SMM Morning Comments (Oct 13): Base Metals Mostly Fell on Stronger Tapering Expectations

SHANGHAI, Oct 13 (SMM) – Shanghai base metals basically trended down amid the stronger expectations of Fed’s tapering the debt purchase. Meanwhile, their counterparts on LME mostly fell as well.

LME metals mostly closed lower on Tuesday. Copper fell 0.81%, lead dropped 0.95%, and aluminium rose 0.79%.

SHFE metals basically cruised down in the overnight trading. Copper dropped 0.7%, lead fell 1.2%, nickel lost 1.32%, and aluminium rose 0.96%.

Copper: Three-month LME copper fell 0.81% last night to close at $9,454/mt after hitting the highest and lowest points at $9,575/mt and $9,411/mt respectively, and is expected to trade between $9,380-9,480/mt today. The trading volume was 16,000 lots, and the open interest reached 263,000 lots.

The SHFE 2111 copper contract opened at 70,310 yuan/mt on Monday night, hitting the highest point at 70,740 yuan/mt before falling to the lowest point at 69,770 yuan/mt, and closed at 69,820 yuan/mt, down 0.7%. The trading volume was 63,000 lots, and the open interest reached 139,000 lots. SHFE copper is expected to trade between 69,500-70,100 yuan/mt today, with spot prices between a discount of 50 yuan/mt and a premium of 100 yuan/mt.

The Fed Vice Chairman Richard Clarida said that the conditions required for the reduction of debt purchase were basically met, which further consolidated the market expectations of the Fed’s purchase tapering in November. The US dollar index increased for the second consecutive day, weighing on the base metal prices. The import window of copper spot stayed open, and the inflow of copper is expected to increase. The power rationing extends across the country, and the operating rates in the downstream industries are expected to stand low. The spot premiums are hard to rise further after the contract delivery. As such, the holders are mostly selling the goods at higher prices this week. The Backwardation spread expanded to around 300 yuan/mt again. The quotations yesterday was nearly flat to the futures. If the prices fall into a discount range, the wide discounts may prompt the traders to restock.

Aluminium: Three-month LME aluminium rose 0.79% to end at $3,066/mt last night.

The most-active SHFE 2110 aluminium contract increased 0.96% to end at 23,750 yuan/mt last night. SHFE aluminium prices are expected to move between 23,700-24,200/mt today, and LME aluminium will trade between $3,020-3,100/mt.

Lead: Three-month LME lead opened at $2,217.5/mt yesterday, hitting the highest and lowest levels at $2,247/mt and $2,192.5/mt respectively, and closed 0.95% lower at $2,195/mt. The US dollar index hit a new high within the year, and the market expects the FED to taper the debt purchase in November. The soaring new energy also triggered the market concerns about Fed’s early action. Today’s focus will be the support at the 5-day moving average and whether the bearish sentiment expands.

The most-active SHFE 2111 lead contract opened at 14,970 yuan/mt last night, hitting the lowest point at 14765 yuan/mt, and closed at 14,790 yuan/mt, down 1.2%. Shorts increased positions amid the plummeting LME lead. The easing power rationing and tighter supply weighed on the SHFE lead to fall from 15,000 yuan/mt. Today’s focus will be whether SHFE lead can stabilise around 14,750 yuan/mt.

Nickel: The SHFE 2111 nickel contract closed opened at 145,700 yuan/mt and closed at 143,330 yuan/mt in the overnight trading, down 1,920 yuan/mt or 1.32%.

On the macro front, the IMF lowered its global and US economic growth expectations, and warned that once inflation overheats, the Fed and other central banks should tighten monetary policy.

In the short term, the recovering nickel demand amid the easing power rationing is bullish to the nickel prices. However, in the mid-to-long term, the overseas nickel supply such as the hydrometallurgy intermediate products and NPI is unaffected by the power rationing. The demand can hardly fully recover under the power rationing. Hence the fundamental market is bearish to the nickel prices.

Tin: SHFE tin contract declined after rising yesterday, with little change in capital flows. The output at mainstream smelters is expected to increase MoM in October. There are rumours that nearly 80% of employees at MSC has returned to business. The overnight prices fell below 276,000 yuan/mt. The supply is expected to increase. The market needs to pay special attention to whether the rising coal prices and winter heating in north China will again aggravate electricity shortages. SHFE tin is expected to meet resistance at 276,000 yuan/mt and find support at 270,000 yuan/mt today.