SMM Evening Comments (Aug 30): Shanghai Nonferrous Metals Still Shadowed by Looming Rate Hikes

SHANGHAI, Aug 30 (SMM) – Shanghai nonferrous metals closed with losses as the market was still shadowed by looming rate hikes. In addition, Rick Rieder, chief investment officer of BlackRock's global fixed income division, issued a report saying: Fed Chairman Powell's comments did not dispel our belief that the Federal Open Market Committee (FOMC) could raise rates by another 75 basis points at its September 21 meeting.

Shanghai copper fell 1.86%, aluminium lost 3.14%, lead shed 0.4%, zinc slid 1.62%, tin declined 2.67%, and nickel dropped 3%.

Copper: The most-traded SHFE 2210 copper closed down 1.86% or 1,180 yuan/mt at 62,200 yuan/mt, with open interest down 3,185 lots to 163,034 lots.

On the macro front: (1) The US Fed will increase its tapering efforts this week, which means it will start selling off the Treasury bonds it started accumulating nearly three years ago. Under its tapering plan, the Fed will raise the monthly caps on the amount of non-renewable Treasuries and mortgage-backed securities (mbs) due to mature to US$60 billion and US$35 billion respectively, while using US$326 billion of Treasury bond positions to replenish when coupon maturities fall below the monthly caps. (2) Rick Rieder, chief investment officer of BlackRock's global fixed income division, issued a report saying: Fed Chairman Powell's comments did not dispel our belief that the Federal Open Market Committee (FOMC) could raise rates by another 75 basis points at its September 21 meeting.

In the spot market, the premiums of standard-quality copper were around 400 yuan/mt in morning trade, and there were finally concentrated inflows of imported copper. The traders no longer insisted on high premiums amid wide SHFE 2209 and 2210 spread as well as approaching the month-end, and they lowered the premiums to gain cash. As such, the premiums of standard-quality copper were around 350-360 yuan/mt around 10:00 a.m. Beijing time, with some buyers showing buying interest. The premiums further dropped to 330-350 yuan/mt in the second trading session.

Aluminium: The most-traded SHFE 2210 aluminium closed down 3.14% or 595 yuan/mt to 18,360 yuan/mt, with open interest down 3,325 lots to 168,330 lots.

Non-ferrous metals were pressured by the potential rate hike. For aluminium, the smelters were on track to resume the production with recovering power supply for the industrial sector in Sichuan province. SHEF aluminium pulled back amid easing supply tightness. Market players shall watch the support around the 20-day moving average.

Lead: The most-traded SHFE 2210 lead closed down 0.4% or 60 yuan/mt at 14,920 yuan/mt, with open interest up 7,191 lots to 60,846 lots.

According to SMM research, the recovery of lead ingot production is expected to outpace that of consumption with the power rationing ending. SMM lead ingot social inventory added 7,300 mt from last Friday to 74,400 mt as of Monday August 29. In terms of raw materials, both the purchase prices of lead-acid battery scrap by secondary lead smelters and the TCs of lead concentrate fell, and lead prices may drop with falling smelting cost.

Zinc: The most-traded SHFE 2210 zinc closed down 1.62% or 410 yuan/mt at 24,840 yuan/mt, with open interest up 3,264 lots to 132,271 lots.

Overseas zinc production cut is expected to extend though European natural gas futures plummeted recently, as the absolute price was still at a high level, which keeps the smelting cost at a high level. In China, the smelters in Sichuan and Hunan started to resume the production since last weekend with the hot weather subsiding. The demand side, however, was still poor though the impact of power rationing is fading. And the die-casting and zinc oxide sectors remained sluggish.

Tin: The most-traded SHFE 2210 tin closed down 2.67% or 5,320 yuan/mt at 193,950 yuan/mt, with open interest down 3,350 lots to 34,515 lots.

In the spot market, the smelters were slightly less willing to make quotes in morning trade, and the overall market quotes dropped along with the futures contract. The premiums offered by the traders rose slightly, and the spread among different brands expanded to some extent. The downstream purchased on rigid demand, and the transactions volume dropped amid falling supply. SHFE warrants inventory fell 259 mt to 1,610 mt, a new low in three month. The inventory has recorded a collective fall of 524 mt after tin prices declined, boosting the demand from downstream players. LME tin inventory fell 30 mt to 4,410 mt. LME tin inventory has been rising since November 2021, and the inventory level is approaching the peak since November 2020.

Nickel: The most-traded SHFE 2210 nickel closed down 3% or 5,100 yuan/mt at 164,960 yuan/mt, with open interest down 948 lots to 56,756 lots.

On the supply side, imports of pure nickel gained slight profits, and the short-term demand for nickel briquette from salt plants has picked up, hence the customs clearance of nickel briquette increased last week. In terms of NPI, the expectation of lower NPI prices boosted the transactions recently. On the demand side, according to SMM research, a steel mill in north China ended its ten-day shutdown, and it is expected that some hot-rolled stainless steel will be released this week. As for the alloys, the alloy sector still purchased on rigid demand amid the falling futures prices yesterday. Nickel prices may remain rangebound because of the weak fundamentals and the expectation of the US Fed’s interest rate hikes.

[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.]