SMM Morning Comments (Jun 16): Base Metals Mostly Closed With Gains Amid Softening US Dollar

SHANGHAI, Jun 16 (SMM) – LME and SHFE base metals Mostly closed with gains overnight

Copper: LME copper closed with a gain of 0.44% at $8,563.5/mt overnight. Trading volume stood at 22,000 lots. Open interest stood at 253,000 lots. SHFE 2307 prices fell slightly copper contract finished at 68,330 yuan/mt last evening, up 0.57%. Trading volume was 28,000 lots, and open interest stood at 190,000 lots. On the macro front, the European Central Bank raised interest rates for the eighth time in a row and signalled further tightening to bring the inflation rate in the eurozone to the medium-term target of 2%. The euro against the US dollar hit a five-week high as the US dollar plunged. In terms of fundamentals, the market trading was quiet due to the delivery of the SHFE June copper contract. Affected by the price spread between the SHFE front-month and next-month copper contracts, it is expected that spot quotes will rise further. But downstream acceptance of high premiums will weaken. Import losses continued to expand, which may bring export opportunities for smelters. In south China, due to the widening price spread between the SHFE front-month and next-month copper contracts, downstream buying interest was weak. And sellers refrained from selling at lower prices, keeping muting overall trading. Downstream demand will remain weak. Copper prices strengthened due to weaker US dollar.

Aluminium: Overnight, the most-traded SHFE 2307 aluminium contract opened at 18,535 yuan/mt, and closed at 18,465 yuan/mt, with its low of 18,395 yuan/mt, down 65 yuan/mt or 0.35%.

LME aluminium opened at $2,250.5/mt on Thursday, with its low and high at $2,216/mt and $2,254.5/mt respectively before closing at $2,250/mt, a dip of $4/mt or 0.18%.

On the macro front, the domestic real estate and industrial data released yesterday still pointed to decline. Europe has raised interest rates again. On fundamentals, water levels in Yunnan Province has increased, and local smelters may enter the stage of resumption of production in the near future. However, considering the short rainy season and the long process of production resumption, it is difficult to contribute much to production in the short term. The oversupply pressure will mainly be seen in the third quarter. In the short term, the expected supply increase and weak consumption will keep SHFE aluminium in check.

Lead: Overnight, LME lead opened at $2,113.5/mt, and declined to $2,087.5/mt, and finally closed at $2,128/mt, up $10/mt or 0.47%.

The most-traded SHFE 2307 lead contract opened at 15,450 yuan/mt, and dipped to 15,385 yuan/mt, and finally closed at 15,420 yuan/mt, up 65 yuan/mt, or 0.42%.

On the macro side, the U.S. dollar index rebounded briefly after FOMC meeting. US dollar softened after release of US May retail sales, which unexpectedly rose.

Zinc: Overnight, LME zinc made gains. It is expect that sustained interest rate hikes by the European Central Bank will raise borrowing costs. High interest rate and sustained interest rate hikes led players to take a wait-and-see approach. The US dollar softened and the rise in zinc futures prices slowed down.

SHFE zinc closed with a small dip overnight amid falling US dollar index.    

Nickel: The US Fed announced in the early morning of June 15 that the target range of the federal funds rate would remain unchanged at 5.0%-5.25%, and the rate hike would be suspended. Stimulated by the good macro news, SHFE nickel prices hovered at highs yesterday. On the fundamentals, the upstream companies were active in shipping cargoes, but the absolute prices remained high. The downstream demand was low. The spot market thus was sluggish. It is expected that the nickel prices may drop in June. To sum up, the rise in nickel prices was mainly affected by the macro aspect. If the fundamentals fail to support the bullish sentiment, nickel price may decline in the near term. The Fed’s dot plot shows that the subsequent interest rate is expected to rise to 5.6%, an increase of 50 basis points, implying that there will be two more rate hikes in the future, which may suppress nickel prices.

[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.]