SMM Morning Comment For SHFE Base Metals (August 29)

SHANGHAI, August 29 (SMM) -

Copper

Futures: LME copper opened at $9,791.5/mt overnight, touched a low of $9,781/mt at the beginning of the session, then fluctuated upward to a high of $9,738.5/mt toward the end of the session, and finally closed at $9,839.5/mt, up 0.68%. Trading volume reached 14,000 lots, and open interest stood at 268,000 lots. The most-traded SHFE copper contract 2510 opened at 78,920 yuan/mt overnight, touched a low of 78,830 yuan/mt at the beginning of the session, rose to a high of 79,060 yuan/mt during the session, then fluctuated rangebound and finally closed at 78,990 yuan/mt, up 0.22%. Trading volume was 17,000 lots, and open interest was 168,000 lots.

Prices: On the macro front, US Fed Governor Waller once again called for an interest rate cut, stating that he would support a 25-basis-point cut in September and anticipating further cuts in the next three to six months, with the pace depending on newly released data. Additionally, as a meeting between Russian and Ukrainian leaders appeared nearly hopeless, dampening hopes for a peace process between the two countries, international crude oil reversed its decline during the session, achieving two consecutive weekly gains. Overall, macro factors are bullish for copper prices. On the fundamentals side, supply side, a large amount of imported copper has arrived, and domestic supply is steadily replenishing, making spot copper supply relatively ample. Spot supply is expected to continue growing next week. Consumption side, as the off-season gradually ends, downstream consumption is expected to recover. As of Thursday, August 28, SMM's national mainstream copper inventories increased by 4,100 mt from Monday to 127,100 mt, but decreased by 4,600 mt WoW from the previous Thursday. Price side, macro and fundamental factors are expected to resonate, providing some support for copper prices today.

Aluminum

Futures: The most-traded SHFE aluminum 2510 contract opened at 20,760 yuan/mt during the night session, reaching a highest price of 20,780 yuan/mt and a lowest price of 20,695 yuan/mt, closing at 20,705 yuan/mt. Trading volume was 4.8 lots, and open interest was 241,000 lots. LME opened at $2,607.5/mt, with a highest price of $2,611/mt, a lowest price of $2,607.5/mt, and closed at $2,609/mt.

Summary: On the macro front recently, global economic and trade friction continued to ease, the China-Canada Joint Economic and Trade Committee released positive signals of cooperation, coupled with better-than-expected US economic data, boosting market risk appetite. Market sentiment leaned optimistic, supporting aluminum prices. Demand side, as August draws to a close, the September-October peak season is approaching, and weekly operating rates downstream showed stronger signs of recovery this week. The operating rate of leading domestic aluminum extrusion enterprises rose 1.5 percentage points WoW to 52%, mainly driven by industrial extrusion enterprises led by PV extrusion. Other sectors such as aluminum plate/sheet, strip and foil, and aluminum wire and cable also saw certain increases in operating rates. Inventory side, according to SMM statistics, on August 28, aluminum ingot inventory in mainstream domestic consumption areas was 620,000 mt, up 4,000 mt from this Monday and up 24,000 mt WoW from last Monday. Aluminum ingot absolute prices pulled back slightly, and buying sentiment improved, but it has not yet reached the level to stimulate large-scale market restocking. Under the off-season, the inventory buildup pace and high aluminum prices will continue to suppress spot premiums. Overall, on the macro front, rising expectations for US Fed interest rate cuts and China's policies boosting domestic demand have created a generally favorable atmosphere, which is expected to improve the aluminum consumption outlook. However, it will take time for domestic policy support to transmit to actual consumption. In the traditional September peak season, aluminum prices are more likely to rise than fall overall, but top-side pressure remains. For aluminum prices to effectively break through the important resistance level of 21,000 yuan/mt, it will require the realization of expectations for the September-October peak season in aluminum consumption, and verification through the subsequent appearance of a destocking turning point for domestic aluminum ingots and continued strength in downstream operating performance. SMM expects aluminum prices to continue holding up well in the near term.

Lead

Overnight, LME lead opened at $1,985.5/mt, fluctuated around the daily moving average during the Asian session, and after touching a high of $1,998/mt in the European session, it fluctuated downward to a low of $1,965/mt, finally closing at $1,992/mt with a gain of $11/mt, up 0.56%.

Overnight, the most-traded SHFE lead 2511 contract opened at 16,790 yuan/mt, initially reaching a high of 16,970 yuan/mt, then fluctuated downward to a low of 16,775 yuan/mt, and after a slight consolidation, closed at 16,840 yuan/mt, up 72 yuan/mt, or 0.43%.

Despite the traditional peak consumption season for lead-acid batteries in August-September, the improvement in end-user consumption is limited, and downstream enterprises continue to produce based on sales. Under the current backdrop of "high-priced lead" raw materials, the willingness of downstream buyers to stockpile has not improved with the arrival of the peak season. In terms of social inventory, despite reduced supply and transportation constraints, the decline in lead ingot social inventory was only marginal. After secondary lead smelters entered a state of maintenance, the market supply of secondary refined lead decreased while also facing loss issues. The quotations from secondary refined lead suppliers were almost on par with those of primary lead, leading downstream enterprises to prefer just-in-time procurement of primary lead. Additionally, some companies continued to purchase lead ingots from nearby warehouses, causing the social inventory of lead ingots to continue its downward trend. In the short term, lead prices may still experience sideways movement.

Zinc

Futures: Overnight, LME zinc opened at $2,764/mt. At the beginning of the session, LME zinc fluctuated along the daily average line. Subsequently, LME zinc continuously surged above the daily average line but kept pulling back to a low of $2,754/mt under the influence of bulls reducing positions. Entering the night session, LME zinc continued to rise and finally closed up at $2,787/mt, an increase of $23/mt, or 0.83%. Trading volume increased to 93,320 lots, while open interest decreased by 372 lots to 192,000 lots. Overnight, SHFE zinc opened at 22,145 yuan/mt. After briefly touching a high of 22,155 yuan/mt, SHFE zinc rapidly declined to a low of 22,030 yuan/mt due to bears increasing their positions. Then, as bears reduced their positions, SHFE zinc's center moved above the daily average line, closing down at 22,100 yuan/mt, a decrease of 70 yuan/mt, or 0.32%. Trading volume increased to 63,098 lots, while open interest increased by 2,485 lots to 117,000 lots.

Zinc Price Forecast: Overnight, the LME zinc contract recorded a bullish candlestick, with the 10/20-day moving averages exerting pressure from above and the 60-day moving average providing support from below. Currently, the independence of the US Fed is under some threat, leading to a strong wait-and-see sentiment in the market. Meanwhile, some US Fed governors reiterated their support for a 25-basis-point interest rate cut in September. Coupled with the fluctuating downward trend of the US dollar index and the continuous decrease in overseas inventories, the LME zinc contract recorded a bullish candlestick. Overnight, SHFE zinc recorded a bearish candlestick, with various moving averages exerting pressure from above. According to SMM data, as of August 28, domestic social inventory continued to increase, surpassing 140,000 mt. However, recent minor improvements in consumption in certain downstream sectors, along with support from low overseas inventories, suggest that SHFE zinc will continue to be in the doldrums.

Tin

Futures: The most-traded SHFE tin contract (SN2510) opened significantly higher and then dropped back slightly during the night session, closing at 273,300 yuan/mt, up 0.37% from the previous trading day.

Macro: (1) Innoscience (02577.HK) announced in Hong Kong that its sales targeting AI and data centers in H1 rose 180% YoY; its 48v-12v applications based on 100V gallium nitride entered mass production; it became the sole domestic supplier on NVIDIA's 800V high-voltage DC solution chip supplier list, with gallium nitride adopted in NVIDIA's new-generation architecture, marking the entry of AI/data centers into the era of gallium nitride-based high-efficiency energy conservation. Automotive electronic products applied in scenarios such as LiDAR and on-board chargers (OBCs) maintained rapid growth, with deliveries of automotive-grade chips rising 128% YoY. (2) Opinions of the CPC Central Committee and the State Council on Promoting High-Quality Urban Development. The opinions mentioned expanding coverage of fifth-generation mobile communication networks (5G) and gigabit optical networks, optimizing the layout of computing infrastructure construction, and advancing the construction of new-type urban infrastructure. It also mentioned optimizing the allocation of urban water resources and the management system for water supply security. A modern comprehensive transportation system will be improved to enhance intercity and intracity commuting efficiency, refine the layout of transfer and handling facilities at transportation hubs, and strengthen the construction of convenient facilities such as parking spaces and charging piles. (3) US Fed -- ① Cook officially filed a lawsuit against Trump over the dismissal controversy, with Powell also named as a defendant. Cook's lawyer stated that the mortgage dispute may have arisen from a "clerical error." ② Milan, nominated by Trump for the position of Fed governor, is expected to be confirmed before the Fed's September resolution. ③ A US judge scheduled a hearing for Cook's lawsuit against Trump this Friday. The judge, nominated by Biden, is expected to make a final decision in the Supreme Court.

Fundamentals: (1) Supply-side disruptions: Overall tin ore supply in major producing regions such as Yunnan has tightened, and some smelters may maintain production halts for maintenance or implement slight production cuts in August (bullish ★). (2) Demand-side: PV industry: After the installation rush ended, orders for PV tin strips in east China declined, and the operating rates of some producers decreased; electronics industry: electronic terminals in south China entered the off-season, coupled with high tin prices, resulting in a strong wait-and-see sentiment among end-users, with orders only meeting rigid demand; other sectors: demand in areas such as tinplate and chemicals remained stable, with no unexpected growth observed.

Spot market: As spot prices remained fluctuating at highs above 272,000 yuan yesterday, most downstream and end-user enterprises maintained a wait-and-see attitude, with sluggish order conditions and poor purchase intentions. Most traders reported single-digit transactions yesterday.