SMM Evening Comments (Sep 22): Shanghai Nonferrous Metals Closed Mixed and Power Rationing Continued to Unsettle the Market

SHANGHAI, Sep 22 (SMM) – Shanghai nonferrous metals closed with mixed performance, and the news of power rationing covering more regions was spreading over the market.

Shanghai copper fell 0.89%, aluminium advanced 2.03%, lead fell 2.3%, zinc edged up 0.13%, and tin surged 6.6%.

Copper: The most-traded SHFE 2110 copper closed down 0.89% or 620 yuan/mt to 68780 yuan/mt, with open interest down 3832 lots to 102400 lots. On the macro front, according to a post written by Yellen and published on Wall Street Journal official website, if the Congress does not raise the debt ceiling or suspend its effectiveness, a default could come during October when the Treasury exhausts its cash reserves and becomes incapable of paying the bills. The Republicans and Democrats have reached an overwhelming agreement that it is likely to trigger a historic financial crisis. While the China market was worried about the Evergrande crisis and the uncertain US debt ceiling as some HKSE listed companies are the debt holders.

On the fundamentals, China copper ore and concentrate imports in August stood at 1,885,984 mt, down 0.06% on the month but up 19.24% on the year. However, the smelting capacity was still under restriction in Guangxi, while the intensifying energy consumption control is likely to exacerbate the supply shortage.

Tonight, the market shall watch the Fed’s interest rate meeting resolution for September, with focus on more details about tapering as well as the dot plots. The meeting will also release its economic forecast for the next few years, and Powell will deliver a speech about the inflation.

Aluminium: The most-traded SHFE 2111 aluminium closed up 2.03% or 460 yuan/mt to 23080 yuan/mt, with open interest down 5912 lots to 126000 lots.

There is rumour that aluminium smelters in Yunnan have been urged to bring down their production by another 10%, coupled with rumours of power rationing in Ningxia. The market feared further declining in aluminium supply, sending the aluminium contract back to the upward trajectory.

Lead: The most-traded SHFE 2110 lead closed down 2.3% or 335 yuan/mt to 14220 yuan/mt, with open interest up 1680 lots to 75853 lots. In spot market, primary lead smelters were less interest in delivering as lead prices trended down. Mainstream quote discounts in the trading market stood at 40-30 yuan/mt against SHFE lead 2110, and the traders were mostly wait-and-see as the futures corrected down. For secondary lead, the smelters were almost unable to cover the production costs, and transactions were scarce.

Social inventory of lead ingots across five leading market stood at 215500 mt as of Friday, September 17, up 700 mt from Monday September 13. And the inventory is likely to climb further. However, many smelters in Shandong, Jiangsu, Guangdong, Guangxi and Anhui have received notice of power rationing, which likely to bring down the total output.

Near-term lead prices are likely to rebound but with limited uptrend room as the influence of power rationing will take time to materialise, and it is estimated that only some of the output will be affected.

Zinc: The most-traded SHFE 2110 zinc closed up 0.13% or 30 yuan/mt at 22790 yuan/mt, with open interest down 5827 lots to 68458 lots.

On the macro front, the market was generally cautious ahead of the FOMC interest meeting. The prices of coal kept rising on tight supply, pushing up SHFE aluminium and zinc.

The supply side has been experiencing disruptions including intensifying power rationing. Some smelters in Yunnan were asked to reduce the production by 20-30%, supporting zinc prices in the short term.

Tin: The most-traded SHFE 2110 tin closed up 6.6% at 277000 yuan/mt, with open interest up 775 lots.

On the fundamentals, social inventory stood at a low level, and goods available in the spot market was relatively insufficient. China imported 15557 mt of tin ore in August, down 18.27% on the month. The demand from downstream solder companies in August increased by 10.9% from July, and is expected to rise again by 1.14% in September due to the prosperity of photovoltaic industry. The imbalance between supply and demand is likely to hold the prices firm, and it needs to be confirmed whether the narrowing trade surplus will ease the tightening supply.