SMM Evening Comments (Aug 29): Shanghai Nonferrous Metals Closed with Losses amid Extending Tight Monetary Policy Orientation

SHANGHAI, Aug 29 (SMM) – Shanghai nonferrous metals closed with losses as the market players were still weighing the hawkish speech from Fed Chair Powell last Friday, indicating that the tight monetary policy is needed for some time. And ECB management committee Kazaks also said the ECB should raise interest rates by at least 50 basis points in September.

Shanghai copper fell 1.25%, aluminium lost 0.64%, lead shed 0.8%, zinc slid 1.55%, tin declined 2.58%, and nickel dropped 4.98%.

Copper: The most-traded SHFE 2210 copper closed down 1.25% or 790 yuan/mt at 62,550 yuan/mt, with open interest up 2,036 lots to 166,219 lots.

On the macro front: (1) US core PCE price index annual rate in July came in at 4.6%, with a previous value of 4.8% and a forecast of 4.7. (2) ECB management committee Kazaks said the ECB should raise interest rates by at least 50 basis points in September and the rate shall reach neutral levels in the first quarter of next year.

In the spot market, sources in the market are mainly with next-month invoice, and the spread with front-month invoice was around -40 yuan/mt. Mainstream standard-quality copper with next-month invoice was in premiums of 480 yuan/mt in morning trade, and the spread between good and standard-quality copper narrowed to 10-20 yuan/mt. While the spread between SHFE 2209 and 2210 hovered around 500 yuan/mt, transactions in the spot market were scarce, and premiums of standard-quality copper fell to 430-440 yuan/mt when the first trading session ended, with a few sources quoted at 430 yuan/mt. But the market participants generally said no to high premiums amid expanding SHFE 2209 and 2210 spread, rising inventory of spot copper cathode, and constant inflows of imported copper. LME market was closed today for the bank holiday, limiting the inter-exchange liquidity.

Aluminium: The most-traded SHFE 2210 aluminium closed down 0.64% or 120 yuan/mt to 18,675 yuan/mt, with open interest up 6,223 lots to 171,655 lots.

At present, the power supply toward the industry sector is resuming in Sichuan province, and local aluminium smelters have been planning to resume the production, but the upside momentum originally fuelled by falling supply weakened. On the demand side, aluminium prices are still pressured by sluggish demand.

Lead: The most-traded SHFE 2209 lead closed down 0.8% or 120 yuan/mt at 14,945 yuan/mt, with open interest down 7,410 lots to 15,463 lots.

According to SMM research, the supply of secondary refined lead recovered gradually with the power rationing approaching the end. Lead ingot inventory is likely to slow down its destocking pace with supply recovery outpacing that of consumption. The market players shall watch the support at 14,900 yuan/mt tonight.

Zinc: The most-traded SHFE 2210 zinc closed down 1.55% or 395 yuan/mt at 25,025 yuan/mt, with open interest down 2,158 lots to 129,007 lots.

SHFE zinc slumped amid surging US dollar index and rattled market nerves, and zinc futures contract surrendered the gains from supply tightness caused by energy crisis. But it is worth noting that spot supply in China was still tight, and the social inventory was still falling though the supply tightness in Tianjin eased as its high premiums have attracted sources from other markets. SMM zinc ingot social inventory stood at 123,300 mt across the seven major markets in China, down 2,700 mt from last Monday. Zinc ingots are unlikely to rise or fall significantly in the near term as the market has fully priced in the US Fed’s rate hike.

Tin: The most-traded SHFE 2210 tin closed down 2.58% or 5,120 yuan/mt at 193,260 yuan/mt, with open interest up 4,812 lots to 37,865 lots.

In the spot market, a few smelters were firm to their prices in morning trade, but mainstream smelters lowered the prices along with falling futures prices. The spread between the premiums from the traders narrowed further, with tight supply of non-deliverable brands. The transactions picked up significantly today after the futures prices fell, and the downstream purchased in a centralised manner.

The fundamentals in the tin market changed little at present, according to SMM research. The consumption of downstream solder companies was almost flat MoM in August. Previously, the tin foil sheet sector prompted the consumption of tin ingot from two aspects. Frist, the manufacturers restocked tin ingot when the prices stabilised at a low level. Second, the manufacturers maintained normal production and restocked accordingly as the demand for tin foil sheet is greater in the second half of the year than in the first half. The demand from dip purchasing was unsustainable, hence the tin ingot consumption from the tin foil sheet sector is likely to contract compared with the previous session.

On the supply side, most smelters have returned to normal production, and the imports will rise as well when the import window remained open in August, potentially easing the supply tightness of tin ingot in China.

Nickel: The most-traded SHFE 2210 nickel closed down 4.98% or 8,650 yuan/mt at 165,060 yuan/mt, with open interest up 1,242 lots to 57,704 lots.

On the supply side, the import profits were meagre through the SHFE/LME price ratio rebounded. For NPI, the smelting cost was still relatively high amid lingering pessimism on the terminal end as well as the high-priced nickel ore purchased earlier. Hence the NPI plants were firm to the prices, with relatively poor sales. On the demand side, stainless steel futures prices rebounded, and Tsingshan Group also raised the prices of its forward products. The prices of spots, on the other hand, remained stable. For alloy, the orders were stable on rigid demand, despite high nickel prices. To sum up, falling pure nickel premiums as well as poor demand both weighed on 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.]