SMM Morning Comments (Oct 15): Base Metals Basically Rose on Higher Power Costs

SHANGHAI, Oct 15 (SMM) – Shanghai base metals were mixed on Friday morning amid tight global energy supply. Meanwhile, their counterparts on LME performed similarly.

LME metals mostly closed higher in the intraday or overnight trading on Thursday. Copper rose 2.9%, lead advanced 2.93%, zinc gained 3.17%, and aluminium increased 2.75%.

SHEF metals performed similarly on Thursday night. Copper won 2.6%, lead fell 0.36%, zinc rose 2.93%, and aluminium increased 0.9%.

Copper: Three-month LME copper rose 2.9% to end at $10,000/mt last night, after hitting a record high of $10,024/mt. The most-traded SHFE 2111 copper contract increased 2.6% to end at 73,680 yuan/mt in overnight trading. The increase in CPI in the United States in September exceeded expectations, resuming the previous upward trend and highlighting the continued high inflation. The commodity prices increased amid the intensifying global energy crisis. Domestic social inventories have always been at a low level. The proportion of overseas cancelled warrants rose to 74.95% yesterday, with strong bullish sentiment. The trades thinned yesterday due to the Backwardation, SHFE copper prices are expected to move between 73,200-73,800 yuan/mt today, and LME copper will trade between $9,920-10,010/mt.

Aluminium: Overnight, the most-traded SHFE 2111 aluminium contract opened at 23,880 yuan/mt, with the highest and lowest prices at 24,000 yuan/mt and 23,535 yuan/mt before closing at 23,670 yuan/mt, up 210 yuan/mt or 0.9%.

Three-month LME aluminium opened at $3,055/mt on Thursday morning and ranged between $3,028-3,174/mt before closing at $3,139/mt, up $84/mt or 2.75%.

The global energy supply is tight, and overseas power costs are high, keeping LME aluminium at a high level. The domestic downstream consumption weakened and inventories continued to accumulate, causing SHFE aluminium to underperform LME aluminium. It is expected that the SHFE 2111 aluminium contract will move between 23,400-23,800 yuan/mt today, and LME aluminium between $3,100-3,500/mt.

Lead: Three-month LME lead rose 2.93% to end at $2,299.5/mt in the overnight trading. The most-traded SHFE 2111 lead contract fell 0.36% to end at 15,340 yuan/mt in overnight trading.

Social inventory is likely to increase slightly this week, but the increment will be limited amid the maintenance of delivery brands and power rationing. The support of 15,250 yuan/mt on the lower side remains as the market focus.

Zinc: Three-month LME zinc gained 3.17% to settle at $3,529.5/mt last night, with open interest increasing 2014 lots to 274,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,475 mt or 0.77% to 189,600 mt. LME zinc prices are expected to move between $3,470-3,520/mt.

The most-traded SHFE 2111 zinc contract rose 730 yuan/mt or 2.93% to 256,35 yuan/mt, with open interest increasing 7,634 lots to 213,000 lots. The global energy crisis continues to ferment, and the cost of overseas electricity has risen sharply, putting tremendous cost pressure on energy-consuming smelters. On the supply side, domestic and overseas smelters have reduced production due to power problems, triggering market concerns that more smelters will be affected in the future. In terms of demand, zinc prices rose 3,000 yuan/mt after the holiday. Rising zinc prices suppressed the downstream procurement. The SHFE 2111 contract is expected to move between 25,300-25,800 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 40-50 yuan/mt against the November contract.

Nickel: Nickel prices rose from low levels yesterday. The transactions were active on the morning market, but weakened as the prices rebounded. The premiums of Russian nickel stood at 900-1,100 yuan/mt over the November contract, and the spot premiums of Jinchuan nickel fluctuated at 1,500-1,700 yuan/mt. Premiums of mainstream nickel briquette stood at 400-600 yuan/mt over the November contract, and continued to trend lower. The most-traded SHFE 2111 nickel contract gained 1.36% to close at 145,610 yuan/mt. The output at Nyrstar's zinc smelters has been reduced intraday, driving market sentiment to be bullish on zinc prices. SHFE zinc saw limit up. The non-ferrous metals followed the suit, especially nickel. Nickel sulphate prices fell to the breakeven point at some plants. There is new production line commissioning and its demand for nickel has been rising in the recent two months. Stainless steel’s demand for nickel fell slightly amid the power rationing. The two downstream sectors of nickel--stainless steel and new energy got rid of divergence, which is likely to push nickel prices to fluctuate strongly.

Tin: SHFE tin rose before falling overnight and hovered around 280,000 yuan/mt. The spot market is tight, but there are expectations that supply will grow. There is uncertainty over the impact of power rationing on downstream demand. The recent high prices are supported by tight spot supply.  The most-traded SHFE tin contract is expected to meet resistance at 284,000 yuan/mt and find support at 276,000 yuan/mt on Friday amid wait-and-see sentiment among longs and shorts.