SMM Morning Comments (Oct 21): Base Metals Basically Closed with Gains amid Global Energy Shortage

SHANGHAI, Oct 21 (SMM) – Shanghai base metals mostly trended higher on Thursday morning amid the intensifying market concerns of the global energy shortage. Meanwhile, their counterparts on LME basically fell.

LME metals closed mixed on Wednesday. Copper lost 0.9%, aluminium fell 0.19%, lead rose 2.94%, and zinc won 1.22%.

SHFE metals rose across the board on Wednesday night. Copper won 1.87%, aluminium gained 2.36%, lead increased 3.45%, zinc added 1.22%, and nickel surged 6.87%.

Copper: Three-month LME copper opened at $10,001/mt last night, and fluctuated down to the lowest level at $9,966.5/mt before closing at $10,210/mt, down 0.9%. The trading volume reached 14,000 lots, and the open interest was 270,000 lots. LME copper is expected to trade between $10,160-10,250/mt today.

SHFE copper opened at 73,410 yuan/mt in the overnight trading yesterday and gained 1.87% to end at 74,750 yuan/mt after hitting the highest price at 74,900 yuan/mt. The trading volume was 60,000 yuan/mt, and the open interest was 128,000 mt. SHFE copper is expected to trade between 74,500-75,100 yuan/mt today, with spot premiums at 280-410 yuan/mt.

The Fed’s Beige Book showed that the prospects for recent economic activities are still optimistic, but uncertainties in some regions have increased. The optimism is more cautious than in previous months. The US dollar index recorded a decline for the second day in a row yesterday, giving certain support to the metal market. In terms of fundamentals, although the LME has introduced relevant delivery regulations to alleviate the current short squeeze, the proportion of overseas cancelled warrants is still at a high level, and the energy crisis still exists in Europe, which may continue to affect the copper smelting. The global energy shortage have triggered the concerns about supply shortages. In the context of low domestic and overseas inventories, copper prices have risen strongly. The holders and traders are more confident in raising the premiums in the spot market. The market transaction was more active yesterday as the traders and downstream users entered the market after the prices pulled back. The spot premiums are expected to stand firm amid the tight supply.

Aluminium: Three-month LME aluminium closed at $3,097/mt, down 0.19% or $6/mt.

The most-traded SHFE 2111 aluminium contract closed at 23,395 yuan/mt, up 540 yuan/mt, or 2.36%.

The aluminium prices was close to its limit down yesterday as the coal prices plummeted, but the overnight trading recovered some of the losses. On the supply side, places like Xinjiang may experience a new wave of production reduction, leading to a decrease in the aluminium operating capacity. And the global energy crisis has also arouse the market concerns over worldwide short supply. On the demand side, the power rationing has restrained the downstream demand, so the aluminium ingot social inventory has been falling for six weeks in a row. The market shall watch if the sluggish demand will suppress the prices. Generally speaking, the aluminium supply is highly likely to shrink in the near future, while the bearish sentiment could hardly find a place in the fundamentals. 

Lead: Three-month LME lead opened at $2,360/mt last night, and then fluctuated lower to $2,340/mt before rebounding to a new high since June 2018 at $2,447/mt. LME lead closed at $2,433.5/mt, up $69.5/mt or 2.94%.

The most-liquid SHFE 2111 lead contract opened at 15,805 yuan/mt and won 545 yuan/mt or 3.45% to end at 16,265 yuan/mt in the overnight trading yesterday, after hitting a nearly 8-month high at 16,335 yuan/mt.

Zinc: Three-month LME zinc gained 2.96% or $105/mt to settle at $3550.5/mt last night, with open interest down 12,000 lots to 257,000 lots. LME zinc prices are expected to stand at $3580-3630/mt today. The overnight LME inventory shrank 750 mt to 201700 mt, down 0.37% from the last trading day. The overnight US dollar index dropped, and the market was concerned about the possible short supply amid power rationing in China and rising electricity prices in the Europe, thus underpin the LME zinc prices.

The most-traded SHFE 2111 zinc contract added 315 yuan/mt or 1.22% to 26075 yuan/mt, with open interest up 195 lots to 60914 lots. The contract is likely to trade between 25700-26200 yuan/mt today. On the supply side, the smelter YP in Korea will be closed for 10 days from Nov. 8 to Nov. 17as it has violated the water environment protection regulation, which will affect the output of around 10,000 mt. In the spot market, the downstream sector was active in taking in goods after the zinc prices plummeted yesterday for fear that the prices may rise again in the short term. And the prices are unlikely to fall significantly in light of the smelting costs.

Nickel: The SHFE 2111 nickel contract closed at 159,850 yuan/mt on Wednesday evening, an increase of 10,270 yuan/mt or a gain of 6.87%. Open interest increased by 13,722 lots to 96,665 lots, and trading volume stood at 553,000 lots. 

From a fundamental point of view, the impact of production restrictions has little impact on pure nickel smelting, but the production of high-grade NPI has been severely reduced, resulting in the current tight supply of NPI and higher prices. On the demand side, the output of nickel sulphate is high, which has a negative impact on pure nickel. The demand remains unchanged. Although the output of stainless steel has decreased, the current output level is still above the average level. On the whole, there is still demand for nickel, and the high-grade NPI and stainless steel industry chain form a strong support for nickel prices.

Tin: The overnight SHFE tin closed to above 290000 yuan/mt, and is expected to meet resistance and support at 296000 yuan/mt and 289000 yuan/mt, respectively.

On the fundamentals, the spot short supply eased to some extent, but the inventory was still at a low level. The foreign trade of tin ingots remained in net export in September. On the other hand, the downstream buyers were active after the prices pulled back, and it could be told from the market transaction that the short-term demand is less affected by the power rationing.

On the fundamentals, the social inventory has been at a low level, but the short supply eased slightly in the last trading day. The conversion margins rose, which is likely to prompt the upstream smelters to increase the supply. On the other side, the macro policies of regulating coal prices and power rationing have brought great uncertainties, which indirectly influenced the demand estimate.