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SMM Morning Comments (Sep 15): Base Metals Fell across the Board against Peaking Inflation

iconSep 15, 2021 10:00
Shanghai base metal basically trended lower on Wednesday morning against the lower-than-expected US CPI increase in August. Meanwhile, their counterparts on LME mostly cruised higher.

SHANGHAI, Sep 15 (SMM) – Shanghai base metal basically trended lower on Wednesday morning against the lower-than-expected US CPI increase in August. Meanwhile, their counterparts on LME mostly cruised higher.

LME metals all closed lower yesterday. Copper dropped 1.09%, aluminium lost 1.97%, lead fell 1.16%, and zinc decreased 1.14%.

SHFE metals performed similarly in the overnight trading. Copper slid 0.98%, aluminium fell 3.16%, lead dropped 1.61%, and zinc declined 0.27%.

Copper: Three-month LME copper opened at $9,447/mt in the overnight trading yesterday, with the highest and lowest prices at $9,582/mt and $9,380/mt, and dropped 1.09% to close at $9,432.5/mt. LME copper is expected to trade between $9,380-9,460/mt today.

The most liquid SHFE 2110 copper contract slid 0.98% to settle at 69,630 yuan/mt last night, and is likely to trade between 69,200-69,800 yuan/mt today, with spot premiums between 20-100 yuan/mt.

The US CPI increase in August announced last night was narrower than expected, and the inflation pressure weakened. However, the market believes that inflation has not slowed down enough to allow the Fed to change policy direction, and uncertain factors such as the COVID-19 pandemic still exist. Investors’ worries about economic recovery overwhelmed the impact of inflation data. US dollar index remained high after the CPI was announced, and the market was bullish over the dollar, which dragged down commodity prices. Copper futures also declined.

Spot quotations are likely to be against the SHFE 2110 contract today as the September contract will be settled today. Market participants have different outlooks on the future prices, holders are expecting higher prices. After the settlement, the Backwardation structure between SHFE 2110 and 2111 contracts may expand, and spot premiums are expected to returned the early September level.

Aluminium: Three-month LME aluminium opened at $2,892/mt on Tuesday morning, with the highest and lowest prices at $2,910/mt and $2,824/mt, and lost 1.97% to settle at $2,831/mt. Open interest increased 850 lots to 656,000 lots.

The most-liquid SHFE 2110 aluminium contract fell 720 yuan/mt or 3.16% to settle at 22,060 yuan/mt last night, with open interest down 11,406 lots to 175,000 lots.

There have been no significant changes in the macro and fundamental economy recently. Domestic aluminium supply continued to shrink amid the dual control of energy consumption and the lack of power and coal. Aluminium prices fell back in the short term mainly because the high prices failed to push up downstream prices, and longs left the market with profits as aluminium social inventories increased by 20,000 mt on the week.

Lead: Three-month LME lead dropped 1.16% to close at $2,261/mt on Tuesday night. Despite the slightly weakened US dollar, LME non-ferrous metals continued to fall as longs left the market. LME lead registered the decline for the second consecutive night. Today’s focus will be the support from $2,250/mt.

The most-liquid SHFE 2110 lead contract fell 1.61% to end at 14,705 yuan/mt, approaching the Bollinger Lower Rail in the overnight trading. Today’s focus will be the whether the prices can stabilise around 147,000 yuan/mt.

Zinc: Three-month LME zinc fell $35/mt or 1.14% to close at $3,044/mt last night. Zinc stocks across LME-listed warehouses dropped by 1,450 mt to 229,700 mt. The August CPI data suggests that US inflation may have peaked, which supports the Fed’s view that high inflation is temporary, and Fed will not announce a reduction in debt purchases next week. Weakened US dollar boosted gold prices. LME zinc prices are expected to stand at $3,000-3,050/mt today.

The most liquid SHFE zinc contract declined 60 yuan/mt or 0.27% in the overnight trading on Tuesday to close at 22,525/mt, with open interest down 6,580 lots to 84,431 lots. The supply side may see a surplus in the short term after the 50,000 released national zinc reserves are received by downstream users, as the consumption are expected to stay average in the peak season. The October contract is likely to move between 22,200-22,700 yuan/mt today, and spot premiums for domestic Shuangyan will be seen at 170-190 yuan/mt against the SHFE 2110 zinc contract.

Tin: The most traded SHFE 2110 tin contract surged after opening last night, and then fluctuated mildly with little change in the funds. Upstream supply is still expected to be sufficient. Some downstream solder companies have reported that the consumption is likely to be flat in the traditional peak season in September and October. Therefore, whether the actual growth in demand can digest the ample supply is worth further attention. The price trend lack continuity. Funds are not willing to enter the market, which is hard to support wide fluctuations. SHFE tin is expected to trade between between 250,000-255,500 yuan/mt today.

Nickel: SHFE nickel opened at 147,130 yuan/mt on Tuesday night, and tested the 10-day moving average before falling back to stabilise around 20-day moving average. Then the price fluctuated around 146,000 yuan/mt until closing, register a decline for the third consecutive night.

Spot trade gradually picked up after prices fell, and longs left the market with profits. SMM will continue to monitor the support from the 20-day moving average and whether the price can stabilise around 145,000 yuan/mt.

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