SMM Morning Comments (Oct 8): Base Metals Mostly Bottomed out during Holiday

SHANGHAI, Oct 8 (SMM) – Shanghai base metals rose across the board on the morning of the first trading day after the National Day long holiday. Meanwhile, their counterparts on LME all went up as well.

SHFE market was closed from October 1 to October 7 and reopened today.

LME non-ferrous metals basically bottomed out during the holiday and closed mixed yesterday. Copper fell 2.32%, and aluminium rose 1.55%, and lead increased 2.1%.

Copper: Three-month LME copper opened at $9,038/mt in the intraday trading yesterday and fell to $8,878/mt before rebounding to close at $8,948/mt, a decrease of 2.32%. The trading volume was 18,000 lots, and the open interest reached 259,000 lots. LME copper is expected to trade between $9,250-9,340/mt today.

The US weekly initial unemployment claims increased for three consecutive weeks to 362,000 people as of September 25. The recovery of the US job market was uneven, and the US dollar index fell. However, the market is increasingly concerned about the slowing economic growth, high inflation, supply chain bottlenecks, and tight global energy supply. The market still had concerns about the Fed's reduction of monetary stimulus measures. US stocks plummeted last night, and LME copper fell. SHFE copper is expected to move between 68,700-69,300 yuan/mt today, with spot premiums between 180-320 yuan/mt.

Aluminium: Three-month LME aluminium opened at $2,900/mt yesterday and closed at $2,942/mt, up $45/mt or 1.55%.

On the supply side, Qinghai plans to reduce the aluminium capacity currently in operation by 30% after the National Day holiday, while one aluminium plant in Ningxia plans to reduce its capacity by about 80,000 mt/year. The aluminium capacity that was closed due to power shortage and energy consumption control previously did not resume. On the demand side, the average operating rate of large aluminium processing enterprises dropped by 3.1 percentage points to 60.8% in the week before the holiday. This was mainly due to the impact of power rationing on aluminium foil production in Jiangsu and Zhejiang. The recovery of aluminium supply will be slow, while aluminium consumption is more resilient. As such, SHFE aluminium will remain firm in the short term.

Lead: LME lead opened at $2147.5/mt last night. The trading was light at first, and the prices moved around the intraday moving average. Then the shorts entered the market in large scales as the US debt purchase was ceiling, forcing down LME lead to $2,131/mt. However, the US initial unemployment claims number was lower than expected, and US government confirmed to raise the ceil of the debt purchase, which boosted LME lead to hit the highest level at $2,185/mt. LME lead closed at $2,184.5/mt, up 2.1%.

Zinc: LME zinc bottomed out during China’s National Day holiday. The prices fell for the fifth consecutive trading day to drop to $2,974.5/mt at first, and then rebounded to around $3,050/mt. LME zinc fell again on Wednesday under the pressure of the 10/20-day moving average and gave up the gains from the previous two trading days. The US dollar index trended in a V shape. The market expects that the Fed will begin to reduce the scale of bond issuance in November, and a stronger US dollar will also weigh on the zinc prices. Zinc stocks across LME-listed warehouses dropped by 10,325 mt to 198,550 mt during the holiday. The support at the $3,000/mt is worth attention. On the macro level, the market will focus on the US non-farm payrolls in September after seasonal adjustment as well as the US September unemployment rate. LME zinc is expected to fluctuate between $3,000-3,050/mt today.

The most-traded SHFE 2111 zinc contract fell 325 yuan/mt or 1.43% to 22,370 yuan/mt on September 30, with open interest down 14,428 lots to 143,700 lots. SHFE zinc fell below the 60-day moving average. Before the National Day holiday, the zinc smelters in Yunnan, Hunan, and Guangxi further reduced production due to the power rationing, and some smelters were shut down. If the power rationing continues, it will affect the supply of zinc ingots in south and east China. On the consumer side, the impact of power rationing varied. Jiangsu, Guangdong, Tianjin, and Hebei were most affected. It is difficult to quantify the affected consumption due to the varied feedback of the companies. SMM will analyse the impact on the supply and demand based on the changes in the inventories during the two weeks after the holiday. The SHFE 2111 contract is expected to move between 22,200-22,700 yuan/mt today, and the spot premiums for domestic #0 Shuangyan will be seen at 50~80 yuan/mt against the October contract.

Tin: The fluctuation of the three-month LME tin narrowed last night at the end of China’s National Day holiday, and the prices returned to the level before the holiday. According to SMM preliminary survey before the holiday, the major smelters maintained the normal production during the holiday. The impact of the power rationing on the downstream consumption is uncertain. The funds are unlikely to enter the market in large scales today, as the SHFE tin is less affective on the LME prices. The SHFE tin contract is expected to challenge the resistance at 275,000 yuan/mt and find support at 267,500 yuan/mt today.

Nickel: Three-month LME nickel basically stood stable at around $18,000/mt. The prices rose 0.17% this week with the support at 40-day moving average. The SHFE nickel prices will guide the LME nickel after the market opens today. SMM will monitor the power rationing of the nickel sulphate and stainless steel companies.