SMM Morning Comments (Sep 24): Base Metals Mostly Went Up on Slumping US Dollar

SHANGHAI, Sep 24 (SMM) – Shanghai base metals mostly trended higher on Friday morning amid slumping US dollar and eased market concerns about the default of Evergrande. Meanwhile, their counterparts on LME performed similarly.

LME metals basically rose in the overnight trading on Thursday. Copper fell 0.19%, aluminium rose 0.65%, lead increased 0.92%, and zinc went up 2.08%.

SHFE metals mostly closed higher last night. Copper gained 0.32%, aluminium rose 0.24%, zinc increased 1.37%, nickel went uo 1.85%, and lead fell 0.38%.

Copper: Three-month LME copper dropped 0.19% to end at $9,279/mt on Thursday night, and is expected to trade between $9,240-9,340 yuan/mt today. The open interest reached 259,000 lots.

The SHFE 2110 copper contract gained 0.32% last night to close at 69,040 yuan/mt, with the highest and lowest prices at 69,320 yuan/mt and to 68,540 yuan/mt, and is expected to trade between 68,600-69,200 yuan/mt today, with spot premiums between 240-400 yuan/mt.

The news that the Fed will start to tighten liquidity in November has been digested by the market. The US dollar index fell sharply, and concerns about the possible default of Chinese real estate developer Evergrande further eased, driving copper prices to rebound. The power rationing was implemented in many regions in China, and the market worried that it may weigh on the copper consumption, which suppressed copper prices. There is only one trading day left for long-term order delivery in September, and social inventories continued to fall amid tight supply, which gave confidence to holders to raise prices. Downstream users also made purchase after the prices stabilised, and the market transaction picked up. The spot premiums are expected to stand firm.

Aluminium: Three-month LME aluminium opened at $2,932.5/mt yesterday and rose to $2,977.5/mt before closing at $2,956/mt, an increase of $19/mt or 0.65%.

Overnight, the most-traded SHFE 2111 aluminium contract opened at 23,565 yuan/mt, with the highest and lowest prices at 23,635 yuan/mt and 23,265 yuan/mt before closing at 23,425 yuan/mt, up 55 yuan/mt or 0.24%. Open interest rose 1,590 lots to 308,000 lots, and trading volume was 161,000 lots. SHFE aluminium will challenge resistance at 23,500 yuan/mt today, and the market will continue to pay attention to the implementation of power rationing policies in different regions.

Lead: Three-month LME lead ended 0.92% higher at $2,141/mt on Wednesday, after hitting the highest price at $2,142/mt and the lowest price at $2,115/mt. Lead stocks across LME-listed warehouses kept falling. Today’s focus will be the pressure at the high of Bollinger Band.

The SHFE lead contract dropped 0.38% to end at 14,290 yuan/mt last night, after hitting the lowest level at 14,240 yuan/mt. SHFE lead broke through the low of the Bollinger Band and saw pressure from the 5-day moving average.

Zinc: LME zinc rose 2.08% to $3,090.5/mt, with open interest increasing 282 lots to 261,000 lots. The US dollar recorded its biggest decline in nearly a month overnight while nonferrous metals prices all increased. The Fed stated yesterday that it would not immediately withdraw its stimulus measures, which supported the market. LME zinc is expected to fluctuate between $3,050-3,100/mt today.

The most-traded SHFE 2111 zinc contract rose 1.37% or 310 yuan/mt to 22,940 yuan/mt, with open interest increasing 10,716 lots to 77,446 lots. Multiple provinces saw a new round of power rationing. Zinc ingot output in Yunnan is likely to reduce 200-250 mt/day and 350-400 mt/day in Hunan. The most-traded SHFE 2111 zinc contract is expected to move between 22,500-23,000 yuan/mt and spot premiums for domestic #0 Shuangyan will be seen at 160-180 yuan/mt over the October contract.

Nickel: The SHFE 2110 nickel contract closed at 147,320 yuan/mt, an increase of 2,680 yuan/mt, or 1.85%, from the settlement price of the previous trading day. The fundamental logic of the nickel market remains. The expected output cuts in Fujian landed yesterday, and the negative factors from the stainless steel industry for nickel have basically been played out. The current nickel inventory is still low, and the price spread between the SHFE front-month and next-month contract is large, which will shore up nickel prices. Nickel prices are expected to maintain a strong trend today, and are likely to meet resistance from 150,000 yuan/mt.

Tin: Overnight, SHFE tin hit a new high. Despite limited impact of power rationing, tin smelters were not passionate about production, leaving inventory low and the spot market tight. Increased output of downstream companies and expectations of MoM growth of downstream production drove up tin prices. With delivery of the 2110 contract approaching, longs may take profits at highs.  The most-traded SHFE tin contract is expected to meet resistance at 285,500 yuan/mt and find support at 275,000 yuan/mt today.