SMM Morning Comments (Oct 14): Base Metals Basically Rose on Surging US CPI

SHANGHAI, Oct 14 (SMM) – Shanghai base metals were trending mixed on Thursday morning under the impact of the higher-than-expected US September CPI. Meanwhile, their counterparts on LME performed similarly.

LME metals mostly closed higher in the intraday or overnight trading on Wednesday. Copper rose 2.79%, lead advanced 1.78%, zinc gained 5.31%, and aluminium fell 0.36%.

SHEF metals performed similarly on Wednesday night. Copper won 1.9%, lead gained 0.7%, zinc rose 4.1%, and aluminium dropped 1.31%.

Copper: Three-month LME copper rose 2.79% last night to close at $9,718/mt after hitting the highest point at $9,770/mt, and is expected to trade between $9,660-9,760/mt today. The trading volume was 22,000 lots, and the open interest reached 262,000 lots.

The SHFE 2111 copper contract won 1.9% to settle at 71,480 yuan/mt last night after hitting the highest level at 71,710 yuan/mt, and is likely to trade between 71,000-71,600 yuan/mt today, with spot discounts between 200-50 yuan/mt.

The US September consumer price index announced overnight rose 0.4% month on month, exceeding expectations. It was 5.4% on the year, and registered the largest increase since 2008. The higher-than-expected US CPI highlighted the continued inflationary pressures in the economy. The US dollar index spiked briefly, but plunged due to the decline in the yield of longer-term public debt (yield rates). The copper futures rose significantly overnight. Both the domestic and overseas copper inventories dropped recently. According to the data released by China’s General Administration of Customs, China’s imports of unwrought copper and copper semis rebounded in September, and the demand improved, which supported the copper prices. In the spot market, sellers lowered the prices for transactions. If the Backwardation spread does not narrow, the discounts may continue to expand.

Aluminium: Three-month LME aluminium opened at $3,040/mt on Wednesday morning and ranged between $2,996-3,118.5/mt before closing at $3,055/mt, a drop of $11/mt or 0.36%.

Overnight, the most-traded SHFE 2111 aluminium contract opened at 23,785 yuan/mt, and rose to 23,880 yuan/mt before falling back to 23,220 yuan/mt. The contract closed at 23,400 yuan/mt, down 310 yuan/mt or 1.31%. 

The most-traded SHFE 2111 aluminium contract is expected to move between 23,200-23,800 yuan/mt today and LME aluminium between $3,020-3,100/mt.

Lead: Three-month LME lead advanced 1.78% to settle at $2,234/mt after hitting the highest point at $2,274/mt on Wednesday. The surging US CPI and falling US dollar index pushed up the LME metals. Today’ focus will be the support at the 5-day moving average and whether the prices will continue to fall.

The most-active SHFE 2111 lead contract gained 0.7% to close at 15,040 yuan/mt in the overnight trading yesterday, boosted by the LME lead.

Zinc: Three-month LME zinc gained 5.31% to settle at $3,421/mt last night, with open interest increasing 570 lots to 272,000 lots. Nyrstar announced that it will cut 50% of the zinc output at its three European smelters, which is expected to affect the output of about 70,000 mt in Q4, on the back of rising power costs. LME zinc prices began to trend higher. Zinc stocks across LME-listed warehouses dropped by 425 mt or 0.22% to 191,075 mt. LME zinc prices are expected to stand at $3,370-3,420/mt.

The most-traded SHFE 2111 zinc contract rose 975 yuan/mt or 4.1% to 24,775 yuan/mt, with open interest increasing 5,127 lots to 210,000 lots. Smelters in Guangxi are still subject to power rationing in October. The output at some smelters in Yunnan declined after entering the dry season. Therefore, domestic output is expected to decline 8,400 mt MoM. The demand is also suppressed by the power rationing in the downstream plants and rising zinc prices. The SHFE 2111 contract is expected to move between 24,300-24,800 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 50-70 yuan/mt against the November contract.

Nickel: The SHFE 2111 nickel contract closed opened at 144,600 yuan/mt and closed at 142,570 yuan/mt in the overnight trading, down 1870 yuan/mt or 1.29%. SHFE nickel has been fallen for three consecutive nights, but there are no important bullish or bearish news in the market. The price decline may be the consolidation.

Tin: Overnight, SHFE tin fell after opening higher, but then rebounded. Supply is expected to grow as production restrictions on domestic smelters have eased and imported tin is flowing into the domestic market. The power rationing has curbed downstream demand, but the actual demand is flexible.

The most-traded SHFE tin contract is expected to meet resistance at 277,000 yuan/mt and find support at 271,000 yuan/mt on Thursday amid growing wait-and-see sentiment.