SMM Evening Comments (Sep 24): Shanghai Nonferrous Metals Closed mostly in the Positive Territory amid Falling US Dollar Index

SHANGHAI, Sep 24 (SMM) – Shanghai nonferrous metals closed mostly in the positive territory as US dollar index fell after the market sentiment warmed up.

Shanghai copper gained 0.6%, aluminium fell 1.16%, lead edged up 0.27%, zinc jumped 1.52%, tin rose 2.76%, and nickel advanced 0.8%.

Copper: The most-traded SHFE 2111 copper closed up 0.6% or 410 yuan/mt to 69090 yuan/mt, with open interest up 6114 lots to 104400 lots.

On the macro front, US economy slows down in September evidenced by the sluggish readings of Markit manufacturing, services and composite PMI. And the Eurozone composite PMI also recorded a five-month low. Overnight US dollar index fell significantly as the pessimism over tapering weakened after the market fully digested the news that the Fed will withdraw the liquidity in November on the back of less-than-expected PMI readings.

On the fundamentals, multiple provinces and cities have been impacted by power rationing, containing the uptrend momentum of copper as the market was concerned over shrinking copper demand.

Tonight, the market shall watch the US new housing starts on an annual basis for August (estimated at 715,000 and finalised at 708,000 in the previous session). A cooling real estate market will pressure the copper market.

Aluminium: The most-traded SHFE 2111 aluminium closed down 1.16% or 270 yuan/mt to 23100 yuan/mt, with open interest down 13811 lots to 292965 lots.

The supply side is shrinking amid power rationing policies in Xinjiang, Guangxi, Yunnan and Shanxi. While the demand side has also been depressed on the back of energy control policy and power rationing. Currently, the SHFE aluminium prices are still subject to the supply side.

Lead: The most-traded SHFE 2110 lead closed up 0.27% or 40 yuan/mt to 14355 yuan/mt, with open interest down 10902 lots to 55593 lots.

The downstream battery companies have demonstrated restocking demand ahead of the National Day holiday. For primary lead, goods available for small orders in the market were scarce due to power rationing. And the deliveries in Henna were mainly for long-term contracts. As such, quotes were mostly offered with premiums at 100 – 150 yuan/mt, and the transactions in the trading market in Jiangsu and Zhejiang were largely made with discounts of 40 – 0 yuan/mt over SHFE 2110 contract.

For secondary lead, the shipments from smelters picked up, and quotes were offered with premiums of 0 – 100 yuan/mt. The downstream sector stockpiled on the dips, thus the trading market performed positively.

The power rationing has extended to several places, but the influence on real output is likely to be limited amid multiple factors, including restrictions from equipment, process and costs. On the other hand, lead prices fell significantly again on the week, forcing small secondary lead smelters to extend their suspension of production, easing the current oversupply pattern to some extent. However, social inventory of lead ingots rose 1,200 mt on the week to 216,000 mt, constraining the uptrend room of lead prices.

Zinc: The most-traded SHFE 2110 zinc closed up 1.52% or 345 yuan/mt at 22985 yuan/mt, with open interest down 6070 lots to 48533 lots.

The market supply of concentrate in north China is likely to tighten as the heating season approaches. And the daily output of refined zinc is expected to fall by 700 mt/day on energy consumption control. While the demand side will also be suppressed by the energy consumption control.

Tin: The most-traded SHFE 2110 tin closed up 2.76% at 282400 yuan/mt, with open interest down 4192 lots. In terms of the daily chart, the contract surged to the intraday high, then fell and stayed in congestion, with capitals leaving the market steadily. Since there is only four trading days ahead the month-end, the trending of the chart is unlikely to see any reverse.

On the fundamentals, upstream smelters were still not interested in production, and social inventory stood at a low level, with tight supply to the spot market. While the downstream solder sector performed favourably.

In the long term, the market shall keep an eye on the opportunities of imports and the trend of downstream demand.

Nickel: The most-traded SHFE 2110 nickel closed up 0.8% or 1160 yuan/mt to 145800 yuan/mt, with open interest down 21046 lots to 54993 lots.

US dollar fell amid a warming-up market. SS2110 rallied as plants resumed production after the Mid-Autumn Festival holiday. The production reduction policy was mainly imposed to 200-series, and the fall in the output of 300-series was below expectations. In other words, the demand for nickel remains, supporting a rally in the prices of nickel.