SMM Evening Comments (Aug 1): Shanghai Nonferrous Metals Closed Mixed, July China Official PMI Falls below 50

SHANGHAI, Aug 1 (SMM) – Shanghai nonferrous metals closed mixed following the release of China official PMI in July, which stood at 49, down 1.2 points MoM. Contracting PMI reading underscores the uncertainties centering the economic development in the second half as the COVID outbreak occurs constantly.  

Shanghai copper rose 1.96%, aluminium fell 2.54%, lead lost 0.72%, zinc added 1.48%, tin climbed 4.38%, and nickel jumped 6.75%.

Copper: The most-traded SHFE 2209 copper closed up 1.96% or 1,170 yuan/mt at 60,840 yuan/mt, with open interest up 1,965 lots to 159,606 lots.

On the macro front, US economic data showed that the inflation remained high in June, leaving the Fed still likely to raise rates aggressively if it deems necessary. The ECI climbed 1.3% in the second quarter after rising 1.4% in the first, the US Labor Department said on Friday. The index is the extensive measure of labour costs.

In the spot market, the premiums dropped after opening high. Standard-quality copper was quoted with premiums of more than 400 yuan/mt in morning trade, but it did not appeal the buyers. Therefore, the traders lowered the premiums to 370 yuan/mt in the second trading session, but it still failed to stimulate the market demand, and the premiums fell further to around 330 yuan/mt. The spread between good and standard-quality copper remained at 10-20 yuan/mt, while market transactions were limited.

Aluminium: The most-traded SHFE 2209 aluminium closed down 2.54% or 475 yuan/mt to 18,205 yuan/mt, with open interest down 5,558 lots to 174,975 lots.

On the fundamentals, the aluminium ingot social inventories across China’s eight major markets totalled 678,000 mt as of August 1, up 7,000 mt from last Thursday, but 81,000 mt lower than in the same period last year. The inventory of aluminium ingots and billets in Foshan has been rising for two consecutive weeks due to poor trades and smooth arrivals.

Lead: The most-traded SHFE 2209 lead closed down 0.72% or 110 yuan/mt at 15,135 yuan/mt, with open interest down 5,483 lots to 54,300 lots.

SHFE lead pulled back after hitting high today, and the offers from cargo holders changed little from last week. Smelters, meanwhile, sold with wide discounts, and the downstream purchased on demand, while some turned wait-and-see. The transactions with small orders were sluggish.

Zinc: The most-traded SHFE 2209 zinc closed up 1.48% or 350 yuan/mt at 24,060 yuan/mt, with open interest down 486 lots to 117,123 lots.

On the fundamentals, imported zinc concentrate arrived in China, and domestic zinc concentrate production is expected to rise to 520,000-530,000 mt in August, easing the supply tightness. According to SMM research, zinc ingot social inventory across the seven markets in China totalled 138,300 mt as of today August 1, up 1,400 mt from last Friday. Though the traders lowered their premiums recently amid rising SHFE zinc prices, downstream demand has not yet fully recovered, and the market transactions remained poor.

Tin: The most-traded SHFE 2209 tin closed up 4.38% or 8,410 yuan/mt at 200,460 yuan/mt, with open interest down 87 lots to 63,049 lots.

In the spot market, quotes offered by smelters in morning trade rose along with rising futures prices, and some were increasingly firm to their quotes, widening the spread between different smelters. The quotes from the traders changed little in terms of quantity, and the spread between different brands also eroded. Market transactions were poor, and some buyers purchased only when the premiums were low.

Nickel: The most-traded SHFE 2209 nickel closed up 6.75% or 11,400 yuan/mt at 180,390 yuan/mt, with open interest up 12,676 lots to 96,944 lots.

On the supply side, spot premiums of pure nickel kept falling last week, and customs clearance was less than expected due to weak demand despite rising SHFE/LME price ratio. In terms of NPI, Indonesia NPI kept flowing back to China and taking over the market share from domestic manufacturers. Meanwhile, the supply of ferronickel was also sufficient, weighing on the prices. NPI plants, squeezed by overseas low-cost NPI, began to hold the prices firm on the verge of losses. On the demand side, stainless steel mills were still under volunteer production cuts amid losses, and the demand for raw materials was low. In terms of alloy, the demand also contracted in light of high spot prices. Therefore, though the demand contracted slightly by high nickel prices, low inventory will underpin nickel prices to some extent.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]