SMM Morning Comments (Oct 17): Base Metals Closed Mixed on Diverged Macro Front Orientations

SHANGHAI, Oct 17 (SMM) – LME base metals closed mostly in the negative zone as the market was concerned about the expected aggressive rate hike in the following two months. And falling crude prices also weighed on metals prices. SHFE base metals, on the other hand, closed all with gains with the 20^th National Congress kicking off over the weekend, which is expected to bring about new stimulus polices.

LME copper lost 1.43%, aluminium lost 2.61%, lead slid 0.54%, and zinc fell 0.75%.

SHFE copper gained 0.44%, aluminium added 0.19%, lead inched up 0.03%, and zinc rose 0.39%.

Copper: LME copper opened at $7,615/mt last Friday, and once hit the highest and lowest of $7,661/mt and $7,511.5/mt respectively. At last, it closed at $7,531.5/mt, down 1.43%. The trading volume was 17,000 lots, and open interest stood at 244,000 lots.

SHFE copper opened at 63,700 yuan/mt last Friday night and edged higher to 63,760 yuan/mt, and then the contract fluctuated downward to 63,030 yuan/mt. At last, the contract closed at 63,220 yuan/mt, up 0.44%. The trading volume was 48,000 lots, and open interest stood at 169,000 lots.

On the macro front, the high US inflation data, including core inflation, in September strengthened the expectation that the US Fed will raise the interest rates by 75 basis points at the November meeting, and liquidity will be further tightened, which is bearish for copper prices. International crude oil futures fell 3% last Friday due to concerns about a global economic recession, which was also bearish for copper prices.

On the fundamentals, As of October 14, the copper inventory across China’s major trading markets increased by 11,500 mt from October 9 to 94,200 mt. The import window remained open last week, and some traders shipped imported copper from LME warehouses to China, thus the proportion of LME cancelled warrants continued to rise and the domestic inventory will gradually increase. In the spot market, approaching the delivery of the SHFE 2210 contract, the futures prices stood high and the spread between the SHFE front-month and next-month contracts soared to 1,900 yuan/mt in the backwardation structure. The spread still manipulated the trend of spot premiums in the market, and the downstream processing enterprises generally held a wait-and-see sentiment. In general, the tight supply will strongly support the copper prices, but the changeable international macro situation may cast a certain impact on the prices.

Aluminium: At last Friday’s night session, the most-traded SHFE 2211 aluminium contract opened at 18,730 yuan/mt, with its night session low at 18,610 yuan/mt before closing at 18,645 yuan/mt, up 35 yuan/mt or 0.19%.

LME aluminium opened at $2,330/mt last Friday, with its intraday high and low at $2,393/mt and $2,287/mt respectively before closing at $2,290/mt, a drop of $61.5/mt or 2.61%. The decline was caused by growing LME aluminium inventory.

SHFE aluminium rose sharply in the daytime session last Friday as overseas supply woes and digestion of bearish macro factors encouraged bulls to enter the market, but fell back in the night session due to growing LME aluminium inventory. The aluminium ingot social inventory in China did not accumulate substantially after the holiday and remained at a low level. High energy prices in China and overseas will provide solid cost support. Supply disruptions and pessimistic outlook for medium and long-term global demand will keep aluminium prices moving in a wide range. 

Lead: LME lead opened at $2,037.5/mt last Friday and stabilised at $2,040/mt during the Aisan trading hours. During the European trading hours, LME lead fell slightly to $2,014/mt and finally closed at $2,035/mt after hitting the highest point at $2,049/mt, down 0.54%. The open interest increased by 1,169 lots to 93,768 lots from the previous trading day.

The most-traded SHFE 2211 lead contract opened at 15,365 yuan/m, and rose by 0.03% and closed at 15,315 yuan/mt, after briefly hitting the lowest point at 15,290 yuan/mt and the highest point at 15,390 yuan/mt. The open interest decreased by 366 lots to 60,786 lots from the previous trading day.

Zinc: LME zinc closed at $2,919.5/mt last Friday, down $22/mt or 0.75%. The open interest rose 1,375 lots to 189,000 lots. Overnight LME inventory fell 425 mt to 51,500 mt, and LME inventory kept falling. LME zinc was on the downward track recently, with pressure from high US dollar index, while falling inventory offered some support.

The most traded SHFE 2211 zinc contract closed at 24,725 yuan/mt last Friday night, up 95 yuan/mt or 0.39%. The open interest lost 3,084 lots to 121,000 lots. On the supply side, the weekly TCs of zinc concentrate on the mine end rose to 4,350 yuan/mt in metal content, and the supply remained sufficient. On the demand side, the downstream operating rates rose on production resumption after the National Day holiday, but the recovery fell short of expectations. And the resilience of consumption remains to be seen. On the whole, inventory change is of concern with the delivery of SHFE 2210.

Tin: The most-traded SHFE tin contract fell rapidly after opening lower at last Friday’s night session, and then moved rangebound. Longs and shorts began to roll their positions onto distant month contract. Last week, domestic tin ingot social inventories accumulated sharply due to the approaching delivery and the increase in imported tin. LME tin inventory did not change much. Imports profits are expected to remain stable, and the supply of imported tin was sufficient. Given little disturbances to supply and demand, as well as the weak willingness of investors to enter the market, it is expected that SHFE tin will continue to move sideways.

Nickel: On the macro side, on the evening of October 13, the US Fed announced the year-on-year CPI and core CPI data for September, which both exceeded market expectations and put pressure on nickel prices. On the supply side, in September 2022, the refined nickel output stood at 15,400 mt in China, down 0.65% MoM, but up 7.67% YoY. Imports of pure nickel were at a loss. The NPI prices will fluctuate in the short term or rise slightly due to the expected increase in the production schedule of steel mills in October. On the demand side, according to SMM survey, the spot prices of stainless steel in the Wuxi and Foshan markets stabilised with occasional drops, and spot premiums rose again. Recently, terminal orders have increased slightly, and the downward transmission of demand was relatively smooth. The demand for pure nickel from the alloy sector still existed. In short, the downstream demand for pure nickel remained strong, hence in the short term, the downward space for nickel prices is limited. At present, the LME nickel prices have not yet returned to the fundamentals, and the prices may fluctuate. When the prices return to normal, SMM will resume the price forecast of LME nickel.

[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.]