SMM Morning Comments (Sep 7): Base Metals Closed Mixed amid a Prosper US Services Sector

SHANGHAI, Sep 7 (SMM) – LME and SHFE base metals closed mixed The US services sector picked up for the second month in a row in August amid growing orders and strong employment, while the supply bottlenecks and price pressures eased, reinforcing the view that the economy is not in recession and the US Fed would adhere to the rate hike path.

LME copper lost 0.1%, aluminium closed at $2,260.5/mt, lead added 0.32%, and zinc fell 0.39%.

SHFE copper gained 0.53%, aluminium fell 0.57%, lead added 0.23%, and zinc fell 0.76%.

Copper: LME copper opened at $7,675.5/mt yesterday and fluctuated wildly. Within the range, the contract hit the lowest and highest of $7,638/mt and $7,707/mt respectively. At last, the contract closed at $7,666/mt, down 0.1%. Trading volume was 12,000 lots, and open interest stood at 248,000 lots.

SHFE 2210 copper opened at 61,380 yuan/mt in overnight trading and fell to the lowest at 61,040 yuan/mt after climbing to 61,500 yuan/mt. At last, the contract closed at 61,260 yuan/mt, up 0.53%. Trading volume was 51,000 lots, and open interest stood at 162,000 lots.

On the macro front, the US ISM non-manufacturing PMI, new orders index and employment index rebounded for two consecutive months in August. The stronger-than-expected data performance contributed to the market's expectations that the US Fed will continue to raise interest rates to curb inflation. The US dollar continued to rise on Tuesday and created a 20-year high of 110.57 during the session. During the night session, copper prices were under pressure and volatile.

On the fundamentals, mines’ production still affected the supply. It is reported that in July, the world's two largest copper producers, Chile and Peru, both experienced a year-on-year decline in copper production due to declining ore grades and frequent strikes, but copper supply in China is expected to continue to pick up. Domestic consumption did not grow strongly when entering September. Some terminals, such as the home appliance industry, were still shrinking, but the consumption of wire and cable remained stable. Recently, the US dollar index has continued to hit new highs, which has put some pressure on copper prices. As the prices are dominated by macro factors, the Fed is expected to raise the interest rate aggressively, hence the copper prices in the market outlook will remain volatile with some downward potential.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,345 yuan/mt overnight, and rose to 18,405 yuan/mt before closing at 18,295 yuan/mt, down 105 yuan/mt or 0.57%.

LME aluminium opened at $2,289.5/mt on Tuesday and closed at $2,260.5/mt.

SHFE aluminium fell back after rising for three days in a row. The market is worried that aluminium smelters in Yunnan may be subject to power rationing. Only 5% of aluminium smelters in Yunnan reduced their power load, which will have little impact on the total market supply. Whether aluminium prices will go up further depends on the scale of output cuts in Yunnan and intensity of demand recovery.

Lead: LME lead opened at $1,892/mt on Tuesday, and moved all the way up amid Asia trade, and touched a brief high of $1,910.5/mt in Europe trade before falling to $1,883.5/mt. The contract finally closed at $1,903/mt, up $6/mt and 0.32%.

The most-traded SHFE 2210 opened at 15,050 yuan/mt and then dropped to 15,000 yuan/mt after rising slightly to 15,095 yuan/mt. The contract hovered above the 15,000 yuan/mt level afterwards and closed at 15,030 yuan/mt, up 35 yuan/mt or 0.23%.

Zinc: LME zinc closed at $3,181.5/mt on Tuesday, down $12.5/mt or 0.39%. The open interest fell 695 lots 195,000 lots. Overnight LME inventory fell 75 mt to 77,400 mt.

The most traded SHFE 2210 zinc contract closed at 24,090 yuan/mt overnight, down 185 yuan/mt or 0.76%. The open interest added 1,143 lots to 118,000 lots.

Overnight, China's export growth was expected to slow moderately to 12.8% year-on-year in August, while the import growth also slowed to 1.1%. The US services sector picked up for the second month in a row in August amid growing orders and strong employment, while the supply bottlenecks and price pressures eased, reinforcing the view that the economy is not in recession, despite a fall in output in the first half of the year.

Tin: The most-traded SHFE tin contract moved sideways overnight. There were signs of shorts entering the market. Domestic tin inventory on SHFE warrants fell further. Trades in the spot market improved slightly due to the fall in tin prices. LME tin inventory stopped rising. Overseas premiums remained low. The import profit window remained open, but there were limited quotations of imported tin in the domestic market. Given weak demand and falling inventory, SHFE tin will probably hover sideways.

Nickel: On the supply side, affected by the rise in the futures prices yesterday, the spot premiums fell. Imports of pure nickel suffered small losses, but due to weak demand, there was no shortage of supply. In terms of NPI, the output of NPI in September was the same as that in August. With the increase in demand, the supply surplus will be alleviated. NPI plants are more willing to ship at present, so it is expected that the NPI prices will rise slightly in the short term. On the demand side, due to the expected shutdown of overseas steel mills and some accidents, the supply of overseas stainless steel decreased significantly in September, pushing up the stainless steel prices in China. In terms of alloys, according to the SMM research, affected by the high nickel prices, the production of nickel-based alloys in August decreased 4.59% month-on-month, and the consumption of pure nickel fell 4.29%. In general, although the downstream demand for pure nickel is currently poor, the domestic stainless steel market is expected to be promising in September, and the demand for primary nickel may pick up. In the short term, nickel prices may fluctuate at high levels.

[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.]