SMM Evening Comments (Aug 17): Shanghai Nonferrous Metals Closed with Gains amid Easing Market Sentiment

SHANGHAI, Aug 17 (SMM) – Shanghai nonferrous metals closed mostly with gains after investors digested the news of potential production cuts overseas, and the market sentiment cooled down. Among them, aluminium led the gains with smelting capacities contained by power rationing mainly in Sichuan province.

Shanghai copper added 0.32%, aluminium advanced 3.75%, lead rose 0.5%, zinc gained 2.56%, tin jumped 0.22%, and nickel climbed 0.18%.

Copper: The most-traded SHFE 2209 copper closed up 0.32% or 200 yuan/mt at 61,960 yuan/mt, with open interest down 4,650 lots to 151,242 lots.

On the macro front, U.S. new housing starts plunged 9.6% in July to an annual rate of 1.446 million after seasonal adjustment, the lowest level since February 2021. WTI crude oil futures closed down 3.22% at $86.53/barrel; Brent crude oil futures closed down 2.9% at $92.34/barrel.

In the spot market, premiums moved all the way up, and the transactions were active amid tight sources available in the market. Standard-quality copper was in premiums of 430-440 yuan/mt in morning trade, and the transactions were active. The premiums then rose to 450 yuan/mt, with some offered at 460-470 yuan/mt. Around the end of the trading session, the premiums have risen to as high as 500 yuan/mt with traders driving up the quotes amid supply tightness. Premiums of good-quality copper also rose, and the spread with standard-quality copper expanded to 30-40 yuan/mt.

Aluminium: The most-traded SHFE 2209 aluminium closed up 3.75% or 675 yuan/mt to 18,660 yuan/mt, with open interest up 6,843 lots to 153,829 lots.

Due to the shortage of electricity caused by the continuous high temperature in Sichuan province, industrial enterprises have been required to cut power use starting from August 15. At present, the enterprises in Sichuan have begun to reduce the operating rates according to local electricity demand. In terms of aluminium production, the current aluminium production in Sichuan has decreased by nearly 400,000 mt, accounting for 33% of the province's total aluminium capacity.

The production cuts in Sichuan due to power shortage and other reasons has brought down aluminium production in August, easing the pressure on the supply side. However, domestic downstream consumption is still in the off-season, and downstream factories in Sichuan, Chongqing, Jiangsu and Zhejiang are also facing power rationing and production cuts.

Lead: The most-traded SHFE 2209 lead closed up 0.5% or 75 yuan/mt at 15,100 yuan/mt, with open interest down 4,069 lots to 49,372 lots.

SHFE lead rebounded with active shipment by cargo holders, while the downstream purchased on demand. The discounts of secondary lead expanded and competed for clients with the traders, hence the downstream companies bought from whoever has the best offer.

Zinc: The most-traded SHFE 2209 zinc closed up 2.56% or 635 yuan/mt at 25,420 yuan/mt, with open interest down 870 lots to 127,117 lots.

Domestic market sentiment stabilised after digesting the potential production cuts overseas. However, domestic supply concerns resurfaced amid power supply shortage. Nonetheless, the market managed a tight balance amid poor consumption. The support for SHFE zinc fell into the range of 23,500-24,000 yuan/mt,

Tin: The most-traded SHFE 2209 tin closed up 0.22% or 440 yuan/mt at 198,440 yuan/mt, with open interest up 1,362 lots to 41,313 lots.

In the spot market, quotes from the smelters changed little from yesterday with their sentiment remaining stable. The number of quotes offered by traders was flat. Market transactions were poor as a whole, and picked up slightly before closing when the futures prices dropped slightly. Downstream demand weakened following centralised procurement earlier.

Nickel: The most-traded SHFE 2209 nickel closed up 0.18% or 310 yuan/mt at 172,680 yuan/mt, with open interest down 3,818 lots to 66,969 lots.

On the supply side, pure nickel premiums kept falling while pure nickel spot prices remained high, and SHFE/LME price ratio dropped further. For NPI, the market was still oversupplied despite falling supply, as the downstream demand remained sluggish. On the demand side, the stainless steel futures prices may have bottomed, but the spot prices are likely to drop further. For alloy, demand for pure nickel was low amid price fluctuations and power rationing in south China. As such, the support for nickel prices will weaken with poor demand and rising social inventory.

[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.]