SMM Morning Comments (Oct 29): Base Metals Generally Rose on Plunging US Dollar Index

SHANGHAI, Oct 29 (SMM) – Shanghai base metals basically cruised higher on Friday morning after US dollar index hit a one-month low. Meanwhile, their counterparts on LME all went up.

LME metals all closed higher in the trading on Thursday. Copper rose 0.69%, lead increased 2.15%, and zinc gained 0.21%.

SHFE metals mostly rose in the overnight trading on Thursday. Copper won 1.03%, lead gained 1.78%, nickel increased 0.17%, and zinc fell 0.78%.

Copper: Three-month LME copper opened at $9,665/mt last night, hitting the highest and lowest prices at $9,700/mt and $9,607/mt respectively, and closed at $9,640/mt, up 0.69%. The trading volume was 14,000 lots, and the open interest reached 270,000 lots. LME copper is expected to trade between $9,590-9,690/mt today.

The SHFE 2111 copper contract edged up 1.03% last night to close at 71,330 yuan/mt, after hitting the highest point at 71,570 yuan/mt, and is expected to trade between 70,400-71,000 yuan/mt today, with spot premiums between 230-410 yuan/mt.

The actual annualised US quarterly rate of GDP in the third quarter announced last night was only 2%. The growth of US economy has slowed down significantly due to the pandemic recurrence, bottlenecks in the supply chain, and the reduced consumer spending. US dollar index fell to a one-month low, supporting copper futures to edge up. With the continuous inflow of the imported copper, the premiums of the high-quality copper kept falling, which facilitated the downstream purchase.

Lead: Three-month LME lead opened at $2,374/mt last night and basically stood below $2,400/mt in the Asian session, then is was pushed up by the strengthened SHFE lead. The weekly jobless claims were positive, causing the US dollar to plunge and boosted the non-ferrous metals prices. LME lead closed 2.15% higher at $2,418/mt.

The most traded SHFE 2112 lead contract opened at 15,815 yuan/mt in the overnight trading. The shorts reduced positions as the news of the easing coal supply was digested by the market. SHFE lead hit the highest price at 16,065 yuan/mt and closed at 15,985 yuan/mt, an increase of 1.78%.

The open interest increased by 1,123 lots from the previous day to 55,950 lots. SHFE lead rebounded to over the 5-day and 10-day moving averages. The prices are expected to fluctuate around 16,000 yuan/mt in the short-term amid the expectations of the maintenance across the deliverable brands of primary lead.

Zinc: Three-month LME zinc rose 0.21% to settle at $3,355/mt last night, with open interest increasing 2,403 lots to 257,000 lots. Zinc stocks across LME-listed warehouses rose by 1,100 mt to 197,725 mt. A total of 281,000 people applied for unemployment benefits for the first time in the week ended October 23, the lowest since March 2020; the US GDP grew by about 2% last quarter, the lowest since the second quarter of 2020. LME zinc is expected to move between $3,300-3,350 today.

The most-traded SHFE 2112 zinc contract fell 0.78% to settle at 23,675 yuan/mt in overnight trading, with open interest down 575 lots to 79,729 lots. The supply and demand weakens. The social inventory is at low levels, supporting zinc prices. The most-traded SHFE 2112 zinc contract is expected to move between 23,300-23,800 yuan/mt today and spot premiums of domestic #0 Shuangyan will stand at 10 yuan/mt over the November contract.

Nickel: The SHFE 2111 nickel contract closed at 145,250 yuan/mt overnight, an increase of 250 yuan/mt or 0.17%, from the settlement price of the previous trading day. Trading volume was 250,000 lots, and open interest increased by 303 lots to 101,000 lots. Bulls reduced positions.

Nickel prices have weakened along with coal prices in the past two days as the cost support for nickel has weakened due to the decline in coal prices. The cost here refers to the cost of NPI, while the cost of domestic refined nickel is very weak in guiding the price of nickel. According to the latest calculation in the fourth quarter, the average use ratio of NPI in stainless steel is expected to increase by 3% to 63% from the third quarter. This ratio reached 70% last year. Therefore, the proportion of other nickel raw materials in stainless steel will have room to fall. It is hard to say that there is an absolute surplus of NPI during the year. We believe that although the price of NPI has weakened following the decline in costs, the tight supply has limited the room for price decline. There are no other strong contradictions in the nickel price, and it is expected to follow the above-mentioned cost logic.

Tin: Overnight, the SHFE 2112 tin contract rebounded. Market inventories are still at a low level with no obvious sign of inventory accumulation, and spot premiums remain high, indicating tight supply. Demand is gradually weakening due to the impact of power rationing, but will remain strong in the long run. SHFE tin rebounded quickly after falling. The recent trend of SHFE tin has a strong correlation with the overall sentiment in the commodity market. With stable supply-demand relationship, the recent decline in SHFE tin is due to short-term speculation triggered by falling commodity market. However, tin prices are unlikely to continue to see sharp decline after speculation fades. Tin prices will remain strong before inventory grows.