SMM Evening Comments (Nov 1): Shanghai Nonferrous Metals Closed with Mixed Performance amid Less-than-expected China Manufacturing PMI

SHANGHAI, Nov 1 (SMM) – Shanghai nonferrous metals were under pressure today and closed with mixed performance as the latest reading of China manufacturing PMI for October was still in the contraction range.

Shanghai copper dropped 0.93%, aluminium lost 1.04%, lead shed 1.07%, zinc advanced 1.58%, tin surged 4.87%, and nickel retreated 1.28%.

Copper: The most-traded SHFE 2112 copper closed down 0.93% or 660 yuan/mt to 70140 yuan/mt, with open interest down 393 lots to 150554 lots.

On the macro front, China manufacturing PMI in October dropped from 49.6 to 49.2, the second consecutive month of decline, which offered some support to copper prices. On the fundamentals, the inventory in Shanghai climbed slightly, but the absolute reading was still at a historical low, which was unable to form strong support for copper.

Tonight, the market shall watch October’s manufacturing PMI readings in US and Eurozone. A positive reading may bring the SHFE copper down below 70,000 yuan/mt.

Aluminium: The most-traded SHFE 2112 aluminium closed down 1.04% or 210 yuan/mt to 20025 yuan/mt, with open interest down 8383 lots to 214629 lots.

Currently, the steeply falling coal prices have smashed the estimated support from aluminium costs. And the near-term SHFE aluminium may rally if the coal prices stop falling or the inventory enters the down cycle.

Lead: The most-traded SHFE 2112 lead closed down 1.07% or 170 yuan/mt at 15680 yuan/mt, with open interest down 106 lots to 54841 lots.

In the spot market, primary lead smelters remained under maintenance, and the in-plant inventory was mainly for long-term contracts; therefore there have been less supply for small orders. The traders maintained discounts of 40 – 20 yuan/mt over SHFE lead 2111. And the downstream refrained from purchasing amid high prices.

For secondary lead, the spot market transactions have been moderate as a whole as the purchase picked up in afternoon trading amid fears of further increase in lead prices.

Zinc: The most-traded SHFE 2112 zinc closed up 1.58% or 375 yuan/mt at 24055 yuan/mt, with open interest down 1130 lots to 81284 lots.

On the macro front, the China Caixin Manufacturing PMI for October rebounded to 50.6, back to the expansion zone. The raw materials inventories across the whole manufacturing sector dropped amid multiple reasons, including tight supply, power rationing, short supply of raw materials, rising prices and transportation disruptions. However, the downward risks faced by the economy still existed.

On the fundamentals, the social inventories of zinc ingots totalled 140,700 mt as of November 1, down 2,900 mt from Friday October 29. Among them, the inventory in Shanghai dropped slightly as the downstream sector purchased on dips though there have been abundant inflows from imports. Guangzhou saw declines in inventory as the arrivals dropped significantly over the weekend. The inventory in Tianjin continued to fall as the arrivals were limited and the downstream mainly purchased on rigid demand.

Tin: The SHFE 2112 tin closed up 4.87% or 12730 yuan/mt at 274050 yuan/mt, with open interest up 671 lots to 40307 lots.

On the fundamentals, the supply and demand remained stable. Some upstream smelters are likely to reduce their output amid power rationing, and spot inventory keeps falling. The premiums stayed at a high level.

The near-month contract is likely to perform comparatively strongly amid low inventory and tight spot supply, and is likely to sustain the momentum in the long run after the demand side shakes off the influence of power rationing.

Nickel: The most-traded SHFE 2112 nickel closed down 1.28% or 1850 yuan/mt to 143220 yuan/mt, with open interest up 2322 lots to 104391 lots.

On the macro front, the market generally believes that the Fed will start tapering its bond purchase ahead of the Fed’s interest rate meeting, which might influence the commodity prices. The intraday thermal coal and coking coal futures hit limit down again, pressuring non-ferrous metals.

On the fundamentals, NPI prices stayed in premiums over pure nickel, and the downstream stainless steel companies were not active in purchasing. However, the NPI plants were inclined to hold prices firm amid high costs. While in the new energy sector, the market has been worrying over shrinking market shares of ternary cathode precursors, and contradicting forces have been in play, coupled with a supply surplus of nickel sulphate.