SMM Morning Comment For SHFE Base Metals July 26

SHANGHAI, Jul 26 (SMM) –

Copper

LME copper closed at $8,660/mt in overnight trading, a gain of 1.58%. Trading volume was 22,000 lots and open interest stood at 270,000 lots. The most active SHFE 2309 copper contract prices finished at 69,230 yuan/mt overnight, up 0.82%. Trading volume was 38,000 lots, and open interest stood at 181,000 lots. On the macro front, the US consumer confidence index rose to a two-year high in July, the labor market continued to be tight and inflation subsided, boosting the short-term economic outlook. Still, the economy is not out of the woods, with a survey by the World Enterprise Institute on Tuesday offering mixed signals. Consumers remain concerned about a recession next year after the Federal Reserve sharply raises interest rates. In terms of fundamentals, copper prices rose yesterday, downstream demand was already weak towards the end of the month, and the spot market in East China was less active. In addition, there will not be many imported goods in the near future, and the social inventory is low. It is expected that the spot discount will not continue to decline in the near term. South China is also suppressed by high copper prices, and the downstream demand is weak. Although the sellers sold at lower prices, the overall purchasing interest is still low. Consumption can hardly recover in the near future. In terms of prices, the contradictory economic data in the United States made the market sentiment unstable, and more attention was paid to the follow-up speeches of Fed officials. Before that, copper prices will remain volatile.

Aluminum

The most-traded SHFE 2309 aluminium contract opened at 18395 yuan/mt overnight, with the highest and lowest prices at 18435 yuan/mt and 18370 yuan/mt before closing at 18390 yuan/mt, down 10 yuan/mt or 0.05%. LME aluminium opened at $2205.5/mt on Tuesday, with its high and low at $2246.5/mt and $2204/mt respectively before closing at $2236.5/mt, an increase of $29/mt or 1.31%.

On the macro level, the Fed is about to raise interest rates, but there is an expectation to stop raising interest rates in the future. Domestic stimulus policies are frequent, and the macro front is relatively stable. In terms of fundamentals, the resumption of aluminium production in Yunnan is speeding up, and it is expected that some large smelters in the region will be able to produce at full capacity by the end of August. At present, the production in Yunnan is gradually climbing, and the supply pressure in the South China market will gradually be reflected. In terms of consumption, domestic downstream demand is in the off-season. So far, the domestic aluminium ingot inventory accumulation is lower than expected. The low inventory in the off-season may give support to aluminium prices. SHFE aluminium may move rangebound in the short term.

Lead

On Tuesday, LME lead opened at $2162.5/mt, with low at $2149/mt and high at $2181/mt, and finally closed at $2176.5/mt, up $ 11.5/mt, or 0.53%.

SHFE 2308 lead contract opened at 16055 yuan/mt at Tuesday’s night session. It fell to 15915 yuan/mt, but then rose above 16000 yuan/mt before closing at 16010 yuan/mt, down 105 yuan/mt or 0.65%.

On the macro level, market still needs to pay attention to the latest statement of the Federal Reserve meeting. The Chinese Political Bureau meeting analysed the current economic situation, proposed risk resolution in key areas (especially related to real estate), with focus on expansion of domestic demand. The performance of terminal demand has improved slightly. With the continuous rise of lead prices, the production costs of enterprises have also risen. Large lead-acid battery companies were able to raise production and battery selling prices, but small and medium-sized ones performed poorly. After the delivery of long-term orders on July 25, some lead-acid battery companies may slow down production if lead prices remain high. However, considering that the third quarter is in the peak season of lead consumption, the market still has expectations for future consumption. The current total open interest of SHFE lead has decreased by 6,050 lots to 175,000 lots, which is still at a historical high level. In the short term, it is still necessary to pay attention to the trend of bulls and the changes in spot discounts.

Zinc

Overnight, LME zinc closed up $73/mt or 3.02% at $2,493/mt. The trading volume was 12,717 lots, and open interest added 4,042 lots to 199,000 lots.  China has promised to strengthen its policy support for the economy. Meanwhile, the confidence of US consumers has improved. And the IMF expects the global economy to grow. The market was optimistic, and most of nonferrous metals rose.

Last night, the most active SHFE zinc contract prices settled at 20,630 yuan/mt, up 330 yuan/mt or 1.63%. The trading volume was 93,000 lots, and open interest gained 532 lots to 130,000 lots. Favorable domestic policies continued to guide the market sentiment, and SHFE zinc prices rose sharply. However, the current domestic production of zinc ingots is stable, and imported zinc continued to arrive. This, combined with slow growth in consumption, undermined support for zinc prices.

Tin

SHFE 2308 tin contract touched a session low and high of 232,700 yuan/mt and 235,680 yuan/mt before closing up 0.36% at 234,520 yuan/mt.

Nickel

SHFE 2308 nickel contract opened at 168,400 yuan/mt overnight, and closed at 170,930 yuan/mt, up 2,020 yuan/mt. Trading volume fell by 10,972 lots, and open interest decreased by 9,378 lots.

From a macro point of view, due to the intensifying conflict between Russia and Ukraine, domestic stimulus policies, and rising Chinese yuan, nickel prices went up.

In terms of fundamentals, according to SMM research, spot nickel prices were too high, even after spot premiums were lowered. This is because SHFE nickel prices exceeded 170,000 yuan/mt. As such, buying willingness of downstream enterprises cooled. Some downstream enterprises still held certain amounts of nickel plate on hand.

To sum up, the current market is intertwined with positive and negative factors. It is expected that the subsequent nickel price may show volatile trend.