SMM Evening Comments (Jul 18): Shanghai Nonferrous Metals Closed All with Gains amid Subsiding Expectations on Aggressive Rate Hikes

SHANGHAI, Jul 18 (SMM) – Shanghai nonferrous metals closed all with gains as the US dollar index shed today, shoring up the non-ferrous metals market. In addition the Federal Reserve Waller voiced support for a rate hike of only 75 basis points this month, rather than 100 basis points. Once the news came out, the market expectations for the interest rate hike weakened, easing the pessimistic sentiment.

Shanghai copper rose 3.28%, aluminium added 3.15%, lead climbed 3.58%, zinc gained 3.54%, tin advanced 4.63%, and nickel jumped 1.95%.

Copper: The most-traded SHFE 2208 copper closed up 3.28% or 1,790 yuan/mt at 56,390 yuan/mt, with open interest down 11,710 lots to 131,640 lots.

On the macro front, US retail sales rose at a monthly rate of 1% in June, higher than the estimate of 0.8% and the previous reading of -0.3%. U.S. initial jobless claims rose to 244,000 last week, a new high from November last year, compared to 235,000 previously and 235,000 expected. China's Q2 GDP grew 0.4% year-on-year, with an estimate of 1.1% and the previous reading of 4.8%, showing that the pandemic impact is beyond expectations.

The spot market was relatively quiet after the futures prices rebounded. Standard-quality copper was quoted in premiums of 200 yuan/mt in morning trade, and dropped quickly to 180-190 yuan/mt with pressure from the buyers. Some were traded with premiums of 170 yuan/m tin afternoon trading, but both the seller and buyers were cautious. The spread between good-quality and standard-quality copper was still around 20 yaun/mt, and the premiums of the former were 190-210 yuan/mt. Hydro-copper was in relatively tight supply with premiums of 150 yuan/mt, but downstream demand was poor, which later pulled back the premiums to 130-150 yuan/mt.

Aluminium: The most-traded SHFE 2208 aluminium closed up 3.15% or 545 yuan/mt to 17,830 yuan/mt, with open interest down 11,372 lots to 142,090 lots.

With overseas CPI readings coming out one after another, SHFE aluminium bottomed out last Friday and closed the session at 17,700 yuan/mt. The contract moved rangebound today, and regained previous losses. As the most-traded SHEF aluminium contract is about to shift from 2208 to 2209 and the shorts withdraw from the market, SMM believes that aluminium prices will continue to remain consolidated in the near term.

Lead: The most-traded SHFE 2208 lead closed up 3.58% or 520 yuan/mt at 15,040 yuan/mt, with open interest down 13,032 lots to 42,240 lots.

Goods holders were more willing to sell amid rebounding SHFE lead, but some downstream players turned wait-and-see, particularly when they had more choices after the quotes of secondary lead were back in discounts again. Sources in the trading market contracted compared with last week, and retail sales weakened.

Zinc: The most-traded SHFE 2208 zinc closed up 3.54% or 775 yuan/mt at 22,660 yuan/mt, with open interest down 6,001 lots to 99,038 lots.

On the macro front, the University of Michigan report showed that consumer inflation expectations fell in July, with the preliminary one-year inflation expectation dropping to 5.2%, the lowest since February; the market lowered the expectations for the Fed to raise interest rates by 100 basis points in July, with market sentiment stabilising.

On the fundamentals, the supply tightness lingered, and overseas and domestic smelters suffered losses of $388-555/mt and 900-1,400 yuan/mt respectively based on current electricity prices.

Tin: The most-traded SHFE 2208 tin closed up 4.63% or 8,620 yuan/mt at 194,890 yuan/mt, with open interest up 3,749 lots to 44,981 lots.

In the spot market, quotes from smelters rose along with rising futures prices in the morning, and mainstream smelters slightly lowered their offers, with some price advantage over the traders’. It is reported that the number of quotes heard from traders was flat from the last trading day, while premiums of non-deliverable brands dropped. Market transactions were relatively thin, with less inquiries. The downstream purchased on demand, and the significantly rebounding prices have contained the elastic demand.

Nickel: The most-traded SHFE 2208 nickel closed up 1.95% or 2,930 yuan/mt at 153,290 yuan/mt, with open interest down 4,739 lots to 86,448 lots.

On the supply side, domestic nickel plate production is still expected to rise, and the import window has opened. On the demand side, stainless steel production cuts and the off-season have further weighed on the demand. In the alloy sector, the military and aviation sectors showed better demand for alloys. To sum up, nickel prices are unlikely to rise substantially though the demand side recovered amid lingering bearish factors.

[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.]