SMM Morning Comments (Jul 20): Base Metals Mostly Closed with Losses amid Worries over Sluggish Consumption

SHANGHAI, Jul 20 (SMM) – SHFE and LME base metals closed with losses as the current market liquidity tightening is not expected to change and domestic and overseas consumption is both sluggish, triggering market concerns for an economic recession, putting base metals under pressure.

LME copper fell 1.17%, aluminium lost 1.73%, lead added 0.83%, and zinc slid 1.27%.

SHFE copper fell 0.76%, aluminium lost 1.44%, lead shed 0.2%, and zinc slid 0.15%.

Copper: LME copper opened at $7,328/mt yesterday, and then fell to $7,220/mt. At last, the contract closed at $7,298/mt, down $86.5/mt, or 1.17%. Trading volume was 15,000 lots, and open interest stood at 239,000 lots.

SHFE 2208 copper contract opened at 56,100 yuan/mt in overnight trading and fell straight to 55,360 yuan/mt before rallying to 56,100 yuan/mt. The contract closed at 56,060 yuan/mt, down 430 yuan/mt, or 0.76%. Trading volume stood at 54,200 lots, and open interest stood at 120,000 lots.

On the macro front, news reports suggested that European Central Bank (ECB) policymakers were considering a larger than expected 50 basis point rate hike at Thursday's meeting in an effort to curb record high inflation. The euro rallied, taking it further away from the near flat level it touched last week; while market expectations of a 100 basis point rate hike by the Federal Reserve this month fell, dealing a blow to the dollar, with the dollar index falling for a third consecutive day. The current market liquidity tightening is not expected to change and domestic and overseas consumption is both sluggish, triggering market concerns for an economic recession, putting copper under pressure.

In the spot market, as futures prices rallied after the delivery of SHFE2207, and SHFE/LME price ratio hovered around 7.72. The import window is still closed despite improvement in the price ratio. Some hedgers were unable to close their positions, and hence were not interest in making shipments. Currently, the premiums did not appeal the buyers, while the downstream awaited further price drops, leaving the market in a stalemate.

Aluminium: The most-traded SHFE 2208 aluminium contract went down after opening at 18,030 yuan/mt, and closed at 17,770 yuan/mt, down 260 yuan/mt or 1.44%.

LME aluminium opened at $2,430.5/mt on Tuesday and closed at $2,385/mt, down $42/mt or 1.73%.

The domestic aluminium supply maintained a slight increase. The social inventory of aluminium ingots continued to decrease as some downstream producers continued to restock. Trades in the spot market in east China were somehow active. Improved macro front led to a rebound in commodities, but the rally was mild. It is expected that the short-term aluminium prices will remain volatile.

Lead: LME lead opened at $1,983/mt and fell during the Asian trading hours. During the European trading hours, LME lead further declined to $1,943.5/mt, but rebounded near the end and closed at $1,994/mt, up 0.83%. 

The most-traded SHFE 2208 lead contract opened at 15,050 yuan/mt and fell by 0.20% to 15,115 yuan/mt, after briefly hitting the lowest point at 14,940 yuan/mt and the highest point at 15,125 yuan/mt.

Zinc: LME zinc closed at $2,957/mt on Tuesday, down $38/mt or 1.27%. The open interest fell 6,031 lots to 206,000 lots. Overnight LME inventory fell 1,425 mt to 73,250 mt, down 1.91%. The support from supply tightness and low LME inventory have been offset by macro risks, hence LME zinc will still be pressured.

The most traded SHFE 2208 zinc contract closed at 22,580 yuan/mt overnight, down 35 yuan/mt or 0.15%. The open interest fell 2,702 lots to 91,628 lots. Currently, the zinc market was weak in both supply and demand, and zinc prices were still on the downward track.

Overnight, Russia and Iran signed a $40 billion agreement, and Iran agreed rial-ruble trading; market expects Nord Stream 1 delivery to resume as expected, and Russia assumes oil price floor to be $60/barrel. Australian Fed minutes: to further tighten the monetary policy, and the interest rate is too low to curb inflation. Eurozone June CPI annual rate is finalised at 8.6%, ECB to discuss 50 bps rate hike this week. BOE governor: to step up anti-inflation, and is considering 50 bps rate hike in August. Liu He co-chairs the 9th China-EU High Level Dialogue on Economy and Trade with European Commission Executive Vice President Dombrovskis. Ministry of Finance, Henan Supervisory Bureau: to resolutely guard the bottom line of no regional systemic risk. Ministry of Industry and Information Technology: multiple measures will be deployed to boost industrial economy.

Tin: Overnight, the most-traded SHFE tin contract traded rangebound. Longs and shorts continued to exit the market. Domestic tin inventory under warrants remained unchanged yesterday. The performance of the spot market was relatively stable. LME tin inventory decreased slightly. The import profit window was closed. The number of quotations for imported tin in the spot market was limited, and the price advantage was not obvious. Some tin smelters are expected to complete maintenance this week. Given the balanced supply and demand, SHFE tin is expected to hover around the current level.

Nickel: On the supply side, Jinchuan nickel was still quoted with high premiums amid improving terminal demand, but the overall supply was short despite some arrivals this week. For NPI, the transactions were still muted though futures and spot prices of stainless steel rebounded slightly. On the demand side, nickel sulphate produced with nickel briquette started to profit after SHFE nickel slumped earlier, but it has not been pinned as SHFE nickel has been volatile recently. Hence there were few transactions for briquette at present. For stainless steel, the prices in Wuxi were stable, and tested highs in Foshan. Inquires picked up, but the actual transactions were thin. There was still demand for nickel plate in the military-oriented alloy sector.  

[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.]