SMM Evening Comments (Sep 13): Shanghai Nonferrous Metals Closed with Mixed Performance, with Aluminium Leading the Gains

SHANGHAI, Sep 13 (SMM) – Shanghai nonferrous metals closed with mixed performance, and aluminium outperformed the board amid rumours of output restriction in Yunnan.

Shanghai copper rose 2.52%, aluminium surged 4.38%, lead and zinc were unchanged, tin edged up 0.58%, and nickel fell 2.24%.

Copper: The most-traded SHFE 2110 copper closed up 2.52% or 1,760 yuan/mt to 71480 yuan/mt, with open interest up 8928 lots to 136500 lots.

On the macro front, US headline PPI in August rose 0.7% on the month and surged 8.3% on the year, the greatest YoY growth since its latest correction in November, 2010. The reading showed that the spreading COVID-19 pandemic kept bringing pressure to the supply chain, thus the high inflation rate may stay for a while. In China, the social financing reading in August picked up slightly and was above market estimate, cheering up the overall market. The market differed on the timeline of tapering QE, resulting in uncertainties on the macro front. On the fundamentals, copper inventories continued to fall in China and foreign markets, and copper scrap supply remained tight.

Tonight, the market shall watch the US budget report for August (estimate of $17.5 billion in deficit, and finalised at $20.0 billion in deficit in August, 2020). If the budget negotiation comes to a deadlock, the market may start to worry that QE period will be shortened due to GDP performance in Q4, subsequently pressuring copper prices.

Aluminium: The most-traded SHFE 2110 aluminium closed up 4.38% or 990 yuan/mt to 23610 yuan/mt, with open interest down 38142 lots to 234000 lots. The disruptions to the supply side remained. For example, output in Guangxi and Guizhou fell due to energy consumption control. More importantly, news came that the average output of green enterprises in September-December shall not exceed that in August according to a notice issued by the Yunnan government. Aluminium prices trended up again.

On the demand side, the social aluminium inventories rose 20,000 mt from last Thursday to 771,000 mt as of today according to SMM, which indicated that demand has been suppressed by soring aluminium prices.

Lead: The most-traded SHFE 2110 lead closed down 0.07% or 10 yuan/mt to 15060 yuan/mt, with open interest down 2758 lots to 78332 lots. Long capitals exit the market approaching the delivery date, dragging down prices slightly. The deliveries from smelters were low, but transactions were comparatively active. The downstream purchase was still mainly driven by rigid demand. The zinc ingots inventory in the short term is likely to climb further after SHFE 2109 finishes delivery.

Zinc: The most-traded SHFE 2110 zinc closed up 0.07% or 15 yuan/mt at 22885 yuan/mt, with open interest down 3263 lots to 109754 lots. On the macro front, crude oil prices rose by over 2% last Friday, making up the losses in the previous trading day. On the fundamentals, inventories in Shanghai, Guangdong and Tianjin fell 3,100 from Friday September, 10, and the inventory in seven major markets declined 4,000 mt. The downstream purchase is likely to be muted as the 50,000 mt of released government reserves will arrive at the market this week.

Tin: The most-traded SHFE 2110 tin closed up 0.58% at 255470 yuan/mt, with open interest down 1168 lots. On the fundamentals, production at smelters was stable, and market supply is likely to be sufficient as the market favoured imports. If the demand side could digest the added supply remains as the market focus, as some downstream solder companies reported a potentially muted high-season.

Nickel: The most-traded SHFE 2110 nickel closed down 2.24% or 3410 yuan/mt at 149010 yuan/mt, with open interest down 17363 lots to 133722 lots. The inventory of SHFE nickel warrants rallied, easing market concerns over nickel supply. Nickel prices rebounded as the long capital left the market. But it lacks uptrend momentum in the short term. On the fundamentals, the sales condition in the new energy sector was positive, bringing demand for nickel. The declining inventory of LME nickel warrants will also support nickel prices. However, bearish factors also existed including news of output cut among stainless steel mills, and the less-than-expected production of ferronickel and nickel matte in Indonesia.