SMM Morning Comments (Sep 30): Base Metals Fell across the Board amid Thin Trade

SHANGHAI, Sep 30 (SMM) – Shanghai base metal fell across the board on Thursday morning amid the sluggish transaction on the last trading day before the National Day long holiday. Meanwhile, their counterparts on LME trended mixed.

LME metals all closed lower in the trading on Wednesday. Copper dropped 1.03%, aluminium fell 0.65%, lead shed 1.13%, and zinc decreased 0.82%.

SHFE metals performed similarly in the overnight trading. Copper shed 0.7%, aluminium dropped 0.7%, lead fell 0.76%, and zinc lost 0.24%.

Copper: Three-month LME copper dropped 1.03% on Wednesday night to close at $9,160.5/mt, and is expected to trade between $9,100-9,200/mt today. The trading volume was 13,000 lots, and the open interest reached 260,000 lots.

The SHFE 2111 copper contract shed 0.7% to end at 68,160 yuan/mt in the overnight overnight trading, and is expected to trade between 67,900-68,500 yuan/mt today, with spot premiums between 100-230 yuan/mt.

On the macro level, although the US government is at a deadlock on the debt ceiling issue, the US dollar has not been affected. On the contrary, due to the sharp rise in US bond yields and the stronger market expectation of Fed’s reduction of asset purchases from November and the interest hike in end-2022, the US dollar index performed strongly, hitting a one-year high again last night. Copper futures fell back. In the spot market, most of the market transactions will come to an end today. The market participants will be wait-and-see with the risk aversion sentiment. Some traders may make a few transactions on the last trading day. The market is expected to be quiet today.

Aluminium: Three-month LME aluminium opened at $2,937/mt yesterday and closed at $2,913/mt, down $19/mt or 0.65%.

Overnight, the most-traded SHFE aluminium contract fell to 22,705 yuan/mt after opening at 22,970 yuan/mt, and closed at 22,730 yuan/mt, down 170 yuan/mt or 0.7%.

The impact of power rationing has deepened in Jiangsu, Guangdong, and Shandong, where aluminium processing companies are concentrated, hurting aluminium consumption and resulting in an increase in aluminium inventory. However, the power rationing has bigger impact on aluminium smelters than on aluminium processing companies as aluminium smelting is less flexible and the capacity restarts are more difficult, which may underpin aluminium prices. SHFE aluminium will remain at highs in the short term.

Lead: Three-month LME lead opened at $2,169/mt last night and moved around the intraday average, before being dragged down to $2,155-2,170/mt. Later LME lead further fell under higher US dollar to close at $2,134.5/mt, down 1.13%.

The most traded SHFE 2111 lead contract closed at 14,305 yuan/mt in the overnight trading after hitting the lowest level at 14,260 yuan/mt, down 0.76%. The open interest decreased by 121 lots from the previous day to 74,993 lots.

Zinc: Three-month LME zinc fell 0.81% to end at $3,046/mt overnight, with open interest up 1,213 lots to 265,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,750 mt or 0.82% to 212,575 mt. The inflation is likely to increase until next year. Supply disruptions, labour shortages and the resurgence of the pandemic are casting a shadow over the prospects of major economies. LME zinc prices are expected to move between $3,040-3,090/mt today. 

The most-liquid SHFE 2111 zinc contract lost 0.24% to settle at 22,635 yuan/mt in overnight trading, with open interest decreasing 1,471 lots to 93,651 lots. Total zinc inventories across seven Chinese markets stood at 131,300 mt as of September 27, up 2,100 mt from September 24. However, due to the frequent changes of dual control and power rationing policies, coupled with government stockpiles, bringing fluctuations of supply and demand. However, low levels of zinc stocks will support zinc prices. The most-traded SHFE 2111 zinc contract is expected to move between 22400-22900 yuan/mt and domestic #0 Shuangyan will be seen at flat against the November contract.

Tin: Overnight, SHFE tin fell slightly and mostly moved around 270,000 yuan/mt. The downstream producers are still affected by power rationing. The most-traded SHFE tin contract is expected to meet resistance at 275,000 yuan/mt and find support at 267,500 yuan/mt today.

Nickel: SHFE nickel prices closed at 137,140 yuan/mt on Wednesday evening. The stainless steel and new energy industries have been affected by power rationing and production restrictions, weakening demand for nickel. There is only daytime trading and no night trading today due to the National Day holiday. It is expected that nickel prices will remain weak and move rangebound.