SMM Evening Comments (Oct 21): Shanghai Nonferrous Metals Mostly Fell in the Afternoon Trading as the Government Issued Guide Price for Thermal Coal

SHANGHAI, Oct 21 (SMM) – Shanghai nonferrous metals closed with mixed performances, but most of them fell in the afternoon trading as the National Energy Administration issued the guide price for thermal coal.

Shanghai copper slid 1.22%, aluminium lost 2.3%, lead rose 1.5%, zinc shed 1.63%, tin advanced 0.33%, and nickel surged 4.16%.

Copper: The most-traded SHFE 2112 copper closed down 1.22% or 900 yuan/mt to 72600 yuan/mt, with open interest up 3815 lots to 148000 lots.

LME copper is now facing unprecedented pressures as the LME accessible inventory was close to a historical low recorded in 1970s. Therefore, the LME has taken all possible measures to tackle the current situation, including the introduction of delayed delivery for some contracts. LME 0-3 copper backwardation fell, but the LME copper inventory has still been falling, which underpinned the copper prices.

On the other hand, according to the National Bureau of Statistics, the copper cathode output in September recorded 885,000 mt, up 2.4% on the year. The power rationing had limited influenced on the supply side in September, but it is still likely to bring down the total output in October.

The market shall watch the changes to LME trading rules.

Aluminium: The most-traded SHFE 2112 aluminium closed down 2.3% or 540 yuan/mt to 22910 yuan/mt, with open interest up 4112 lots to 226237 lots.

The four leading coal groups in China announced this afternoon that they will ensure the supply of coal, and help to bring the coal prices back to normal. Among them, Jinneng Holding Group said that they will keep the settlement prices of 5500 kcal thermal coal, 5000 kcal thermal coal, and 4500 kcal thermal coal that boarded Bohai Port below 1800 yuan/mt, 1500 yuan/mt and 1200 yuan/mt, respectively. And the prices of other high-kcal thermal coal will not exceed 2000 yuan/mt.

On the supply side, the aluminium operating capacity is likely to fall, and the global energy crisis is likely to weigh on the supply side as well.

Lead: The most-traded SHFE 2111 lead closed up 1.5% or 235 yuan/mt at 15945 yuan/mt, with open interest down 3280 lots to 39784 lots.

The spot prices rose quickly in the day, and the smelters were comparatively active in making shipments. However, some smelters mostly delivered for long-term orders due to the factors like power rationing and production reductions. The trading market has been more active in making deliveries to the warehouse. Meanwhile, more traders have begun to accept export orders as there have been more containers available. The lead ingots social inventory is expected to rise but with limited amount this week.

Zinc: The most-traded SHFE 2112 zinc closed down 1.63% or 420 yuan/mt at 25400 yuan/mt, with open interest up 1743 lots to 86393 lots.

On the macro front, the Federal Reserves issued the so-called Beige Book, which covers the “anecdotal information on current economic conditions”. According to the Book, the US economic activities have been described as “modest to moderate”, and the economic prospect has been cautiously optimistic amid supply chain disruptions and labour shortage caused by the COVID-19 pandemic. The demand was resilient as a whole.

On the fundamentals, South Korea’s Young Poong (YP) smelter will be closed from Nov. 8 – 17 as it violates the water environmental protection regulation. According to SMM research, YP smelter has an annual capacity of 360,000 mt, and the closure this time will affect the output by around 10,000 mt.

Tin: The SHFE 2111 tin closed up 0.33% or 930 yuan/mt at 285960 yuan/mt, with open interest down 1660 lots to 21455 lots.

On the fundamentals, the spot inventory has still been at a low level, which showed no signs of rising in the short term. According to the near-term spot market, the demand will grow significantly if the prices pull back, meaning that the demand side has been robust.

Nickel: The most-traded SHFE 2111 nickel closed up 4.16% or 6230 yuan/mt to 155880 yuan/mt, with open interest up 2155 lots to 84098 lots.

The current imbalance in supply and demand was the main reason behind the nickel price increase. Earlier, the output of ferronickel and stainless steel have both declined amid the energy consumption control. And the production of stainless steel mills have resumed recently, creating more demand for nickel. However, the resumption of production among ferronickel plants fell short, and the prices of ferronickel climbed under the support of high costs and tight supply, which subsequently supported the prices of nickel. The supply of nickel sulphate has picked up, and it was not a bearish factor as the demand from the new energy sector has been stable. The LME and SHFE inventories have both stayed at a low level, and the imports of pure nickel in September have been significant, indicating improved downstream demand, which pushed up nickel prices. It is expected that the nickel prices will correct down after great increase.