SMM Morning Comments (Oct 21): Base Metals Closed Mostly with Gains on Booming Macro Sentiment

SHANGHAI, Oct 21 (SMM) – LME and SHFE base metals closed mostly with gains on booming macro sentiment. Overnight, Truss resigned after only six weeks in office, becoming the shortest-tenured British prime minister in history. Meanwhile, international crude oil futures stabilised overnight, with Brent Crude and US oil closing up 0.35% and 59% respectively, which was bullish for base metals.

LME copper added 2.29%, aluminium rose 1.23%, lead slid 0.9%, and zinc gained 1.93%.

SHFE copper gained 1.62%, aluminium rose 1.65%, lead jumped 0.88%, and zinc added 1.89%.

Copper: LME copper opened at $7,471/mt on Thursday, and once hit the lowest and highest of $7,458/mt and $7,588/mt respectively. At last, it closed at $7,534/mt, up 2.29%. The trading volume was 18,000 lots, and open interest stood at 237,000 lots.

SHFE copper opened at 61,650 yuan/mt overnight and fluctuated upward to 62,350 yuan/mt. At last, the contract closed at 62,150 yuan/mt, up 1.62%. The trading volume was 37,000 lots, and open interest stood at 158,000 lots.

On the macro front, the number of initial US jobless claims announced yesterday was better than expected, but the Philadelphia Fed Manufacturing Index in October and the sales data of existing homes in September were lower than expected. Philadelphia Fed President Harker said that rate hikes have little effect on tempering inflation. And the US Fed has not completed its task and needs to raise interest rates further and sharply. Therefore, the US dollar rebounded after falling, but still fell slightly by 0.04%. As the market weighed the influence of supply and demand news, international crude oil futures stabilised overnight, with Brent Crude and US oil closing up 0.35% and 59% respectively, which was bullish for copper prices.

On the fundamentals, due to the congestion in a warehouse in Shanghai, sources of goods available in the market were scarce. Besides, the small arrival of imported copper temporarily tightened the supply, pushing up the spot premiums. On the demand side, the spread between the copper cathode and copper scrap narrowed, improving the downstream restocking, but many processing enterprises were worried that warrants will gradually flow into the market after the transaction returns to normal, so they were reluctant to buy goods at high prices, resulting in a sluggish market. After the warehouse operation resumes, the spot premiums may drop.

Aluminium: The most-traded SHFE 2211 aluminium contract opened at 18,535 yuan/mt overnight, with its low and high at 18,520 yuan/mt and 18,735 yuan/mt before closing up 295 yuan/mt or 1.65%.

LME aluminium opened at $2,186/mt on Thursday, with its high and low at $2,209.5/mt and $2,186.5/mt respectively before closing at $2,217/mt, an increase of $27/mt or 1.23%.

The domestic supply recovered slightly, but the regional power shortage in Yunnan and other regions still kept the market worried about possible production cuts in the future. In terms of demand, the downstream production was restricted by the pandemic in some parts of Henan. Dip buying and slower logistics in central China allowed the social inventory to decline. Spot discounts turned into premiums amid tight supply. In the short term, both supply and demand in the domestic aluminium market will be weak, but low inventories and high costs will support aluminium prices. As the medium and long-term global demand outlook is pessimistic, aluminium prices may fluctuate widely.

Lead: LME lead opened at $1,990.5/mt and climbed to the highest point at $1,994.5/mt during the Asian trading hours. During the European trading hours, LME lead fell to the lowest point at $1,942/mt and finally closed at $1,977.5/mt, down 0.9%. The open interest increased by 495 lots to 89,894 lots from the previous trading day.

The most-traded SHFE 2211 lead contract opened at 15,310 yuan/mt and rose 0.88% to end at 15,375 yuan/m, after briefly hitting the lowest point at 15,300 yuan/mt and rising to the highest level at 15,485 yuan/mt. The open interest increased by 3,489 lots to 58,152 lots from the previous trading day.

Zinc: LME zinc closed at $2,956.5/mt on Thursday, up $56/mt or 1.93%. The open interest fell 1,689 lots to 183,000 lots. Overnight LME inventory fell 275 mt to 50,925 mt, down 0.54%.

The most traded SHFE 2211 zinc contract closed at 25,585 yuan/mt overnight, up 475 yuan/mt or 1.89%. The open interest rose 5,939 lots to 127,000 lots. On the supply side, zinc concentrate supply remained sufficient, hence TCs were on the rise. On the consumption side, galvanizing sector remained high operating rates, but the profits margins were low amid strong competitions. On the whole, SHFE zinc is underpinned by macro sentiment and low inventory.

Overnight, Truss resigned after only six weeks in office, becoming the shortest-tenured British prime minister in history. China's central bank deputy governor: it will implement a sound monetary policy and maintain the basic stability of the RMB exchange rate. The United States accused Iran of sending personnel to assist Russia to attack Ukraine with drones.

Tin: Both domestic tin inventory under warrants and LME tin inventory decreased slightly. The import profit window remains open, and it is expected that there will be concentrated arrivals of imported tin at the end of the month. Overnight, SHFE tin rose above 170,000 yuan/mt, but then fell back. The willingness of both longs and shorts to enter the market remained weak. Due to stable supply-demand dynamics and weak market sentiment, it is expected that SHFE tin will continue to move sideways at a low level.

Nickel: The pandemic outbreaks in China hindered the transportation of goods in many places of the country, delaying the arrival of spot pure nickel in the market. The NPI plants’ shipment in October was good, which eased their inventory pressure. At the same time, the supply of Indonesia NPI was tight, and the prices stood higher. It is expected that the short-term NPI prices will be stable with some upward potential. On the demand side, according to SMM research, the spot prices in the Wuxi and Foshan markets rose again, with the prices of #304 cold-rolled coils growing the most. Tsingshan stainless steel supply was relatively tight in the market as transactions were active. The demand for pure nickel from the alloy sector still existed. To sum up, due to the impact of the pandemic outbreaks in China, the supply of pure nickel remained tight. It is expected that pure nickel prices will trend higher in the near future.

[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.]