SMM Morning Comments (Sep 6): Base Metals Rose Across the Board against Weakened US Dollar

SHANGHAI, Sep 6 (SMM) – Shanghai base metals rose across the board on Monday morning boosted by weakened US dollars. Meanwhile, their counterparts on LME trended mixed.

LME metals mostly went up last Friday. Copper rose 0.74%, aluminium went up 1.17%, zinc rose 0.25%, and lead dropped 0.09%.

SHFE base metals all cruised higher in the overnight trading last Friday. Copper increased 0.36%, aluminium rose 0.87%, lead edged up 0.17%, zinc won 0.65%, and nickel gained 1.53%.

Copper: Three-month LME copper rose 0.74% to end at $9,470/mt on last Friday night, and is expected to trade between $9,420-9,500/mt today.

The most-traded SHFE 2110 copper contract increased 0.36% last Friday night to close at 69,380 yuan/mt, and is expected to trade between 69,500-70,100 yuan/mt today, with spot premiums between 130-210 yuan/mt.

On the macro front, the US non-farm payrolls data released on Friday night was far below expectations. Amid the Fed Chairman’s dovish remarks, the market’s pessimistic expectations that the Fed will announce the taper at the September interest rate meeting have weakened. US dollar index plummeted, and copper futures gained support and closed slightly higher. Foreign traders imported a large amount of copper cathode from the bonded areas, and domestic copper inventories increased slightly, which loosened the copper supply. The shortage of copper scrap continued to support copper cathode consumption. Copper prices are expected to remain rangebound in the short term. Spot purchase weakened last Friday, and there was panic selling after the imported resources entered domestic market. Spot premiums fell rapidly.

Aluminium: Three-month LME aluminium opened at $2,695/mt last Friday morning and ranged between 2,678-2,733.5/mt before closing at $2,733/mt, an increase of $31.5/mt or 1.17%. Trading volume was 14,757 lots, and open interest decreased by 11,112 lots to 646,000 lots.

The most-traded SHFE 2110 aluminium contract opened last Friday’s night session at 21,370 yuan/mt, with the highest and lowest prices at 21,465 yuan/mt and 21,300 yuan/mt before closing at 21,440 yuan/mt, up 185 yuan/mt or 0.87%. Trading volume was 106,000 lots, and open interest increased by 4,140 lots to 299,000 lots.

Aluminium supply across many regions in China has been affected by energy consumption control policy. Aluminium ingot social inventory fell by 5,000 mt from a week ago to 749,000 mt on September 2. Chinese regulators have warned about excessive speculation in the commodity market. Market shall focus on energy consumption control policy, demand in the peak season, and the impact of regime change in Guinea on alumina market.

Lead: Three-month LME lead opened at $2,319/mt last Friday and fluctuated between $2,285-2,300/mt around the intraday moving average, failing to break through the 40-day moving average. The price ended 0.09% lower at $2,295.5/mt. Lead stocks across LME-listed warehouses increased last Friday. LME lead prices are expected to move below the 40-day moving average in the short term for lack of sufficient upward momentum.

The most active SHFE 2110 lead contract was pushed up by the news of expanded production cuts to above the 5-day moving average and ended 0.17% higher at 15,050 yuan/mt.

Zinc: Three-month LME zinc rose 0.25% to $2,999/mt on September 3, with open interest increasing 1,886 lots to 251,000 lots. Zinc stocks across LME-listed warehouses dropped by 200 mt or 0.05% to 236,225 mt. The August non-agricultural employment in the United States fell sharply below expectations, and the market was worried that the United States will postpone the pace of QE reduction. LME zinc is expected to fluctuate between $2,970-3,020/mt today.

The most-traded SHFE 2110 zinc contract settled 0.65% higher at 22,415 yuan/mt on last Friday night, with open interest falling 7,673 lots to 91,453 lots. Downstream plants maintained rigid demand while the current supply-demand structure is not enough to suppress zinc prices. The SHFE 2110 contract is expected to move between 22,200-22,700 yuan/mt today and spot premiums for domestic #0 Shuangyan zinc will be seen at 180-200 yuan/mt against the October contract.

Tin: SHFE tin rebounded slightly after opening last Friday’s night session. Tin production was stable, and the import window is expected to be opened. Lower tin prices may attract downstream buyers.   The most-traded SHFE tin contract is expected to meet resistance at 248,500 yuan/mt and find support at 245,000 yuan/mt on Monday.

Nickel: Last Friday, the most active SHFE 2110 nickel contract closed at 148,500 yuan/mt, an increase of 2,240 yuan/mt, or 1.53%, from the settlement price of the previous trading day. Nickel prices rose sharply on Friday night trading, mainly due to the gradual implementation of the expected stainless steel production cuts, bolstering stainless steel prices. However, the reduction in stainless steel production is still a negative factor for nickel prices. Fundamentally, there have been negative expectations for near-month contracts. The price spread between the SHFE 2109-2110 contracts narrowed from 1,500 yuan/mt on the morning of last Friday to 300 yuan/mt. SHFE nickel prices are likely to fall today. SHFE nickel prices are expected to move between 140,000-150,000 yuan/mt this week and LME nickel will fluctuate between $18,700-19,800/mt.

On the macro front, the non-farm data released by the US last Friday was far worse than expected. Fed officials said that they need to see two consecutive good employment reports before tapering bond purchases. But the non-farm data issued by the ADP last Wednesday is likely to lead to changes debt reduction schedule. In the pure nickel market, expectations of a short squeeze eased last week due to increased goods amid the large inflow of nickel plates after the opening of the import window. However, the overall domestic inventory continued falling as most of the inflow was from bonded areas.

Meanwhile, quotations continued to rise for nickel plate under bill of lading, and LME nickel turned into a backwardation structure, pointing to the current tight supply of the global pure nickel market; on the stainless steel side, output cuts driven by power curtailment will be the only negative factor amid tight supply of NPI and nickel ore, which will lower pure nickel consumption. Orders of nickel sulphate did not weaken. But nickel sulphate prices are likely to fall as the high economics of nickel briquette and increased imports of intermediate products result in supply pressure. Nonetheless, the overall demand is relatively stable. Nickel prices are expected to move rangebound. The risk is that pure nickel inventory is likely to grow further or the import volume will increase more than expected.