SMM Evening Comments (Sep 27): Shanghai Nonferrous Metals Closed Mixed amid Intensifying Power Rationing

SHANGHAI, Sep 27 (SMM) - Shanghai nonferrous metals closed with mixed performance as the intensifying power rationing has been impacting both the upstream and downstream sectors.

Shanghai copper gained 0.57%, aluminium fell 2.01%, lead was flat, zinc advanced 0.57%, tin plummeted 3.66%, and nickel slid 2.05%.

Copper: The most-traded SHFE 2111 copper closed up 0.57% or 390 yuan/mt to 69270 yuan/mt, with open interest up 9694 lots to 114100 lots.

On the macro front, US new housing sales in August rose 1.5% on the month, the highest in four months. The consumers’ long-run inflation expectations were still firmly contained according to the New York Federal Reserve. As such, the macro sentiment is relatively stable.

On the fundamentals, domestic social inventory in mainstream markets fell 113,000 mt on the week to 92,200 mt, a new record low in the year, according to SMM, which offered some support to copper prices. Meanwhile, some smelters have been influenced by the power rationing. Therefore, the market shall closely watch the impact of power rationing on supply and demand as well pre-National Day holiday restocking.

Tonight, the market shall keep an eye on the initial reading of the growth rate of US durable goods orders in August (estimated at 0.6% and finalised at -0.1% in the previous session). More new orders usually signal more manufacturing activities, which will benefit the US dollar index and pressure SHFE copper.

Aluminium: The most-traded SHFE 2111 aluminium closed down 2.01% or 465 yuan/mt to 22725 yuan/mt, with open interest down 10650 lots to 282315 lots.

The market supply of aluminium continued to fall in light of the intensifying energy consumption control policies, supporting aluminium prices. However, the social inventories of aluminium billet and aluminium have been on the rise, mainly caused by sluggish downstream demand amid surging prices and power rationing.

Lead: The most-traded SHFE 2110 lead closed flat at 14495 yuan/mt, with open interest down 17322 lots to 38271 lots.

The actual impact of power rationing on secondary lead was limited, but it somehow slowed down the increase in the inventory, especially in a time when the secondary lead quotes surged and once surpassed that of primary lead. The downstream sector actively restocked ahead of the National Day holiday, and the spot trades were modest. For primary lead, mainstream quotes were offered with premiums at 120 – 150 yuan/mt, and traders quoted with discounts at 40 – 0 yuan/mt over SHFE 2110 contract.

According to SMM, the lead ingots inventory in the five major markets in China was flat from Friday September 24, and stood at 215,900 mt. The total inventory is expected to fall amid production reduction and pre-holiday restocking.

Zinc: The most-traded SHFE 2111 zinc closed up 0.57% or 130 yuan/mt at 23020 yuan/mt, with open interest up 21346 lots to 113591 lots.

The supply side has experienced great disruptions, especially in Yunan and Hunan where the power rationing has been intensive. Currently speaking, the impact of power rationing on the demand side has been limited, but the overall mid and downstream demand was still sluggish amid the high season. The operating rates of galvanising companies fell due to operating losses; while the production of die-casting zinc alloy plants was also subdued.

Tin: The most-traded SHFE 2110 tin closed down 3.66% at 270340 yuan/mt, with open interest down 5400 lots. The daily chart trended down as long capitals chose to close the positions.

On the fundamentals, the market saw more quotes from various brands and traders. And the recent massive power rationing is likely to impact the downstream demand in the short term.

Technically speaking, the intraday plummet in futures prices could be seen as the result of the market’s fear over the surging prices in the past few trading days before the most-traded contract was shifted to SHFE 2111 tin.

Nickel: The most-traded SHFE 2110 nickel closed down 2.05% or 2980 yuan/mt to 142470 yuan/mt, with open interest down 11917 lots to 43076 lots.

The Fed indicated that the tapering of debt purchase will probably finish by mid-2022, and the interest hike may come earlier than expected, signalling hawkish stance.

In China, the nickel ore inventory rose at a lower pace, thus the tight supply pattern remains. The demand from the downstream steel mills was sluggish amid frequent maintenance. While the new energy sector maintained its fast development, creating more demand for nickel briquette. The prices of nickel fell recently, prompting the downstream sector to purchase on the dip. Meanwhile, the inventory in China and overseas market has been falling, underpinning nickel prices.