SMM Evening Comments (Aug 31): Shanghai Nonferrous Metals Closed with Mixed Performance amid China’s Slowing Factory Activity Growth

SHANGHAI, Aug 31 (SMM) – Shanghai nonferrous metals market closed with mixed performance as China’s manufacturing PMI for August stood at 50.1, against July’s reading of 50.4, indicating slowing factory activity growth.

Shanghai copper gained 0.57%, aluminium advanced 1.16%, lead fell 1.64%, zinc lost 0.64%, tin climbed 2.16%, and nickel soared 3.10%.

Copper: The most-traded SHFE 2110 copper closed up 0.57% or 400 yuan/mt to 70100 yuan/mt, with open interest up 2820 lots to 132100 lots.

On the macro front, former Chair of Richmond Fed warned that inflation may get out of control as Powell was trapped in “dilemma” on the issue. Bank of France Governor Villeroy indicated that the European Central Bank will not rush into winding down exceptional bond purchases, and nothing will be like what Powell said about tapering last Friday. The overall market sentiment was neutral to positive.

In China, the August manufacturing PMI stood at 50.1, and the official manufacturing and non-manufacturing PMI both fell to 18-month low amid off-season, spreading COVID-19 and floods, pressuring SHFE copper in early trading.

Tonight, the market shall closely watch the economic performance in the euro zone, including the final reading of GDP in Q2 in France and Italy, German unemployment rate in August, initial data of August consumer price index across the euro zone. A sound performance may bring enhanced tapering.

Aluminium: The most-traded SHFE 2110 aluminium closed up 1.16% or 245 yuan/mt to 21385 yuan/mt, with open interest down 17916 lots to 337400 lots.

Last night, China Nonferrous Metals Industry Association held a video conference with leading aluminium companies and reached a consensus on three points: First, to ensure the supply of commodities and stabilise prices, and to prevent malicious speculation and irrational hikes in aluminium prices; Second, to continue to guarantee supply and manage market expectations; Third, to cope with the rising cost pressure.

The open bidding for the third batch of government reserves will start tomorrow morning. And SHFE aluminium is expected to edge down overnight.

Lead: The most-traded SHFE 2110 lead closed down 1.64% or 250 yuan/mt to 15025 yuan/mt, with open interest up 9888 lots to 95489 lots. Lead prices fell and tested 15000 yuan/mt on the back of rising inventories and edgy market sentiment caused by proposals of strict regulations on antitrust and anti-illegitimate competition and to stabilise aluminium pricing.

In spot market, lead prices fell below 15000 yuan/mt, tightening market supply as both primary and secondary lead smelters were unwilling to make shipment. For primary lead, mainstream quote discounts stood at 30-0 yuan/mt over SHFE 2109 contract, resulting in slight transactions. For secondary lead, quotes by smelters were rare after lead prices broke the near-term breakeven point of secondary refined lead. Backup smelters quoted with discounts at 50-120 yuan/mt against SMM 1# lead. Spot transactions continued to weaken.

Zinc: The most-traded SHFE 2110 zinc closed down 0.64% or 145 yuan/mt at 22350 yuan/mt, with open interest down 3602 lots to 89077 lots.

On the macro front, China’s official PMI for August was disappointing, indicating a potentially slowing economy growth in the future. Meanwhile, euro zone harmonized CPI for August stood above expectations, showing smooth economy recovery from the pandemic. While short supply still existed in the continent. Some analysts worried that the low interest rate of European Central Bank may have lingered too long.

On the fundamentals, some institutions in Guangxi released a list of companies with strict power control, which has not yet influenced the supply side of zinc ingots. SMM will closely follow the market supply trend.

Tin: The most-traded SHFE 2110 tin closed up 2.16% at 246910 yuan/mt, with open interest up 1672 lots. The daily chart showed that market participants have been suffering from worries as long capital chose to exit the market at intraday high approaching the closing and inflow of capitals have slowed down.

On the fundamentals, the rising processing fees at smelters have encouraged production activities. And according to SMM estimates, tight supply is likely to ease as tin ingot export turned less profitable entering August. While downstream purchase has long been suppressed in light of high prices and falling profit margins. As such, market supply and demand pattern weakened. Tin prices are expected to break congestions if supply does increase in the future.

Nickel: The most-traded SHFE 2110 nickel closed up 3.10% at 148850 yuan/mt, with open interest up 18999 lots. Nickel prices sustained its momentum with support from the cost front, strong demand from new energy sector, low inventory and rising stainless steel.