SMM Evening Comments (Oct 25): Shanghai Nonferrous Metals Mostly Closed in the Negative Territory as the Tapering Will Begin Soon

SHANGHAI, Oct 25 (SMM) – Shanghai nonferrous metals mostly closed in the negative zone as Fed’s tapering will begin very soon according to Fed Chair Powell.

Shanghai copper and zinc were basically unchanged, aluminium lost 1.57%, lead edged up 0.47%, tin slid 0.54%, and nickel shed 1.01%.

Copper: The most-traded SHFE 2112 copper closed down 0.07% or 50 yuan/mt to 72390 yuan/mt, with open interest up 2049 lots to 157245 lots.

On the macro front, Fed Chair Powell said last Friday that the Fed shall begin to dial back the bond purchase soon, but the interest rate hike was still off the table. The SHFE copper prices plunged in overnight trading of last Friday as the longs mostly left the market for risk aversion, after the central government began to regulate the commodity prices.

On the fundamentals, the current inventory was still at a low level, and the proportion of cancelled warrants was comparatively high. The intraday trading warmed up and recovered some of last Friday’s losses amid the support from low inventory.

Tonight, the market shall watch the Chicago Fed National Activity Index for September (estimated at 0.2 and finalised at 0.29 in the previous session) as well as the Dallas Fed manufacturing index (estimated at 6.2 and finalised at 4.6 in the previous session).

Aluminium: The most-traded SHFE 2112 aluminium closed down 1.57% or 345 yuan/mt to 21665 yuan/mt, with open interest down 5272 lots to 205809 lots.

In the short term, the aluminium prices will still be affected by falling coal prices. And the rising aluminium inventory will keep pressuring aluminium prices. The market shall watch the aluminium inventory pivot and the low of coal prices.

Lead: The most-traded SHFE 2112 lead closed up 0.47% or 75 yuan/mt at 16030 yuan/mt, with open interest up 5349 lots to 46120 lots.

The commodity prices’ performance diverged as the market tensions heightened on the back of upcoming tapering. While in China, the power rationing continued, including Anhui where around 2,000 – 3,000 mt of secondary refined lead output will be affected. In Henan, the production in Qiyuan has been basically normal as the influence of power rationing was mild. But the supply side will still be disrupted by the power rationing as a whole.

In the spot market, the downstream purchase was thin amid high lead prices. Meanwhile, more deliverable brands carried out maintenance, reducing the supply of primary lead. The downstream was wait-and-see. The mainstream quotations in Zhejiang and Jiangsu were offered with discounts of 40 – 20 yuan/mt over SHFE 2111. For secondary lead, the discounts stood at 80 – 200 yuan/mt over SMM 1# lead.

Genera speaking, the spot transaction has been slack. And the global power cuts will sustain the upside momentum of lead prices in the short term. However, the eased supply shortage pressure lead prices the other way round.

Zinc: The most-traded SHFE 2112 zinc closed down 0.06% or 15 yuan/mt at 24750 yuan/mt, with open interest up 4562 lots to 83912 lots.

On the macro front, China government announced to improve the consumption of non-fossil energy, which shall be no less than 80% of the total energy structure, in order to reach carbon neutrality by 2060. Zhengzhou Commodity Exchange has lifted the trading margin ratio of some thermal coal futures to 40% in order to regulate coal prices.

On the fundamentals, the social inventory in seven major markets in China stood at 145,800 mt, down 1,500 mt from last Friday October 22. The inventory in Shanghai declined as downstream buyers restocked goods on dips. Guangdong saw an increase in stocks as the power rationing in Guangxi loosened and more goods arrived. The stocks in Tianjin trended lower amid limited arrivals and restocking of goods on rigid demand by downstream producers. Inventories in Shanghai, Guangdong and Tianjin fell 600 mt, and inventories across seven Chinese markets decreased 1,500 mt.

Tin: The SHFE 2111 tin closed down 0.54% or 1540 yuan/mt at 281490 yuan/mt, with open interest down 4000 lots to 15520 lots.

On the fundamentals, the spot inventory was still at a low level, with rare chance of rising. And the spot transaction was also light. While the long-term demand outlook is still optimistic as the power rationing has limited impacts on downstream demand. However, the solder output in October is likely to fall month-on-month.

Nickel: The most-traded SHFE 2111 nickel closed down 1.01% or 1530 yuan/mt to 151330 yuan/mt, with open interest down 16779 lots to 48547 lots.

On the fundamental front, the NPI prices lingered at high levels amid rising raw materials prices and tight supply, which was bullish for nickel prices. And the stainless steel mills also have more demand for pure nickel as the NPI output in Indonesia dropped. The new energy sector was prosperous with robust demand for nickel, though the supply of nickel sulphate was slightly higher than demand.