SMM Morning Comments (Oct 11): Base Metals Rose across the Board on Low Employment Data

SHANGHAI, Oct 11 (SMM) – Shanghai base metals all trended higher on Monday morning boosted by the unexpectedly low US employment data. Meanwhile, their counterparts on LME trended mixed.

LME metals all rose in the intraday trading last Friday. Copper rose 0.47%, aluminium increased 0.69%, lead gained 1.85%, and zinc won 3.55%.

SHFE metals also rose across the board last Friday night. Copper edged up 0.10%, aluminium gained 1.43%, lead settled 0.1% higher, zinc rose 2.03%, and nickel won 1.74%.

Copper: Three-month LME copper opened at $9,282/mt last Friday, hitting the lowest and highest levels at $9,232.5/mt and $9,380/mt. LME copper closed at $9,350/mt, up 0.47%. The trading volume was 16,000 lots, and the open interest reached 257,000 lots. The price is expected to move between $9,310-9,400/mt today.

The SHFE 2111 copper contract edged up 0.10% to settle at 69,340 yuan/mt last Friday night, and is expected to trade between 69,000-69,600 yuan/mt today, with the spot premiums between 260-340 yuan/mt. The open interest reached 124,000 lots.

On the macro front, the employment report released by the US Department of Labour last Friday showed that the non-farm payrolls in September were far below the market expectation of 500,000, and only 194,000 jobs were added, the smallest increase in nine months. It dragged down the US dollar index and boosted the copper futures. The trading in the spot market was average. The rising prices after the National Day holiday curbed the downstream purchase, and the market participants were mostly wait-and-see. The overall domestic inventory remained low despite the slight increase, and the price spread remained in a large backwardation structure. The spot premiums are expected to fall back from the high levels before the delivery. 

Aluminium: Three-month LME aluminium opened at $2,943/mt last Friday and closed at $2,959/mt, up 0.59%.

The most-traded SHFE 2111 aluminium contract opened at 22,800 yuan/mt during last Friday’s night session and moved between 22,750-23,220 yuan/mt before closing at 23,080 yuan/mt, up 325 yuan/mt, or 1.43%.

The social inventory of aluminium ingot in China has been growing for five consecutive weeks since late September. The volatility of aluminium prices increased as current high prices have turned longs more cautious. The National Food and Strategic Reserves Administration (NFSRA) began its fourth round of aluminium ingot auction, and the price difference between the auction price and the spot price narrowed. It is expected that the most-traded SHFE aluminium contract will range 22,800-23,500 yuan/mt today. Overseas aluminium smelters are also facing high electricity and energy prices, and some have cut production. It is expected that LME aluminium will move at $2,900-3,000/mt today.

Lead: Three-month LME lead advanced 1.85% to settle at $2,225/mt after hitting the highest point at $2,230/mt last Friday.

The most-liquid SHFE 2111 lead contract settled 0.1% higher at 14,690 yuan/mt last Friday night.

SHFE base metals all rose boosted by the LME market. The lead stocks across the LME-listed warehouses fell slightly to below 50,000 mt. Domestic lead inventory also dropped slightly due to the power rationing and tighter supply.

Zinc: Three month LME zinc rose 3.55% to $3,168.5/mt last Friday, with open interest decreased by 891 lots to 265,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,200 mt or 0.6% to 197,350 mt. The nonfarm payrolls in America increased by 194,000 in September, which is far less than expected. The market believes that the Fed’s Taper may be postponed, the US dollar fell and the market sentiment became bullish. LME zinc prices are expected to stand at $3,130-3,180/mt.

The most-traded SHFE 2111 zinc contract rose 465 yuan/mt or 2.03% to 23,325 yuan/mt, with open interest increased by 22,597 lots to 175,000 lots. The inventory increased 14,000 mt during the National Day holiday. The arrivals of goods on the market declined amid the power rationing at smelters, which is likely to further affect the operations at smelters. Under the backdrop of rising electricity costs in the overseas markets, disturbances on the supply side are more likely to inspire enthusiasm for capital transactions, but we still need to be cautious about the decline in demand caused by falling consumption, and the degree of accumulation of market inventory due to the arrivals of the government stockpiles. The SHFE 2111 contract is expected to move between 23,000-23,500 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 50-70 yuan/mt against the November contract.

Nickel: The most traded SHFE 2111 nickel contract opened at 142,860 yuan/mt last Friday night and fluctuated to the highest point at 145,300 yuan/mt. The contract closed at 144,780 yuan/mt, up 2,480 yuan/mt or 1.74%.

The power rationing in the new energy sector eased after the holiday, and the power rationing in Hunan was basically lifted. The stainless steel production in Jiangsu was gradually recovered. The supply stood stable, and the improving downstream consumption supported the nickel prices to rebound. The nickel prices are expected to stay volatile at the current levels.

Tin: SHFE tin hit a new high during last Friday’s night session, and closed at 284,000 yuan/mt. Supply in the spot market was tight. Inventories in major areas increased, but remained at a low level when compared with the previous years. Longs continued to enter the market. The market needs to be alert to the impact of power rationing on the overall downstream demand. Tin futures prices will probably rise further with the entry of bulls. The most-traded SHFE tin contract is expected to challenge resistance at 290,000 yuan/mt and find support at 279,000 yuan/mt today.