SMM Evening Comments (Nov 5): Shanghai Nonferrous Metals Mostly Closed with Losses amid Rising Overnight US Dollar Index

SHANGHAI, Nov 5 (SMM) – Shanghai nonferrous metals mostly closed in the negative territory as the overnight US dollar index rose after the dovish stance of UK central bank, and the NDRC also further indicated rising coal supply.

Shanghai copper dropped 0.97%, aluminium plummeted 6.41%, lead inched up 0.06%, zinc slid 3.32%, tin lost 0.42%, and nickel fell 0.38%.

Copper: The most-traded SHFE 2112 copper closed down 0.97% or 680 yuan/mt to 69590 yuan/mt, with open interest up 1774 lots to 157158 lots.

On the macro front, the UK central bank has decided to maintain the 0.1% interest rate unchanged, and this dovish stance has greatly surprised the market, pushing down the sterling by 1.4%. The US and US Treasury bonds both climbed, and the overnight US dollar index surged, pressuring copper prices. On the data front, the US jobless claims in the week of October 30 dropped 14,000 to 269,000, the lowest since March, 2020, which indicated a motivated economy after the public health situation improved.

In China, the National Development and Reform Commission (NDRC) expressed that the coal supply will continue to increase, easing the concerns of electricity shortage. As such, overnight and intraday aluminium and zinc both plummeted, creating market pessimism which also dragged down copper prices.

Tonight, the market shall watch the US non-farm payrolls for October.

Aluminium: The most-traded SHFE 2112 aluminium closed down 6.41% or 1280 yuan/mt to 18680 yuan/mt, with open interest up 1339 lots to 217320 lots.

The short positions have been rising for some time as the bearish factors emerged together, including weakening estimate for the consumer market in Q4 and shrinking support from the cost side. The downstream consumption was recovering from the impacts of power rationing, but has been unable to bring a pivot to the currently rising social inventories of aluminium ingots. The combined inventories of aluminium ingot and billet have reached 1.15 million mt, flat from last week. If the combined inventory falls next week, the aluminium prices are likely to rally from low.

Lead: The most-traded SHFE 2112 lead closed up 0.06% or 10 yuan/mt at 15745 yuan/mt, with open interest up 1103 lots to 53054 lots.

The primary lead smelters mostly offered to sell with premiums of 0 – 50 yuan/mt over SMM 1# lead, and were not interested in making shipments. The traders in mainstream markets in Zhejiang and Jiangsu sold according to the market moves, and made shipments with discounts of 30 – 20 yuan/mt over SHFE 2112. The quotations of secondary lead smelters were mostly in discounts of 50 – 130 yuan/mt over SMM 1# lead. As a whole, the premiums of primary lead smelters sustained, while the discounts of secondary lead were narrowing. The downstream purchased on rigid demand, resulting in sluggish transaction. The lead prices are likely to correct down as the power rationing in Anhui is likely to end soon, and the in-plant coal inventories at power generation companies increased.

Zinc: The most-traded SHFE 2112 zinc closed down 3.32% or 785 yuan/mt at 22835 yuan/mt, with open interest down 878 lots to 79404 lots.

On the macro front, news came that Russia may lift the aluminium export tariffs, leading to the collapse of aluminium sector. Meanwhile, the COVID cases in Europe surged amid a comparatively low vaccination coverage and loosening public health control. The economic development in the Eurozone has been negatively impacted by the resurging pandemic coupled with the unresolved energy crisis. Meanwhile, the recent data released in the Eurozone also lacked highlights, which concerned the market.

On the fundamentals, the power rationing in Inner Mongolia has resulted in tight zinc ore supply in local areas. While the disrupted transportation on the back of COVID has raised the costs of both capital and time when transporting from one province to another, which weighed on the TCs further. And the smelters were also unlikely to resume peak production amid shrinking profits. The zinc inventory, however, has been falling due to the easing energy consumption control, which has hampered the delivery of orders in October.

Tin: The SHFE 2112 tin closed down 0.42% or 1170 yuan/mt at 275290 yuan/mt, with open interest up 4486 lots to 41087 lots.

According to the daily chart, large amount of capitals entered the market, animating market moves and causing wild volatilities to prices, but the prices have remained in rangebond. On the fundamentals, some upstream smelters will reduce their output slightly in November amid power rationing and tight supply of raw materials. The domestic warrants continued to rise as the SHFE 2111 is about to deliver. And the spot premiums remained high. The demand is still improving.

Nickel: The most-traded SHFE 2112 nickel closed down 0.38% or 540 yuan/mt to 142250 yuan/mt, with open interest down 9456 lots to 96098 lots.

The long and short capitals were both leaving the nickel board recently amid varied attitudes toward the market. The new energy sector was currently on the bearish side due to the oversupply of nickel sulphate and rising market shares of LFP batteries. While the stainless steel sector believed that nickel prices still carried support amid high costs of NPI. The fall in nickel prices was mainly caused by the broad market.