SMM Morning Comments (Jul 20): Shanghai base metals fell across the board on Covid jitters

SHANGHAI, Jul 20 (SMM) — Shanghai base metals declined across the board on Tuesday morning as investors reacted skittishly to rising cases of Covid-19 around the world, fueled by the highly-transmissible delta variant. Meanwhile, their counterparts on the LME rose across the board.

Shanghai base metals fell across the board in overnight trading. Copper fell 1.86%, aluminium declined 2.04%, zinc shed 0.44%, tin weakened 1.97%, lead slid 1.58% and nickel dropped 3.28%.

The LME complex performed similarly on Monday. Nickel plunged 3.67% to lead the losses, zinc fell 1.02%, aluminium weakened 2.77%, copper decreased 2.68%, lead went down 1.17% and tin dropped 1.13%.

Copper: Three-month LME copper fell 2.68% to end at $9,194/mt on Monday, and is likely to trade between $9,180-9,270/mt today.

The most-active SHFE 2108 copper contract went down 1.86% to close at 67,670 yuan/mt in overnight trading, and it is expected to move between 67,500-68,100 yuan/mt today.

The delta variant of coronavirus cast a shadow over the economic recovery, and risk aversion spread in the global market. Yesterday, the three major US stock indexes fell across the board, dragging down commodities to a certain extent. The National Development and Reform Commission said that it would continue to work with relevant departments to strengthen the monitoring and forecasting of commodity prices and organise the release of national reserves of copper, aluminium and zinc in subsequent batches. Copper reserve was put on the agenda again, and copper dropped under pressure at night. At the same time, after OPEC+ Alliance agreed to increase the supply of crude oil, the resurgence of the pandemic shook investors' confidence in the global economic recovery, which triggered concerns about the oversupply of oil. The US oil and Bunker oil respectively set new lows since late May, which also affected copper prices.

Aluminium: Three-month LME aluminium fell 2.77% to close at $2,420/mt on Monday.

The most-liquid SHFE 2108 aluminium contract fell 2.04% to settle at 18,975 yuan/mt on Monday night.

Overnight, base metals broadly declined due to the strengthening of the US dollar, which rose to a new high since the beginning of April, and the bulk commodities were under pressure collectively. The National Development and Reform Commission said that it would organise the subsequent batch of national reserves such as copper, aluminium and zinc, and pay close attention to the abnormal fluctuations of market prices, and the net transmission of the reserves will increase significantly compared with the first time. Market bulls' confidence has been suppressed.

Zinc: Three-month LME zinc fell 1.02% and closed at $2,957.5/mt on Monday. Zinc stocks at LME-listed warehouses fell 175 mt to 248,550 mt. Overnight, the US dollar index strengthened, hitting a new high in the past four months. Recently, the pandemic variants appeared, the stock market went down, and the risk aversion in the market increased, which dragged down LME zinc. The contract is likely to trade between $2,930-2,980/mt today.

The most-liquid SHFE 2108 zinc contract fell 0.44% to end at 22,425 yuan/mt in overnight trading. Yesterday, the National Development and Reform Commission (NDRC) said that it would organis the release of national reserves of copper, aluminium and zinc in subsequent batches, and pay close attention to the abnormal fluctuation of market prices, which hit the confidence of market bulls. The release of actual reserves will be monitored in the near term. The SHFE zinc contract is expected to move between 22,000-22,500 yuan/mt today, while spot premiums for domestic 0# Shuangyan will be seen higher at 190-220 yuan/mt.

Nickel: The most-active SHFE 2108 nickel contract rose 3.28% to close at 137,930 yuan/mt on Monday. Although the Fed continues to tolerate temporarily high inflation, Biden stated on Monday that the price increase is expected to be temporary, but the long-term runaway inflation will pose a real challenge to the economy, and the government will remain vigilant. On fundamentals, the limited output of recently strengthened stainless steel will reduce the consumption of nickel-based raw materials. Therefore, after the nickel price rose to the upper rail of boll, the spot transaction quickly faded, and the market expectation of falling finally released. It is expected that nickel prices will gradually rise after the correction this week. LME nickel is expected to trade between $18,600-19,200/mt on week. SHFE nickel is expected to trade between 138,000-144,000 yuan/mt on week.

Lead: Three-month LME lead fell 1.17% to close at $2,287.5/mt on Monday. LME nonferrous metals went down collectively, and LME lead also fell below $2,300/mt. However, LME lead stocks continued to decline, and the strong overseas lead consumption has not changed. Whether the contract could stop falling and stabilize, and continue to fluctuate at a high level around $2,300/mt will be monitored today.

The most-liquid SHFE 2108 lead contract fell 1.52% to settle at 15,590 yuan/mt on Monday night. Domestic social inventories of lead ingots continued to pile up on Monday, and the contract will test support from 15,550 yuan/mt today.

Tin: Three-month LME tin closed up 0.63% at $31,950/mt on Monday.

The most-liquid SHFE 2108 tin contract fell 1.97% to close at 227,540 yuan/mt on Monday night. The contract is expected to fluctuate between 226,000-230,000 yuan/mt today.