SMM Evening Comments (Oct 26): Shanghai Nonferrous Metals Closed with Mixed Performance, “Temporary” Inflation Sustained

SHANGHAI, Oct 26 (SMM) – Shanghai nonferrous metals closed with mixed performances today. On the macro front, the “temporary” inflation lingers and is impacting more sectors.

Shanghai copper edged up 0.36%, aluminium lost 1.09%, lead was unchanged, zinc lost 0.91%, tin slid 1.17%, and nickel advanced 2.09%.

Copper: The most-traded SHFE 2112 copper closed up 0.36% or 260 yuan/mt to 72000 yuan/mt, with open interest up 2637 lots to 159882 lots.

On the macro front, former US Fed Chair Greenspan said the inflation rate will stay above the Fed’s target of 2% for a continuous period of time. And the leading Wall Street banks are betting on an early interest rate kike of the Fed and Bank of America’s raising its yield. While BNP Paribas is expecting four interest rate hikes next year.

On the supply side, the domestic smelters were still affected by the power rationing, restricting the short-term supply. The LME inventory reduced by 1750 mt to 159800 mt yesterday, underpinning copper prices.

Tonight, the market shall watch the US Richmond Fed manufacturing index for October (estimated at 5, and finalised at -3 in the previous session).

Aluminium: The most-traded SHFE 2112 aluminium closed down 1.09% or 235 yuan/mt to 21250 yuan/mt, with open interest up 3422 lots to 209231 lots.

In the short term, the chart movement logic is unchanged that the falling coal prices will keep pressuring aluminium prices, combined with the slightly rising aluminium inventory disclosed on Monday. The SMM average aluminium production costs stood at 20567 yuan/mt as of October 22, and the climbing electricity prices continued to raising the prices across the follow-up sectors. The production costs are likely to sustain in the short term amid high spot prices of sourced coal as well as the high quotations of alumina and aluminium anode.

Lead: The most-traded SHFE 2112 lead closed up 0.19% or 30 yuan/mt at 16060 yuan/mt, with open interest up 1028 lots to 47148 lots.

The spot trading weakened amid high lead prices. The mainstream primary lead smelters quotations was flat with SMM 1# lead, and some smelters in Henan quoted with discounts. But the downstream transaction was still sluggish. In the trading market, the mainstream quotations in Zhejiang and Jiangsu were at a discounts of 50 – 20 yuan/mt over SHFE 2111 contract, and the downstream participants mostly purchased with long-term contracts. And some of the buyers have turned to secondary lead amid expanding price spread between primary lead and lead scrap. For secondary lead, the smelters were active in making shipments on the combination of recovered profits and the fear of further market volatilities. The mainstream quotations of secondary lead were at discounts of 100 – 250 yuan/mt over SMM 1# lead. And the spot market was also quiet as the downstream refrained from purchasing amid high prices. Most secondary lead smelters have resumed work or production approaching the end of October, containing the upside room of SHFE lead.

Zinc: The most-traded SHFE 2112 zinc closed down 0.91% or 225 yuan/mt at 24435 yuan/mt, with open interest up 5679 lots to 89591 lots.

On the macro front, the National Development and Reform Commission has issued relative documents to contain coal prices for 7 days in a row, suppressing long sentiment in the market. In the spot market, the SHFE and LME inventories both climbed, and the domestic consumption has been sluggish. The goods holders were active in selling, while the downstream long-term contracts were mostly made on rigid demand. The traders have not yet increased their interest in taking in goods. Therefore, the spot market was sluggish as a whole.

Tin: The SHFE 2112 tin closed down 1.17% or 3320 yuan/mt at 279860 yuan/mt, with open interest up 6232 lots to 33595 lots.

On the fundamentals, the spot inventory stood low currently, and is unlikely to rise in the near term. While the supply side is comparatively sable as the impacts of power rationing was limited, and the long-term outlook has been optimistic.

Nickel: The most-traded SHFE 2111 nickel closed up 2.09% or 3130 yuan/mt to 152560 yuan/mt, with open interest down 1364 lots to 47183 lots.

On the fundamentals, the downstream demand stays optimistic evidenced by the low nickel inventory and rising imports of primary nickel, and there is no palpable bearish factors in the short term.