SMM Morning Comments (Sep 8): Most SHFE Base Metals Ended Lower as US Dollar Rebounded for Two Consecutive Days

SHANGHAI, Sep 8 (SMM) – Shanghai base metals mostly fell in the evening trading on Tuesday as the US dollar index rebounded for two consecutive days.

LME copper dropped 1.24%, aluminium rose 0.02%, lead slid 0.09%, and LME zinc rose 0.65%.

SHFE copper went down 0.52%, aluminium decreased 0.02%, lead dropped 1.36%, zinc rose 0.51%, and nickel fell 0.94%.

Copper: LME copper dropped 1.24% on Tuesday night to close at $9,337/mt Trading volumes were 11,000 lots and open interest stood at 266,000 lots. The most active SHFE 2110 copper contract went down 0.52% to close at 68,970 yuan/mt in overnight trading. Trading volumes were 39,000 lots and open interest stood at 120,000 lots. 

From the macro perspective, it is difficult to give momentum to the rise of copper prices in the near future. The poor employment data in the United States has made the market's expectation of the United States to reduce the size of debt purchases to swing back and forth, making prices more volatile. The US dollar index rebounded yesterday, putting pressure on copper prices. From a fundamental perspective, the supply of copper ore has improved significantly compared with the first half of the year, while terminal consumption has performed moderately, which does not provide strong support for copper prices. We believe that copper prices will continue to fluctuate with the macro front in the near future.

In terms of spot markets, spot quotes in the Shanghai spot market plummeted yesterday. Sellers in the market adjusted prices due to the influx of imported copper. Spot quotes still have room to fall if imported copper continues to flow into the domestic market. LME copper will trade between $9,280-9,370/mt today; SHFE copper prices are expected to move between 68,700-69,300 yuan/mt. Spot goods are likely to trade with discounts of 20 yuan/mt to premiums of 60 yuan/mt. 

Aluminium: Three-month LME aluminium rose 0.02% to end at $2,768/mt on last night, with open interest decreasing 49 lots to 651,000 lots, 

The most-active SHFE 2110 aluminium contract decreased 0.02% to end at 21,735 yuan/mt last night, with open interest down 356 lots to 286,000 lots. 

Zinc: LME zinc rose 0.65% to $3,037.5/mt, with open interest increasing 259 lots to 254,000 lots. Zinc stocks across LME-listed warehouses dropped by 2,675 mt or 1.13% to 233,100 mt. The rise in US Treasury yields prompted investors to cut short USD/EUR short positions before the European Central Bank meeting this week. The US Dollar Index rose 0.33% to 92.42. LME zinc prices are expected to stand at $3,010-3,050/mt in the short term. The most-traded SHFE 2110 zinc contract rose 115 yuan/mt or 0.51% to 22,690 yuan/mt, with open interest increased by 13,107 lots to 161,000 lots. The Chanderiya lead-zinc smelter in India is expected to extend the maintenance until mid-October, affecting 25,000 mt. LME inventories continued to decline, supporting overseas market prices. 

Domestic zinc supply increased sharply as output rose 11,800 mt in September, coupled with 50,000 mt of zinc ingots of government stockpiles. Rising supply is likely to pressure on zinc prices. The SHFE 2110 contract is expected to move between 22,200-22,600 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 220-230 yuan/mt against the October contract.

Lead: LME lead closed at $2,269/mt overnight, a decrease of 0.09%. As of September 7, LME lead stocks were 52,475 mt, a decrease of 100 mt from the previous day. Overnight, SHFE 2110 lead contract finished at 14,855 yuan/mt, a decrease of 0.44%. Open interest increased by 1,059 lots from the previous day to 94,224 lots. Daily warrants inventory on the SHFE was 188,198 mt, an increase of 2,750 mt from the previous day. 

Tin: SHFE tin prices moved between 242,000-248,000 yuan/mt in the trading of last night. Tin ingots in August slightly increased from the previous period and downstream producers increased restocking on dips, giving support for consolidation of the market. The entry of long and short positions remains as the market focus today. Prices are likely to fluctuate at high levels if the market fails to maintain vitality. SHFE tin is expected to meet resistance at 246,000 yuan/mt and find support at 242,000 yuan/mt today.

Nickel: The SHFE 2110 nickel contract closed at 145,310 yuan/mt on Tuesday evening, a decrease of 790 yuan/mt or 0.94% from the settlement price of the previous trading day.   

Fundamentally, the current nickel prices are mainly affected by the expected reduction in stainless steel production. However, according to SMM research, production schedules of stainless steel fell by 250,000 mt in September. Output cut of the 300 series that consumes pure nickel is 110,000 mt, and the demand for refined nickel will fall only 400 mt/month with Ni content. On the new energy side, output of nickel sulphate using self-solution nickel briquette will be far more than that. On the whole, demand for pure nickel has not declined, and nickel prices still have support.