SMM Morning Comments (Oct 18): Base Metals Rose across the Board amid Global Energy Crisis

SHANGHAI, Oct 18 (SMM) – Shanghai base metals all trended higher on Monday morning amid the intensifying global energy crisis. Meanwhile, their counter parts on LME trended mixed.

LME metals all cruised higher in the trading last Friday. Copper rose 2.15%, aluminium increased 1.15%, lead went up 1.33%, and zinc surged 8.23%.

SHFE metals basically closed higher in the overnight trading last Friday. Copper increased 2.06%, aluminium inched up 0.29%, zinc gained 7.21%, nickel rose 3.02%, and lead fell 0.74%.

Copper: Three-month LME copper opened at $10,182/mt last Friday night, hitting the highest and lowest points at $10,328.5/mt and $10,160/mt, and closed at 10,215/mt, up 2.15%. The trading volume was 29,000 lots, and the open interest reached 275,000 lots. LME copper is expected to trade between $10,320-10,400 yuan/mt today.

The SHFE 2111 copper contract opened at 75,010 yuan/mt on in the overnight trading of last Friday, hitting the highest point at 75,990 yuan/mt before falling to the lowest point at 74,480 yuan/mt, and closed at 75,130 yuan/mt, up 2.06%. The trading volume was 108,000 lots, and the open interest reached 160,000 lots. SHFE copper is expected to trade between 75,200-75,800 yuan/mt today, with spot prices between a discount of 50 yuan/mt and a premium of 120 yuan/mt.

On the macro front, US retail sales unexpectedly increased in September, while the consumer confidence index fell to the second lowest level in a decade, and the inflation concerns continued to rise. The copper prices strengthened amid the intensifying global energy crisis. The proportion of the overseas cancelled warrants rose sharply to 92.2%. The short squeeze extended amid the low inventory across the LME-listed warehouses. The domestic social inventory also stood low, supporting the copper prices. The transaction was sluggish amid the soaring prices, and the downstream users were wait and see. The domestic copper inventory will continue to fall as the import window has closed amid the lower SHFE/LME price ratio. The Backwardation structure may expand after the contract delivery. The spot premiums are expected to rise.

Aluminium: Three-month LME aluminium opened at $3,127/mt last Friday and closed at $3,175/mt, up 1.15%.

The most-traded SHFE 2111 aluminium contract opened at 24,540 yuan/mt during last Friday’s night session and hit a high of 24,700 yuan/mt before closing at 24,425 yuan/mt, up 70 yuan/mt, or 0.29%.

The operating aluminium capacity may continue to decline as the impact of power rationing and production restrictions in north China will expand with the approaching heating season. On the demand side, the impact of power rationing in some areas has eased recently. Considering that aluminium smelting is less flexible in the face of power rationing and production restrictions and aluminium smelters are concentrated in north China, SMM believes that the power rationing will have a greater impact on aluminium supply than on demand. In addition, the energy shortages overseas have also put overseas smelters under the risks of reducing production. As such, SHFE aluminium is expected to extend its upward momentum in the short term.

Lead: Three-month LME lead opened at $2,286/mt last Friday, and won $30.5/mt or 1.33% to end at $2,330/mt, after hitting the highest and lowest points at $2,368/mt and $2,281.5/mt. Whether LME lead can stabilise at the 5-day moving average is worth attention today.

The most-liquid SHFE 2111 lead contract fell 0.74% to end at 15,475 yuan/mt in the overnight trading last Friday, after briefly hitting the lowest point at 15,405 yuan/mt. Today’s focus will be whether the prices can stabilise at the high of Bollinger Band.

Zinc: Three-month LME zinc gained 8.23% to settle at $3,820/mt last night, with open interest decreasing 1,434 lots to 273,000 lots. Zinc stocks across LME-listed warehouses dropped by 950 mt or 0.5% to 188,650 mt. LME zinc prices are expected to stand at $3,720-3,820/mt.

The most-traded SHFE 2111 zinc contract rose 1,850 yuan/mt or 7.21% to 27,520 yuan/mt, with open interest increasing 5,964 lots to 203,000 lots. Glencore announced that it would conduct staggered production at smelters in Germany, Spain, and Italy, boosting market sentiment. The domestic and overseas prices hit a record high since 2008. 

Smelters in Guangxi continued to resume production. The output at some smelters in Yunnan declined in the dry season. Therefore, domestic output is expected to decline 8,400 mt or even more MoM in October. The purchase by end-users fell sharply as zinc prices rose over 5,000 yuan/mt and some plants cut their output.  The SHFE 2111 contract is expected to move between 27,000-27,700 yuan/mt today and spot discounts for domestic #0 Shuangyan will be seen at 30-50 yuan/mt against the November contract.

Nickel: SHFE nickel opened at 149,000 yuan/mt last Friday night, and closed at 149,880 yuan/mt after hitting 15,000 yuan/mt, up 4,400 yuan/mt or 3.02%.

The higher costs amid the rising energy transaction prices boosted the non-ferrous metals in the overnight trading last Friday. The nickel raw materials are mostly produced in the Southeast Asian countries, where the energy supply is current sufficient. SHFE nickel is expected to move between 143,000-152,000 yuan/mt this week, and LME nickel prices between $19,000-20,000/mt.

Tin: SHFE tin moved up during last Friday’s night session and closed at around 284,000 yuan/mt, with little change in open interest. The spot supply is tight and the market inventory is at a low level, but supply is likely to grow and demand is affected by power rationing. Tight supply has kept prices at highs, but the technical resistance is growing as prices approach the high levels. The most-traded SHFE tin contract is expected to challenge resistance at 289,300 yuan/mt and find support at 281,000 yuan/mt on Monday.