SMM Evening Comments (Aug 19): Shanghai Nonferrous Metals Closed Mostly in the Negative Territory with Copper Leading the Losses

SHANGHAI, Aug 19 (SMM) – Shanghai nonferrous metals market mostly closed in the negative territory amid a surging US dollar index and hawkish market signals.

Shanghai copper plunged 3.27%, aluminium lost 1.68%, lead rose 0.91%, zinc lost 0.97%, tin slid down 0.71%, and nickel plummeted 2.09%.

Copper: The most-traded SHFE 10 copper contract closed down 3.27% or 2250 yuan/mt to 66610 yuan/mt, with open interest up 21800 lots to 118000 lots. Intraday 09 – 10 copper contract spread fluctuated wildly, with a widening backwardation which once fell into the rangebound of 180-190 yuan/mt. 09 – 11 copper contract spread also maintained backwardation.

On the macro front, the meeting minutes of overnight Fed meeting showed that decision-makers have not yet decided on the timeline of tapering asset purchase. But some officers suggested that the Fed is likely to reach the threshold for a tapering decision within this year. Negative sentiment kept spreading. On the other hand, US dollar index touched a new high in nine months, pressuring on non-ferrous metals. LME copper prices were still falling, which hit US$8800/mt as of the time of this writing, indicating the directions of copper market. Also, residents near MMG Ltd’s Las Bambas copper mine in Peru lifted the blockade of a road used to transport the Las Bambas copper mine in Peru after accepting the proposal from President Pedro Castillo’s socialist administration.

Tonight, the market shall pay attention to US jobless claims in the week ended August 14, as well as US Philadelphia Fed Manufacturing Index for August. Whether the market’s worries over inflation could be eased will decide the trending of SHFE copper.

Aluminium: The most-traded SHFE aluminium contract closed down 1.68% to 19955 yuan/mt.

On the macro front, market risk appetite continued to fall amid less-than-expected Chinese economy performance in July as well as unexpectedly slower US retail sales data. On the fundamentals, de-stocking was slowing down, and market worries that social inventories would turn to re-stocking soon. While power supply will remain disrupted in the near future, bringing down aluminium output in July, which offered some support to aluminium futures prices. Aluminium output is likely to be restrained further amid intensified environmental protection requirements.

Lead: The most-traded SHFE 2109 lead closed up 0.91% or 140 yuan/mt to 15465 yuan/mt, with open interest down 11170 lots to 71614 lots. Spot holders were still unwilling to sell, and secondary lead discounts failed to rise following the rally in lead prices. Downstream sector mostly held wait-and-see attitude with limited actual transactions. Tonight, investors shall watch if SHFE lead prices could challenge 15500 yuan/mt as initial target.

Zinc: The most-traded SHFE 2109 zinc closed down 0.97% to 22420 yuan/mt, with open interest down 20555 lots. The macro front was bearish amid a hawkish signal from Fed’s meeting minutes and rising US dollar index. On the fundamentals, spot prices fell while downstream inquiries were cautious. Inventories of SHFE zinc under warrant fell from the previous trading day.

Tin: The most-traded SHFE 2109 tin closed down 0.71% at 240760 yuan/mt, with open interest down 877 lots. In terms of daily chart, long capitals chose to reduce their lots and left the market as the intraday prices failed to sustain its gaining twice, subsequently pulling back prices. It showed that long capitals were willing to exit the market, and meanwhile, they lacked the capability to further push up prices for the moment.

On the fundamentals, domestic plants and mines resumed production, easing the currently tightened supply to some extent. Generally speaking, there is an increasingly higher possibility that the uptrend in prices will come to an end soon.

However, if prices were able to break the 240000 yuan/mt support, a possible up-correction could be expected.

Nickel: The most-traded SHFE 2109 nickel closed down 2.09% or 1090 yuan/mt at 141220 yuan/mt, with open interest down 10808 lots to 94000 lots.

On the fundamentals, nickel prices will limited uptrend room in light of a weakening stainless steel prices, but are likely to stay high supported by strength in raw materials.