SHANGHAI, Aug 22 (SMM) – SHFE base metals mostly closed with gains with support from the fundamentals as extensive power rationing has greatly dented the supply side, while it is worth attention that the consumption side has also been affected. LME base metals, on the other, closed mixed as investors await further guidance from economic performance on the September rate hike.
LME copper rose 0.69%, aluminium shed 0.48%, lead slid 0.87%, and zinc was flat.
SHFE copper rose 1.14%, aluminium jumped 0.57%, lead gained 0.23%, and zinc added 1.21%.
Copper: LME copper opened at $8,071/mt last Friday and rebounded after falling to $8,027.5/mt. At last, the contract closed at $8,086.5/mt, up 0.69%. Trading volume was 17,000 lots, and open interest stood at 243,000 lots.
SHFE 2209 copper contract opened at 62,500 yuan/mt last Friday and soared to 63,080 after hitting a low price of 62,350 yuan/mt. At last, the contract closed at 62,960 yuan/mt, up 1.14%. Trading volume was 50,000 lots, and open interest stood at 147,000 lots.
Last week, the minutes of the US Fed meeting in July was released, and the market did not see anything too hawkish in it. Officials reached a consensus on the tightening monetary policy, but they also considered tempering the rate rises in the future. However, the performance of economic data varied. Before the meeting on interest rates in September, important indicators such as the US inflation index in August, the employment report in August, and Powell's speech at the annual global central banking conference in Jackson Hole on August 26 are going to be released, which will better guide the market to forecast the next moves of the US Fed.
On the fundamentals, due to the continuous hot weather in China, the influence of power rationing on smelters is extending. SMM presumes that the output of smelters in Hubei, Anhui, Jiangsu, and Zhejiang in August may be reduced by 30,000-40,000 mt. The volume of goods under the bill of lading arriving at ports last week was small even though the import window opened. The consumption of copper was boosted by the infrastructure and new energy industry, as well as the low cost efficiency of copper scrap. Both social and bonded zone inventory in China declined, and the shortage of supply was unlikely to ease in a short time. In short, copper prices may remain high amid the mild macro front and the tight supply, and the market is unlikely to see a short-term sharp decline in the prices.
Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,400 yuan/mt at last Friday’s night session, with its low and high at 18,355 yuan/mt and 18,565 yuan/mt before closing up 105 yuan/mt or 0.57%.
LME aluminium opened at $2,404/mt last Friday, with its high and low at $2,411/mt and $2,375/mt respectively before closing at $2,393.5/mt, a drop of $11.5/mt or 0.48%.
The production reduction by aluminium smelters in Sichuan has reached 800,000 mt, and smelters in Chongqing have also lowered their output, intensifying supply concerns. However, the domestic aluminium downstream consumption was also affected by the power rationing. Transactions in the spot market were poor. The upward space of aluminium prices will still be restrained by the weak downstream demand and fears of economic recession. The short-term aluminium prices may continue to move in a wide range.
Lead: LME lead opened at $2,069.5/mt last Friday and stood at $2,065-2,080 yuan/mt during the Asian trading hours. During the European trading hours, the US dollar index rose, hence LME lead fell and closed at $2,048/mt, down 0.87%, after hitting the lowest point at $2,030/mt.
The most traded SHFE 2209 lead contract opened at 14,960 yuan/mt last Friday and fell due to the increase of inventory. SHFE lead stood below 15,000 yuan/mt amid the firm battery scrap prices and the cost support of secondary lead. As the decline of LME lead slowed down and the domestic supply and demand declined, SHFE lead rebounded amid the cost support to 15,020 yuan/mt, up 0.23%. The open interest decreased by 232 lots from the previous trading day to 43,621 lots.
Zinc: LME zinc closed at $3,490/mt last Friday, down $0.5/mt or 0.01%. The open interest remained unchanged at 198,000 lots. Overnight LME inventory lost 225 mt to 74,725 mt.
The most traded SHFE 2209 zinc contract closed at 25,160 yuan/mt last Friday night, up 300 yuan/mt or 1.21%. The open interest lost 4,678 lots to 105,000 lots. On the fundamentals, the production in provinces like Sichuan, Hunan, Shaanxi and Inner Mongolia has been affected by power rationing to varying degrees, with smelters shut down for 1-10 days. The zinc production is expected to be reduced by 10,000 mt owing to the current round of power cut. On the consumption side, the high temperature also suppresses downstream production. In the spot market, the social inventory is estimated to fall further amid relatively tight supply.
Last Friday, the People's Bank of China announced the 1-year/5-year loan market quoted rate (LPR), analysis said the LPR is likely to be reduced; Sichuan started emergency energy supply - level one response, while some reported that they have not received new power rationing notice; a number of departments issued measures "to ensure the delivery of buildings, stabilise people's livelihood".
Tin: At last Friday’s night session, SHFE stabilised after climbing to above 200,000 yuan/mt. As the delivery of the most-traded contract is approaching, investors continued to roll their positions onto distant-month contract. Although the domestic tin social inventory continued to decrease last week, the speed of destocking has slowed down significantly as the production resumption of smelters has begun to take effect. The increase in LME tin inventory slowed down. Overseas premiums remained stable. The import profit window was still only slightly open. Imported tin was offered at premiums in the domestic spot market. Given the increased supply following production resumption of smelters and stable demand, the short-term tin prices will be largely stable.
Nickel: On the macro front, the number of US initial claims for unemployment benefits stood at 250,000, which was lower than expected. As the labour market improved, market expectations for an aggressive rate hike in August strengthened. On the supply side, the production of domestic pure nickel was not affected by the high temperature and remained stable. And the inventory of pure nickel increased significantly in the bonded areas. In terms of NPI, some NPI plants held a bearish outlook on the NPI prices in the short term, hence they were less firm about the prices and tended to sell. But a few NPI plants still held a bullish outlook and held the prices firm with rising NPI inventory amid the expected tariffs on Indonesian NPI. On the demand side, according to SMM research, the spot prices in Wuxi and Foshan continued to decline, but the futures prices fell more significantly and the spread between spot and futures prices further expanded. And the weak domestic demand and export market are unlikely to improve in the short term. In terms of alloys, the military sector still had rigid demand, but the demand from the civilian sector was sluggish. To sum up, the current downstream demand is still weak, and SHFE nickel is expected to move between 166,000-185,000 yuan/mt this week. At present, the LME nickel prices have not yet returned to the fundamentals, and the probability of large fluctuation still exists. When the LME nickel prices return to normal, SMM will resume the price forecast.
[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.]
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