SMM Morning Comments (Aug 17): Base Metals Closed Mostly with Gains with US Dollar Closing Flat

SHANGHAI, Aug 17 (SMM) – LME base metals closed mixed as the investors have been digesting the bearish factors as the US economic readings disclosed recently pointed to early signs of a slowing economy. Its counterparts at SHFE closed mostly with gains with slightly boosted confidence in market consumption.

LME copper added 0.34%, aluminium lost 0.29%, lead slid 0.94%, and zinc gained 1.35%.

SHFE copper inched up 0.55%, aluminium rose 2.14%, lead added 0.7%, and zinc gained 3.13%.

Copper: LME copper opened at $7,989/mt yesterday and fell to $7,959/mt after reaching $8,040.5/mt.  At last, the contract closed at $8,005.5/mt, up 0.34%. Trading volume was 12,000 lots, and open interest stood at 248,000 lots.

SHFE 2209 copper contract opened at 62,110 yuan/mt in overnight trading and dropped to 61,810 yuan/mt after surging to 62,410 yuan/mt. At last, the contract closed at 62,100 yuan/mt, up 0.55%. Trading volume was 38,000 lots, and open interest stood at 154,000 lots.

On the macro front, according to the US economic data released this week, the US economy showed signs of weakening under the aggressive interest rate hikes of the US Fed, which put some pressure on the US dollar which closed almost flat overnight. Copper futures continued to fluctuate and closed slightly higher.

On the fundamentals, the tension between domestic supply and demand has not improved significantly, which can be reflected in the backwardation structure and the high spot premiums after the delivery of the SHFE 2208 contract. Spot trading picked up amid the tight supply in the market. The market shall keep an eye on the inflow of imported copper and the power rationing of some domestic smelters. In the short term, the low absolute inventory and warrants are unlikely to change, and premiums will remain firm under the wide spread between the front-month and next-month contracts in the backwardation structure. SMM believes that the short-term copper prices may probably trend higher in the market outlook.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,250 yuan/mt overnight, with its low and high at 18,245 yuan/mt and 18,440 yuan/mt before closing at 18,370 yuan/mt, up 380 yuan/mt or 2.14%. Shorts exited due to output cuts, pushing aluminium prices up.

LME aluminium opened at $2,409/mt on Tuesday and hit a high of $2,459/mt before closing at $2,396.5/mt, a drop of $7/mt or 0.29%.

The production reduction by aluminium smelters in Sichuan Province has expanded to 390,000 mt due to power shortage. The domestic aluminium output may fall slightly month-on-month in August. Domestic downstream consumption is still in the off-season. Downstream factories in Sichuan, Chongqing, Jiangsu and Zhejiang are also facing risks of production cuts due to power shortages. The domestic aluminium ingot social inventory remains in a state of accumulation, and spot discounts sustained. Aluminium prices will fluctuate widely in the short term amid weak supply and demand and pessimistic macro front. In the future, SMM will closely watch the changes in supply and demand.

Lead: LME lead opened at $2,172.5/mt last night and fell 0.94% to $2,154.5/mt, with the highest and lowest prices at $2,197.5/mt and $2,145.5/mt respectively. The open interest decreased by 529 lots to 90,386 lots from the previous trading day.

The most traded SHFE 2209 lead contract opened at 15,040 yuan/mt and rose by 0.7% to end at 15,130 yuan/m, after briefly hitting the lowest point at 15,025 yuan/mt and rising to the highest level at to 15,175 yuan/mt. The open interest decreased by 2,083 lots to 51,358 lots from the previous trading day.

Zinc: LME zinc closed at $3,645.5/mt on Tuesday, up $48.5/mt or 1.35%. The open interest fell 2,008 lots to 199,000 lots. Overnight LME inventory rose 975 mt to 75175 mt, and the inventory showed signs of stabilising as high premiums encouraged timely delivery to LME warehouses. However, supply tightness expectation was aggravated as Nyrstar is rumoured to shut down its smelter in the Netherlands starting from September 1.

The most traded SHFE 2209 zinc contract closed at 25,560 yuan/mt overnight, up 775 yuan/mt or 3.13%. The open interest added 2,603 lots to 131,000 lots. On the consumption side, market confidence has been slightly boosted as the National Development and Reform Commission expressed optimism over the infrastructure sector at its August press confidence, but it failed to bring out actual transactions, hence the consumption side remained poor. The downstream was significantly contained by rising zinc prices yesterday. Meanwhile, the supply tightness of spot goods remained in place, sustaining the premiums at a high level. SMM zinc ingot social inventory across seven markets in China totaled 132,300 mt as of Monday, down 6,900 mt from last Friday. Market sentiment was quite volatile amid potential production suspensions overseas amid energy crisis. And zinc prices are expected to move in a wide range.

Overnight, China's economic "pullback" in July highlighted the pressure it is facing. Premier Li Keqiang said that the economy is now at the most difficult point of stabilisation and that a package of policies to stabilise the economy should be implemented in depth; macro policy should be reasonably stepped up in response to the new situation. US new housing starts fell to the lowest in nearly a year and a half in July, but industrial production hit a record high. Biden formally signed a $430 billion inflation reduction bill. Germany secured commitments from several large gas importers to guarantee adequate supplies of two floating liquefied natural gas (LNG) terminals to reduce dependence on Russian gas.

Tin: Overnight, SHFE tin contract hovered narrowly after opening slightly higher, moving around 200,000 yuan/mt. Large amounts of capital exited from the most-traded SHFE tin contract, while the increase in the open interest of distant month contracts slowed down. Domestic tin inventory under SHFE warrants continued to decrease. The spot market performed poorly due to rising prices. LME tin inventory remained stable. Due to thin import profits, there were limited number of quotations of imported tin. Supply in the spot market increased following production resumption of smelters, while demand declined after prices rose. SHFE tin is expected to move rangebound.

Nickel: On the supply side, premiums of pure nickel were on a downward trend, so the SHFE/LME price ratio further narrowed. In terms of NPI, although the supply decreased, the market was still in surplus amid the weak demand from the downstream steel mills. On the demand side, the SMM survey showed that some specifications of #201 narrow strips may be out of stock, and the prices will temporarily increase. The futures prices have probably reached the bottom, but the spot prices may fall further. In terms of alloy, in August, due to the fluctuation in pure nickel prices and the power rationing in south China, the demand for pure nickel from some manufacturers has been weakened. In general, the current demand for nickel is poor, and the inventory rises continuously, weakening the support for nickel prices.

[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.]