SMM Morning Comments (Aug 26): Base Metals Closed Mixed ahead of Jackson Hole

SHANGHAI, Aug 26 (SMM) – LME base metals closed mostly with gains, while its counterparts on SHFE closed mixed. The investors were generally cautious ahead of the Jackson Hole symposium and awaited more clues to future rate hike. In China, slightly easing power rationing is expected to push up the supply.

LME copper rose 1.45%, aluminium added 0.37%, lead gained 0.36%, and zinc advanced 1.05%.

SHFE copper rose 0.86%, aluminium lost 0.79%, lead lost 0.4%, and zinc added 0.14%.

Copper: LME copper opened at $8,117.5/mt yesterday, and once hit the highest and lowest price of $8,150/mt and $8,100/mt respectively. At last, the contract closed at $8,143/mt, up 1.45%. Trading volume was 11,000 lots, and open interest stood at 247,000 lots.

SHFE 2210 copper contract opened at 63,030 yuan/mt in overnight trading and hovered around the daily moving average. Within the range, the contract hit the highest and lowest price of 63,330 yuan/mt and 62,910 yuan/mt respectively. At last, the contract closed at 63,160 yuan/mt, up 0.86%. Trading volume was 47,000 lots, and open interest stood at 152,000 lots.

On the macro front, on Thursday, a number of Fed officials were vague about the interest rate hikes they would support at the September meeting, but they stressed that the interest rate would be raised further and would be kept for a period of time after curbing inflation. Investors are still waiting for Powell’s speech on Friday to seek further clues about the pace of the Fed's interest rate hike.

In the spot market, the inflow of imported copper and the gradual improvement of hot weather has eased the cargo holders’ worries about the supply shortage, and downstream intended to place orders slowly when the copper prices stood at above 63,000 yuan/mt. And the execution of long-term orders is coming to an end, hence the premiums could hardly maintain high. However, SMM believes that the premiums in Guangdong are still firm, which will effectively restrain the decline in premiums in Shanghai.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,915 yuan/mt overnight and rose to 18,960 yuan/mt before closing at 18,760 yuan/mt, down 150 yuan/mt or 0.79%.

LME aluminium opened at $2,624.6/mt on Thursday and closed at $2,435.5/mt, an increase of $9/mt or 0.37%.

Due to severe power shortages, the 1.07 million mt of installed aluminium capacity in Sichuan is expected to be shut down completely this week. In addition, aluminium smelters in Chongqing and Henan have also reduced production. Overseas aluminium smelters also lowered their output due to the intensified energy crisis in Europe. The operating rates of domestic aluminium downstream processing enterprises continued to decline this week under the influence of power rationing. Despite supply concerns, weak downstream demand will constrain the upside room of aluminium prices. The short-term aluminium prices may maintain a wide fluctuation pattern.

Lead: LME lead opened at $1,969/mt overnight and rose amid the increase of SHFE lead and the expectation of China’s import of lead concentrate. As the US dollar index fell, LME lead further increased and finally closed at $1,973/mt, up 0.36%.

The most-traded SHFE 2209 lead contract opened at 15,160 yuan/mt overnight and rose to the highest point at 15,200 yuan/mt in the early stage as the inventory declined. However, due to the eased impact of power rationing, the supply is expected to increase. Therefore, SHFE lead fell sharply to the lowest point at 15,045 yuan/mt and finally closed at 15,065 yuan/mt, down 0.4%, with open interest decreasing 2,815 lots to 29,783 lots. The most-traded SHFE lead contract gradually shifted to 2210 contract.

Zinc: LME zinc closed at $3,565/mt on Thursday, up $37/mt or 1.05%. The open interest added 682 lots 198,000 lots. Overnight LME inventory fell 50 mt to 77,125 mt.

The most traded SHFE zinc contract closed at 25,360 yuan/mt overnight, up 35 yuan/mt or 0.14%. The open interest rose 6,204 lots to 124,000 lots. On the fundamentals, settlement prices of natural gas futures in the Europe rose to new highs, and the global supply remained tight despite slightly easing power rationing in China. On the consumption side, the operating rates of galvanising plants rose, while the die-casting and zinc oxide sectors were relatively weak. In the spot market, a significant number of warrants flowed out of the warehouses in Guangdong, but the overall sources available in the market were still relatively tight.

Overnight, on the eve of Powell's heavyweight speech, Fed officials put it hawkish one after another that the Fed shall raise rates to a restricted level, and there is no rush to cut rates next year, while it has not been decided whether to raise rates by 50 or 75 basis points in September. Ministry of Industry and Information Technology: to put the promotion of new energy development in a more prominent position, to active and orderly develop solar energy, silicon energy, hydrogen energy, and renewable energy. Central Meteorological Station: from August 29 and onwards, the scorching heat in Sichuan and Chongqing is "off". China Meteorological Administration organises large artificial rainfall operations by drones in Sichuan. The annualised rate of US Q2 real GDP was revised up to -0.6% QoQ, and the economic outlook is not optimistic.

Tin: The most-traded SHFE 2210 tin contract went down after opening slightly lower overnight, but still moved within a narrow range. Longs and shorts continued to exit. Domestic tin inventory under SHFE warrants continued to decrease. The supply of cargoes which are non-deliverable brands was tight in the spot market. LME tin inventories continued to accumulate. Overseas premiums remained low, keeping the import profit window open. A small amount of imported tin was quoted at small premiums over the most-traded SHFE tin contract. Given the stable market demand and weaker enthusiasm of investors, it is expected that the short-term tin prices will move sideways.

Nickel: On the supply side, premiums of domestic pure nickel stood firm because of the purchases on rigid demand, thus the pure nickel imports remained profitable. In terms of NPI, the terminal sentiment is still pessimistic at present. In addition, the previously purchased high-priced ore brought the NPI plants high smelting costs, hence the plants held their prices firm and the spot trading remained sluggish. On the demand side, at present, there is a shortage of some specifications of stainless steel in the spot market, but the impact on the prices was limited, and the spot transactions were still slack. As for the alloy, the entire sector could see purchases on rigid demand. The demand for pure nickel in the military sector was normal, but that in civil alloy remained sluggish. In general, the current slack demand offers limited support to the 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.]