SMM Morning Comments (Sep 26): Base Metals Closed Mostly with Losses amid Unexpectedly Hawkish Fed Voices

SHANGHAI, Sep 26 (SMM) – LME and SHFE base metals closed mostly with losses amid unexpectedly hawkish US Fed voices. The Fed may raise the interest rate by another 100-125 basis points during the year and will continue the rate hike in 2023. The target of this round of interest rate hikes has risen from the previous 4.25%-4.5% to 4.75%-5%. The Fed's hawkish attitude exceeded market expectations, and undoubtedly, the US dollar surged last Friday.

LME copper fell 3.12%, aluminium lost 2.52%, lead slid 3.05%, and zinc dropped 3.21%.

SHFE copper fell 1.98%, aluminium lost 0.78%, lead gained 0.4%, and zinc dropped 1.77%.

Copper: LME copper opened at $7,407/mt last Friday night. The contract dropped to $7,394/mt at the beginning of the session and then fluctuated upwards, hitting a high of $7,477.5/mt and then fell and stabilised at around $7,450/mt. At last, the contract closed at $7,444.5/mt, down 3.12%. Trading volume was 26,000 lots, and open interest stood at 244,000 lots.

SHFE copper contract opened at 61,180 yuan/mt last Friday night, and once hit the lowest and highest price of 61,030 yuan/mt and 61,510 yuan/mt. The contract mainly fluctuated above the daily moving average narrowly. At last, the contract closed at 61,290 yuan/mt, down 1.98%. Trading volume was 53,000 lots, and open interest stood at 113,000 lots.

On the macro front, the US Fed raised the interest rate by 75 basis points at the FOMC meeting in September, which was in line with market expectations. However, the key of the meeting was the dot plots. The Fed may raise the interest rate by another 100-125 basis points during the year and will continue the rate hike in 2023. The target of this round of interest rate hikes has risen from the previous 4.25%-4.5% to 4.75%-5%. The Fed's hawkish attitude exceeded market expectations, and undoubtedly, the US dollar surged last Friday, putting huge pressure on copper prices.

On the fundamentals, with the support of infrastructure investment and the improvement of new energy and real estate, the domestic consumption is quite resilient in the short term. Last week, the social inventory and bonded zone inventory continued to decrease due to the peak season of September and October and the tight supply of copper scrap. The fundamental contradiction is not prominent, which may offer some support to the prices. At present, the macro environment is bearish, and the pressure of the high US dollar index on copper prices will not ease in the short term. The copper prices will remain rangebound with some downward potential.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,480 yuan/mt at last Friday’s night session and rose to 18,540 yuan/mt before closing at 18,485 yuan/mt, down 145 yuan/mt or 0.78%.

LME aluminium opened at $2,222/mt last Friday and closed at $2,167/mt, down $56/mt or 2.52%.

The Fed's interest rate hike was in line with market expectations, thus the negative impact from the macro front has weakened. With expanding output cuts by aluminium smelters in Yunnan and gradual recovery of downstream demand, the short-term aluminium prices are expected to perform strongly.

Lead: LME lead opened at $1,852/mt during the Asian trading hours and hit the highest point at $1,858/mt. During the European trading hours, LME lead fluctuated and fell below $1,800/mt, hitting the lowest point at $1,795.5/mt. LME lead finally closed at $1,796.5, down $56.5/mt or 3.05%.

The mos traded SHFE 2210 lead contract opened at 14,850 yuan/mt and rose 60 yuan/mt or 0.4% to 14,975 yuan/m, after briefly hitting the highest point at 14,980 yuan/mt.

Zinc: LME zinc closed at $3,017.5/mt last Friday, down $100/mt or 3.21%. The open interest fell 290 lots 192,000 lots. Overnight LME inventory fell 2,375 mt to 61,475 mt. Steeply falling zinc inventory offered some support to LME zinc.

The most traded SHFE 2210 zinc contract closed at 24,135 yuan/mt last Friday night, down 435 yuan/mt or 1.77%. The open interest rose 3,193 lots to 93,800 lots. The shorts and longs were in wrestling last Friday, and the tight spot supply underpinned zinc prices.

On Friday, the preliminary US Markit manufacturing PMI for September was 51.8, with relatively good economic data fuelling market concerns about a further rate hike at a later pace. The euro and the pound plunged to fresh 20-year and 37-year lows against the dollar, respectively, after surveys showed that business activity across the eurozone and the UK was sliding at an accelerating rate and the economy may be entering a recession. Oil prices plunged about 5% to an eight-month low as the dollar hit a new high in more than 20 years and concerns that rising interest rates will push major economies into recession, cutting demand for oil.

Tin: SHFE tin fell sharply at last Friday’s night session and closed at around 175,000 yuan/mt. The open interest of the most-traded SHFE tin contract decreased sharply as investors began to roll their positions onto distant month contract. Domestic tin ingot social inventories accumulated again last week. Trades in the spot market were thin due to higher tin prices. LME tin inventory rose further, with sharp increase in Asia. Overseas premiums remained low. The import profit window remained open. More imported tin was on offer in the market. With eased supply-demand imbalance, SHFE tin is expected to hover sideways at lows.

Nickel: At 2: 00 a.m. on September 22 Beijing time, the US Fed announced an interest rate hike by 75 basis points, raising the range of the federal funds rate to 3.00%-3.25%, which was in line with market expectations. It is worth noting that according to statistics, the market's expected probability of a 75 basis points rate hike was 82%, while that of a 100 basis points rate hike was only 18%. Therefore, SMM expects that the rate hike will have a limited impact on the nonferrous metal market. Besides, precious metal prices may experience a short-term rebound with the support of the traditional peak season of September and October and the possible slowdown in the future rate hikes. The price trends of nonferrous metals should also be viewed in combination with the fundamentals of various varieties. Last week, the nickel industry was still in the September peak season, and the improvement in demand from stainless steel and new energy markets boosted the market. The demand for pure nickel from the alloy sector grew as well. In addition, the domestic and overseas nickel inventory were both low. Therefore, the nickel prices gained support from the above-mentioned 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.]