SMM Morning Comments (Nov 1): Base Metals Trended Lower under Inflationary Pressure

SHANGHAI, Nov 1 (SMM) – Shanghai base metals basically fell on Monday morning after the US dollar index hit a half-month high under the high inflationary pressure. Meanwhile, their counterparts on LME performed similarly.

LME base metals mostly closed lower in the trading on October 29. Copper fell 1%, aluminium lost 0.53%, lead decreased 1.61%, and zinc rose $42.5/mt.

SHFE base metals basically rose in the overnight trading last Friday. Copper lost 0.88%, aluminium rose 1.16%, lead increased 0.83%, and zinc went up 3.66%.

Copper: Three-month LME copper opened at $9,607/mt last Friday night, hitting the highest and lowest points at $9,640/mt and 9,438/mt respectively, and closed at $9,544/mt, down 1%. The trading volume was 14,000 lots, and the open interest reached 27,000 lots. The LME copper is expected to trade between $9,500-9,580/mt.

The SHFE 2112 copper contract opened at 70,200 yuan/mt in the overnight trading on Friday, hitting the lowest and highest prices at 69,720 yuan/mt and 70,530 yuan/mt respectively, before closing at 70,180 yuan/mt, down 0.88%. The trading volume reached 64,000 lots, and the open interest stood at 150,000 lots. SHFE copper is expected to trade between 69,800-70,500 yuan/mt today, with spot premiums between 260-380 yuan/mt.

The US September PCE price index of announced last Friday showed that inflation is still at a high level. The US dollar index hit a half-month high last Friday, marking a largest increase since June amid the market concerns about the inflation and the tightening of monetary policy, which forced down the copper futures. The market transaction was sluggish last Friday. The SHFE copper fluctuated around 71,000 yuan/mt, which failed to attract downstream purchases. The premiums pulled back slightly. The premiums may rise steadily as a new round of long-term order transaction starts.

Aluminium: LME aluminium opened at $2,749/mt last Friday morning and closed at $2,733.5/mt, down $14.5/mt or 0.53%.

The most-traded SHFE 2112 aluminium contract opened at 19,650 yuan/mt during last Friday’s night session, with the lowest price at 19,570 yuan/mt before closing at 20,470 yuan/mt, up 235 yuan/mt or 1.16%.

Concentrated arrivals of backlog cargoes after weather improved caused the social inventory to continue to grow. The recent decline in aluminium prices has incentivised downstream purchases. The easing of power rationing and production restrictions in some areas also allowed demand to recover slightly. Spot discounts widened to 80-100 yuan/mt last Friday due to the rally of futures prices. The rapid decline in coal prices has weakened the cost support to aluminium prices. If coal prices stop falling or social inventory begins to decline, SHFE aluminium is expected to stop falling and rebound in the short term.

Lead: Three-month LME lead opened at $2,415/mt last Friday and lost 1.61% to close at $2,379/mt. The rising US dollar index amid the expectations of the earlier interest hikes weighed on the non-ferrous metals prices. Today’s focus will be whether LME lead can rebound to around $2,400/mt.

The most-active SHFE 2111 lead contract opened at 15,660 yuan/mt and hit the highest level at 15,930 yuan/mt before closing at 15,790 yuan/mt, an increase of 0.83%. The social inventory of lead is expected to decrease further this week, but the work resumption across the secondary lead smelters may weigh on the supply. SMM will monitor the pressure at around 15,900 yuan/mt this week.

Zinc: Three-month LME zinc rose $42.5/mt to settle at $3,397.5/mt last Friday, with open interest decreasing 760 lots to 256,000 lots. Zinc stocks across LME-listed warehouses dropped by 325 mt or 0.16% to 197400 mt. The losses at smelters in Europe have expanded to $300/mt. Zinc inventory in Europe continued to decline and stands at 9,825 mt at the moment, supporting zinc prices. LME zinc is expected to move between $3,350-3,400/mt today.

The most-traded SHFE 2112 zinc contract rose 3.66% or 860 yuan/mt to 24,330 yuan/mt, with open interest increasing 5,166 lots to 87,530 lots. The consumption is likely to increase amid the stable sentiment. The inventory is unlikely to accumulate further without the replenishment of government stockpiles. The most-traded SHFE 2112 zinc contract is expected to move between 24,300-24,800 yuan/mt and domestic #0 Shuangyan will be seen at flat against the December contract.

LME zinc is expected to move between $3,350-3,400/mt today. The most-traded SHFE 2112 zinc contract is expected to move between 24,300-24,800 yuan/mt and domestic #0 Shuangyan to rise 725 yuan/mt.

Nickel: SHFE nickel contract advanced 2,630 yuan/mt or 1.82% to end at 146,840 yuan/mt in the evening trading of last Friday. 
The recent declines in the coal prices have created expectations of lower costs. Although the price of NPI has weakened following the decline in costs, the tight supply has limited the price decline. There are no other strong contradictions for pure nickel. The previous power rationing has little impact on its supply. From the perspective of demand, the market bearishness that the demand for nickel will weaken due to the output decline of new energy industry has not paid off. The lithium iron phosphate (LFP) batteries has squeezed the ratio of ternary batteries further, but it has not yet been transmitted to the upstream, and nickel consumption is currently still at a high level. Nickel prices in the short-term will be affected by market sentiment, but are expected to rebound after the sentiment stabilises. SHFE nickel prices are expected to move between 140,000-152,000 yuan/mt this week and LME nickel will fluctuate between $19,000-20,200/mt.

Tin: The SHFE 2112 tin contract went up during last Friday’s night session. Market inventories are still at a low level with no obvious sign of inventory accumulation. Smelters held back cargoes after prices fell, tightening supply. Demand is gradually weakening due to the impact of power rationing, but will remain strong in the long run. The price gap between the SHFE 2111 and 2112 tin contracts widened, reflecting that lower inventory has supported the price of front-month contract. Low inventory and high spot premiums will prevent SHFE tin from falling sharply in the short term.