SMM Evening Comments (Sep 6): Shanghai Nonferrous Metals Closed with Gains amid Higher-than-Expected China Services PMI

SHANGHAI, Sep 6 (SMM) – Shanghai nonferrous metals closed all with gains as the August China Caixin Services PMI was higher than the estimate with a reading of 55, against the previous print of 55.5. In addition, the People's Bank of China also decided to lower the foreign exchange deposit reserve ratio for financial institutions.

Shanghai copper rose 2.61%, aluminium gained 1.4%, lead added 1.38%, zinc rose 2.42%, tin jumped 2.84%, and nickel advanced 5.64%.

Copper: The most-traded SHFE 2210 copper closed up 2.61% or 1,570 yuan/mt at 61,630 yuan/mt, with open interest down 6,115 lots to 161,288 lots.

On the macro front: (1) China's August Caixin Services PMI was 55, against a previous reading of 55.5 and a forecast of 54. (Bullish ☆) (2) Eurozone August Services PMI was finalised at 49.8, against a previous reading of 50.2 and a forecast of 50.2. (Bearish ☆) (3) The People's Bank of China issued an announcement on September 5, deciding to lower the foreign exchange deposit reserve ratio for financial institutions by 2 percentage points from the current 8% to 6% starting from September 15, 2022. (Bullish ☆)

Mainstream standard-quality copper was originally in premiums of 380-390 yuan/mt in pre-market trade, and the spread between good and standard-quality copper stood at 10 yuan/mt. The brand Guixi was stable in premiums which stood at 450-480 yuan/mt despite scarce sources available in the market. Mainstream hydro-copper was generally in premiums of 320-330 yuan/mt in the morning. Nonetheless, as the transactions picked up and market sources were still low, the cargo holders began to hike the premiums on the back of narrowing SHFE 2209 and 2210 contract spread compared with a day ago. Sources of mainstream standard-quality copper with premiums of 380-390 yuan/mt disappeared even before the morning session ended. When the morning session was about to end, standard-quality copper was generally in premiums of over 400 yuan/mt, and the spread between good and standard-quality copper expanded to 20 yuan/mt. Some standard-quality copper was once quoted in premiums of 450 yuan/mt, alluding the traders’ strong willingness to hold the prices firm.

Aluminium: The most-traded SHFE 2210 aluminium closed up 1.4% or 255 yuan/mt to 18,505 yuan/mt, with open interest down 4,477 lots to 162,476 lots.

Nonferrous metals performed strongly today thanks to easing pessimism on the macro front. On the other hand, short-term production cuts are still likely amid persistent global energy crisis and regional power supply shortage in China, both of which offered support to aluminium prices. In the spot market, the transactions of aluminium ingot and billet were poor restricted by muted downstream demand in east China, Foshan city and Gongyi city. It remains to be seen if the consumption side could pick up in September. Aluminium prices are expected to rise in the near term.

Lead: The most-traded SHFE 2210 lead closed up 1.38% or 205 yuan/mt at 15,060 yuan/mt, with open interest down 6,985 lots to 55,188 lots.

In the spot market, the shipments of smelters were hindered by the current pandemic situation in Sichuan province, and the quotes offered by smelters were flat. Coupled with the potential production cuts in Jiangxi, Anhui and Shanxi province, lead ingot supply is likely to fall in the near future. Market players shall watch the target level of 15,100 yuan/mt overnight.

Zinc: The most-traded SHFE 2210 zinc closed up 2.42% or 575 yuan/mt at 24,330 yuan/mt, with open interest down 1,710 lots to 117,254 lots.

LME zinc consolidated today, and SHFE zinc followed. In China, expanding pandemic situation in China greatly weighed on the transportation efficiency, which, together with tight spot supply, underpinned zinc prices. However, poor consumption contained the momentum of zinc prices. Hence the support from the fundamentals was limited.

Tin: The most-traded SHFE 2210 tin closed up 2.84% or 4,970 yuan/mt at 179,750 yuan/mt, with open interest down 3,750 lots to 36,497 lots.

In the spot market, the smelters resumed their interest in making quotes, while they were less firm to the prices, hence the spread among different brands narrowed. The number of quotes from the traders in early trade rose slightly, and the spot premiums dropped further. Market shipments were stable, and the actual transactions fell into a narrow price range. The downstream players still purchased on rigid demand, but were slightly more willing to purchase after the prices fell.

Nickel: The most-traded SHFE 2210 nickel closed up 5.64% or 9,340 yuan/mt at 174,800 yuan/mt, with open interest up 10,009 lots to 57,977 lots.

In the spot market, Jinchuan nickel was in premiums of 10,000-11,000 yuan/mt, with an average of 10,500 yuan/mt, down 750 yuan/mt from yesterday; NORNICKEL nickel was in premiums of 4,000-4,500 yuan/mt, with an average of 4,250 yuan/mt, down 400 yuan/mt on a daily basis. The spot premiums fell slightly after SHFE nickel rose, but were still high. Nickel briquette was offered at 177,000-178,300 yuan/mt, up 5,350 yuan/mt from the previous trading day. Currently the cost efficiency of producing nickel sulphate with briquette weakened, and the transactions also contracted.

[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.]