SMM Evening Comments (Sep 23): Shanghai Nonferrous Metals Closed mostly in the Positive Territory after Fed Decision

SHANGHAI, Sep 23 (SMM) – Shanghai nonferrous metals closed mostly in the positive territory as the tapering in the US is expected to begin as early as November, but the interest rate will stay unchanged, according to Powell.

Shanghai copper was basically unchanged with slight gain of 0.04%, aluminium advanced 2.66%, lead rose 1.38%, zinc was flat, tin surged 3.37%, and nickel rose 1%.

Copper: The most-traded SHFE 2111 copper closed up 0.04% or 30 yuan/mt to 68500 yuan/mt, with open interest up 4136 lots to 98300 lots.

On the macro front, Fed Chair Powell said that the tapering could begin as early as November, and is expected to complete by mid-2022, which is in line with market expectation. While the Fed officers differ on whether to hike the interest rate next year, according to the dot plots. US Treasury Secretary Yellen called the Wall Street CEOs to help in her campaign to pressure Republicans to support raising or suspending the debt ceiling on the back of a possible government shutdown.

In China, uncertainties lingered over both the supply and demand side amid intensifying control on energy consumption, thus the copper is losing the uptrend momentum.

Tonight, the market shall watch US Markit manufacturing and services index for September, as well as the performance of SHFE copper around 68,500 yuan/mt.

Aluminium: The most-traded SHFE 2111 aluminium closed up 2.66% or 610 yuan/mt to 23500 yuan/mt, with open interest up 11000 lots to 307000 lots. The intensifying power rationing offered strong support to aluminium prices. And it remains as the market focus.

Lead: The most-traded SHFE 2110 lead closed up 1.38% or 195 yuan/mt to 14345 yuan/mt, with open interest down 9358 lots to 66495 lots.

For primary lead, smelters quoted with premiums at 80 – 110 yuan/mt for small orders, and mainstream quotes in the trading market in Jiangsu and Zhejiang were offered with discounts of 40 – 0 yuan/mt over SHFE 2110 contract. Smelters became more interested in making delivery as lead prices stopped falling and stayed above 14000 yuan/mt. And the downstream sector purchased on the dip as most traders offered with discounts.

For secondary lead, smelters continued to suffer losses, and were more willing to make deliveries as lead prices stopped falling. Mainstream quotes were offered with premiums of 0 – 100 yuan/mt, and the downstream sector was active in purchasing.

The power rationing has extended to more regions, including Anhui, Zhejiang and Hebei, with some smelters being required to reduce the production by 20 – 30%. Follow-up output is likely to drop. But the market will take time to digest the currently high inventory, thus the potential fall in output will have limited support to lead prices.

Zinc: The most-traded SHFE 2110 zinc closed flat at 22670 yuan/mt, with open interest down 13856 lots to 54602 lots.

Overnight US dollar index rallied on the news that tapering in the US is likely to start as early as November. Eurozone PMI for September fell short of expectations, but remained in the expansion territory.

In China, power rationing sustained, and many zinc smelters have received notices to reduce their power consumption by 20 – 50%, which is expected to last until the end of September. The output of zinc ingot affected by power rationing in Hunan is estimated at 350 – 400 mt/day based on rough calculation.

Tin: The most-traded SHFE 2110 tin closed up 3.37% at 277520 yuan/mt, with open interest down 6343 lots.

On the fundamentals, upstream smelters were less affected by power rationing. Still, they were not quite interested in lifting operating rates amid shrinking profits as the tin prices rose and the processing fees remained unchanged. Spot market supply was still tight. In the downstream industry, the solder sector performed positively due to the prosperity of the photovoltaic industry, but the electronics sector was comparatively sluggish.

In terms of the daily chart, short capitals largely exited the market. Considering that SHFE 2110 is approaching the end of trading period and market positions were at a high level, the exit of short capitals is unlikely to significantly pull back the tin prices.

Nickel: The most-traded SHFE 2110 nickel closed up 1% or 1440 yuan/mt to 145590 yuan/mt, with open interest down 7064 lots to 76039 lots. SHFE nickel rose in line with LME nickel and rising SS2110. The demand of nickel fell as the influence of production reduction of stainless steel began to materialise. Transactions of ferronickel and nickel ore were thin. But the inventory of pure nickel stood at a low level, support nickel prices amid falling LME warrants.