SMM Morning Comments (Aug 31): Shanghai Base Metals Generally Increased After Powell’s Dovish Speech

SHANGHAI, Aug 31 (SMM) – Shanghai base metals basically went up on Tuesday morning under the impact of Fed Chairman Powell’s dovish speech. LME market is closed for the Bank holiday today.

SHFE metals closed mixed in the overnight trading yesterday. Copper advanced 0.62%, nickel gained 1%, lead dropped 0.72%, and zinc slid 0.51%.

Copper: The most-traded SHFE 2110 copper contract advanced 0.62% to close at 70,130 yuan/mt in the overnight trading yesterday, and is expected to trade between 70,000-70,600 yuan/mt today, with spot premiums between 150-230 yuan/mt. Three-month LME copper is expected to trade between $9,440-9,530 yuan/mt today.

Fed Chairman Powell’s dovish speech continued to boost market sentiments, and copper futures kept rising. However, the US July pending home sales index fell for the second consecutive month, and the August manufacturing activity index released by Dallas Fed also fell on the month, which restrained the growth of copper futures. Domestic copper inventories in major markets dropped further last week amid lower arrivals and high operating rates in north China, supporting the copper prices. In the spot market, closed LME market limited the profits of importers and arbitragers. Downstream wait-and-see moods increased as the prices has risen over 70,000 yuan/mt and the third round of national reserves will be released. The BACK structure and firm premiums limited the traders operations. Therefore, sport market saw a stalemate between the sellers and buyers.

Lead: The most active SHFE lead contract dropped 110 yuan/mt or 0.72% to end at 15,100 yuan/mt last night. Shorts increased positions. SMM will monitor the support from 15,000 yuan/mt today.

Zinc: The most-liquid SHFE 2110 zinc contract slid 0.51% to stand at 22,520 yuan/mt in overnight trading, with open interest down 2,417 lots to 90,262 lots. Guangxi authorities issued a list of companies that should reduce production capacity in September, and companies with high power consumption are under full control. Zinc prices are likely to be supported by power curtailment policy and low levels of social inventories. Focus should be paid on the power curtailment policy and its specific impact on the supply side. The most-traded SHFE zinc contracts are expected to move between 22,200-22,700 yuan/mt today and spot premiums for domestic #0 Shuangyan zinc will be seen at 140-160 yuan/mt against the September contract.

Nickel: The most traded SHFE 2110 nickel contract gained 1,480 yuan/mt or 1% to close at 148,760 yuan/mt last night, with the open interest up 12,623 lots to 163,000 lots.

The September contract broke through 150,000 yuan/mt to hit a new high, and the price spread between SHFE 2109 and 2110 contracts expanded to 2,000 yuan/mt. SMM will continue to focus on the impact of the open interest on the price trends. Downstream stainless steel production is expected to be reduced, and the demand of nickel sulphate by new energy industries weakened. Nickel prices lack the fundamentals upward momentum. Today’s focus will be the pressure from 150,000 yuan/mt on the October contract.

Tin: The most active SHFE tin contract slowly increased and fluctuated at high levels in the overnight trading. Upstream supply tightened. Although TCs at smelters trended higher, supply is unlikely to increase as expected. Downstream demand was sluggish amid rising tin prices. Prices continued to set record highs, but the entry of funds in the market is more hesitant, indicating concerns about the continuity of the market outlook. The impact of the LME on the domestic market after its opening and the willingness of long positions remain as the market focus. SHFE tin is expected to move between 242,000-247,000 yuan/mt today.