SMM Morning Comments (Sep 10): Base Metals Rose Across the Board on Unchanged ECB Interest Rate

SHANGHAI, Sep 10 (SMM) – Shanghai base metals all cruised higher on Friday morning as European Central Bank kept interest rate unchanged and US dollar weakened. Meanwhile, their counterparts on LME traded mixed.

LME metals all went up in the trading on Thursday. Copper gained 1.35%, aluminium rose 1.61%, lead increased 1.01%, and zinc won 0.74%.

SHFE metals also rose across the board overnight. Copper edged up 0.83%, aluminium rose 0.29%, lead increased 0.4%, zinc won 0.4%, and nickel gained 1.79%.

Copper: Three-month LME copper gained 1.35% on Thursday night to close at $9,395/mt, and is expected to trade between $9,330-9,420/mt today.

The most-traded SHFE 2110 copper contract edged up 0.83% last night to close at 69,350 yuan/mt, and is expected to trade between 69,100-69,700 yuan/mt today, with spot premiums between 10-180 yuan/mt.

On the macro level, European Central Bank announced to maintain the interest rate unchanged, but it would slow down the pace of PEPP bond purchases in Q4 and keep the potential scale of PEPP at 1.85 trillion euros. The euro appreciated significantly against the US dollar. US dollar index fell back to around 92.5 points yesterday, weakening the suppression of copper prices. Macro trend is worth attention in the short term.

In the spot market, the BACK structure stood between 150-200 yuan/mt, and traders kept underselling. Downstream users were reluctant to restock in large amounts despite the decline in prices. Market trade was dominated by traders. In addition, the market is still worried that the stocks outbound from LME-listed warehouses in Asia during the week will continue to flow into the domestic market. Spot premiums are expected to remain volatile at lower levels, unlikely to rebound significantly.

Aluminium: Three-month LME aluminium opened at $2,795.5/mt on Thursday morning and hit a multi-year high of $2,848/mt before closing at $2,836/mt, an increase of $45/mt or 1.61%. Trading volume was 19,006 lots, and open interest increased by 2,413 lots to 648,000 lots.

The most-traded SHFE 2110 aluminium contract opened Thursday’s night session at 22,400 yuan/mt, with the highest and lowest prices at 22,505 yuan/mt and 22,375 yuan/mt before closing at 22,410 yuan/mt, down 65 yuan/mt or 0.29%. Trading volume was 92,340 lots, and open interest decreased by 4,328 lots to 288,000 lots.

Aluminium supply in Guangxi and Inner Mongolia is still affected by energy consumption control policy. Social stocks of aluminium ingots in China’s major trading regions was 751,000 mt on Thursday, up 2,000 mt for the week. 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 increased 1.01% to close at $2,294.5/mt last night amid weakening US dollar.

The most active SHFE lead contract traded above the intraday moving average in the overnight trading and closed 0.4% higher at 15,065 yuan/mt.

Zinc: Three-LME zinc rose 0.74% to settle at $3,075/mt, with open interest increasing 2,391 lots to 259,000 lots. Zinc stocks across LME-listed warehouses dropped by 2,150 mt or 0.93% to 229,250 mt. The US dollar trended lower while the euro was supported by the slower pace of emergency bond purchases in Q4 by the European Central Bank. LME zinc prices are expected to stand at $3,040-3,080/mt in the short term.

The most-traded SHFE 2110 zinc contract rose 90 yuan/mt or 0.4% to 22,840 yuan/mt, with open interest decreased by 1,450 lots to 186,000 lots. 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 22,500-22,900 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 180-200 yuan/mt against the October contract.

Tin: SHFE tin hit a high of 255,000 yuan/mt during Thursday’s night session, with open interest up. The increase in tin ingot production in August and the opening of import window have brought expectations of greater supply. It remains to be seen whether demand from the electronics industry will pick up after the off-season ends. The most-traded SHFE tin contract is expected to meet resistance at 255,000 yuan/mt and find support at 249,500 yuan/mt on Friday.

Nickel: The SHFE 2110 nickel contract closed at 151,650 yuan/mt yesterday evening, an increase of 2,670 yuan/mt, or 1.79%, from the settlement price of the previous trading day.

Although stainless steel production cuts were gradually implemented, the decline in demand for pure nickel has been small.

Although the growth rate of nickel demand from the new energy sector has slowed down. The growth rate of nickel sulphate production is still relatively large, which is far greater than the reduction in nickel demand caused by the production restrictions and cuts of stainless steel.

Therefore, nickel prices still have strong support.

The price increase yesterday was due to increased concerns over supply and strong support from fundamentals. The recent double typhoon in the Philippines may affect the shipment of nickel ore; some of the NPI projects in Indonesia have been delayed due to the pandemic. The release of supply fell short of expectations; in addition, the recent continuous sharp drop in LME inventories may also be the fuse that triggered market concerns.

However, there is no directional change in the contradiction between the supply and demand of nickel fundamentals, and prices of nickel may fall after.

The risk is that the agreed delivery time of the Tsingshan nickel matte project is approaching. If market expectations cannot be met on time, nickel prices may continue to rise.