SMM Morning Comments (Aug 4): Base Metals Closed Mostly with Losses with US Fed Hawkish Voices Coming Back

SHANGHAI, Aug 4 (SMM) – LME and SHFE base metals closed mostly with losses as the hawkish speeches by U.S. Federal Reserve Board officials further revealed their current determination to control inflation in the U.S, weighing on the investors’ nerves.

LME copper dropped 0.58%, aluminium lost 1.2%, lead fell 1.47%, and zinc added 0.41%.

SHFE copper dropped 0.79%, aluminium lost 0.71%, lead fell 0.1%, and zinc added 0.25%.

Copper: LME copper opened at $7,783/mt yesterday, and then rose a modest high of $7,813.5/mt before dropping to $7,664/mt. At last, the contract closed at $7,710/mt, down 0.58%. Trading volume was 14,000 lots, and open interest stood at 234,000 lots.

The most-traded SHFE 2209 copper contract opened at 60,050 yuan/mt in overnight trading and then stabilised at 59,150 yuan/mt. At last, the contract closed at 59,310 yuan/mt, down 0.79%. Trading volume was 64,000 lots, and open interest stood at 159,000 lots.

The data released yesterday showed that the U.S. monthly factory orders rose in June and service sector activity unexpectedly picked up in July, and the market expectation of continued Fed rate hikes enhanced. The hawkish speeches by U.S. Federal Reserve Board officials further revealed their current determination to control inflation in the U.S. The strength of rate hikes at the September Fed meeting is now the focus of subsequent attention. The market sentiment was stressed again, weighing on the metals prices.

In the spot market, spot premiums kept falling with the inflow of imported copper. Meanwhile, SHFE front-month and next-month backwardation narrowed from 400 yuan/mt to 300 yuan/mt, which prompted the traders to actively sell off. The backwadation structure is of focus based on the consensus that copper imports will keep flowing into China.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,190 yuan/mt overnight and rose to 18,305 yuan/mt before closing at 18,120 yuan/mt, down 130 yuan/mt or 0.71%.

LME aluminium opened at $2,405/mt on Tuesday and closed at $2,385/mt, down $29/mt or 1.2%.

On the supply side, domestic operating aluminium capacity is at a relatively high level, and there is expectation for production cuts either. On the demand side, the off-season has not yet ended, and mainstream downstream sectors received fewer new orders. Therefore, insufficient consumption was unable to underpin aluminium prices. On the whole, aluminium prices are likely to fall amid extended oversupply and bearish factors on the macro front.  

Lead: LME lead opened at $2,045/mt on Wednesday, and moved mostly between $2,040-2,050/mt as there were few transactions. The US dollar index rose in European trading hours, and the non-ferrous metals dropped as a whole. The contract finally closed at $2,014/mt, down 1.47%.

The most-traded SHFE 2209 contract opened at 15,090 yuan/mt, and SHFE lead inventory fell around 2,000 mt, which triggered the flee of shorts. But the contract failed to rally to 15,200 yuan/mt, and finally closed at 15,135 yuan/mt, down 0.1%. The open interest stood at 54,495 lots, down 2,062 lots from a day ago.

Zinc: LME zinc closed at $3,295.5/mt on Wednesday, up $13.5/mt or 0.41%. The open interest rose 434 lots to 199,000 lots. Overnight LME inventory dropped 1,125 mt to 66,925 mt, with the decrease mostly contributed by the warehouses in Singapore. On the macro front, tightening risk appetite resulted in greater metals price volatility.

The most traded SHFE 2209 zinc contract closed at 23,675 yuan/mt overnight, up 60 yuan/mt or 0.25%. The open interest added 687 lots to 118,000 lots. On the supply side, ore production is resuming to normal, and the supplement of imported ore has further eased the ore supply tightness. On the demand side, the downstream sectors were still muted. In the spot market, the premiums kept falling with limited rigid demand.

Overnight, the Chinese Ministry of Foreign Affairs: the US will never have a good outcome if it reneges on the Taiwan issue, and China's countermeasures will be resolute, strong and effective; "Taiwan independence" activist Yang Zhiyuan was criminally detained for review; the mainland suspended the export of natural sand to Taiwan and the import of more than 100 items of Taiwanese food. OPEC+ decides to increase the production by only 100,000 barrels per day in September, the smallest increase in its history; international crude oil dives during the session after an unexpected surge in US crude oil inventories and a two-year high in imports. China's Caixin services PMI rises to 55.5 in July, the highest since May 2021; BYD's July sales increase more than twofold year-on-year, surpassing 160,000 units to a record high.

Tin: The SHFE tin contract hovered sideways in overnight trading, and the positions of most-trade tin contract were reduced within market expectations. Fundamentally, the domestic inventory under SHFE warrants decreased significantly, and the shipments of deliverable brand increased due to tight supply of non-deliverable brands in the spot market. LME inventories fell slightly, and the growth of inventory has slowed down recently. The import window opened slightly, and the quotations of imports were rarely heard. The most-traded SHFE tin contract continued to trade sideways in overnight trading and climbed above 190,000 yuan/mt. Investors remained wait-and-see amid the exit of capital during night sessions. In conclusion, the tin spot prices and futures gradually stabilised, and are expected to move rangebound.

Nickel: On the supply side, the improving terminal demand fuelled the national pure nickel output in July. The trades in the NPI market were sluggish with little increase in NPI supply. The production of nickel sulphate increased thanks to the peak season of the automobile industry. On the demand side, according to SMM research, the spot prices have stabilised at lows recently. The social inventory dropped slowly amid growing trades. In terms of alloy sector, although the premiums continued to decline during the week, the transactions in the spot market were still muted yesterday, and most downstream traders stood wait-and-see. To sum up, the overall demand for pure nickel was weak, but the low inventories continued to support the nickel prices, which are expected to remain rangebound in the short term.

[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.]