SMM Morning Comments (Jun 18): Base metals all dropped after Fed implied to increase interest rates earlier

SHANGHAI, Jun 18 (SMM) — LME and SHFE non ferrous metals all declined in yesterday’s overnight trading as Fed officials implied to raise interest rates in advance and increased the excess reserve ratio.

In LME market, copper depreciated 4.56%, aluminium decreased 4.41%, lead fell 3.12%, zinc slid 4.45%, and tin dropped 3.09%

In SHFE market, copper shed 2.59%, aluminium contract declined 1.28%, lead dropped 1.37%, zinc lost 3.49%, and tin decreased 1.88%

Copper: Three-month LME copper depreciated 4.56% to close at $9,190.5/mt in the overnight trading yesterday, and is expected to trade between $9,210-9,290/mt today.

The most traded SHFE 2107 copper contract shed 2.59% to settle at 67,290 yuan/mt last night, and is expected to trade between 67,100-67,700 yuan/mt today.

Fed’s lattice diagram unexpectedly implied that it would raise interest rates in advance and end the emergency bond purchasing plan, which suppressed the market sentiment. Fed also increased the excess reserve ratio of the reverse repo last night, boosted the US dollar significantly, and weighing on copper prices. China’s National Development and Reform Commission continued to curb the prices increase of commodities, and was progressing in the national reserve release, both bringing pressure to the copper prices. Spot trade improved after the Dragon Boat Festival holiday, with downstream purchases remaining high in the week. The stocks in Shanghai kept falling and supported the sellers’ prices, so the premiums are likely to rise. Spot premiums are expected to move between 120-180 yuan/mt today.

Aluminium: Three-month LME aluminium decreased 4.41% to end at $2,352/mt on Thursday night, with open interest losing 1,771 lots to 697,000 lots, and is expected to trade between $2,320-2,420/mt today.

The most traded 2107 SHFE 2107 aluminium contract declined 1.28% to close at 18,450 yuan/mt last night, with open interest down 4,896 lots to 155,000 lots. The July contract is expected to trade between 18,350-18,800 yuan/mt today, and the aluminium ingots are likely to be offered at narrow premiums in east China.

Lead: Three-month LME lead fell 3.12% to close at $2,128.5/mt in the overnight trading yesterday. US dollar went up in the second consecutive night, regaining nearly all the losses since April. LME lead bears increased positions as the nonferrous metals fell under pressure. Today’s focus will be the support line at $2,100/mt.

The most traded SHFE 2107 lead contract dropped 1.37% to end at 15,100 yuan/mt last night. Bears also added positions in the weakened market. The inventories are expected to keep rising this week, and the support line at 15,000 yuan/mt is worth attention today.

Zinc: Three-month LME zinc slid 4.45% to settle at $2,887.5/mt in the overnight trading on Thursday, with open interest losing 1,427 lots to 258,000 lots, and is expected to trade between $2,900-2,950/mt today. LME zinc stocks kept dropping 1,925 mt or 0.73% to 163,450 mt. US dollar index broke through 92 as Fed raised the expectations of economic growth and inflation, and implied to lift interest rates twice before end-2023. US initial claims for unemployment benefits rose to 412,000 last week, higher than the market expectations, which weighed on LME zinc.

The most liquid SHFE 2107 zinc contract lost 3.49% to end at 21,850 yuan/mt last night, with open interest down 3,673 lots to 83,706 lots. The market will see multiple rounds of national reserve release, and the market regulation will be strengthened. The contract is expected to trade between 21,900-22,400 yuan/mt today, and the premiums of 0# domestic Shuangyan zinc are likely to be seen between 80-90 yuan/mt.

Tin: Three-month LME tin dropped 3.09% to close at $30,250/mt in the overnight trading yesterday, with open interest up 163 lots to 11,874 lots. Tin prices were dragged down by Fed’s implication of early interest rate increase. The impact of Fed’s reducing bond purchase on tin prices will worth attention. LME tin is expected to fluctuate downward in the short term, and trade between $30,000-31,000/mt today.

The most traded SHFE 2108 tin contract decreased 1.88% to 201,760 yuan/mt last night, with open interest increasing 1,002 lots to 31,565 lots. The tight supply will still support tin prices, and the domestic and overseas macro factors may influence the price trend. SHFE tin is expected to trade between 200,000-206,000 yuan/mt today.

Nickel: The most active SHFE 2107 nickel contract fell to around 127,110 yuan/mt in the overnight trading on Thursday, with open interest increasing 3,834 lots to 102,923 lots. This week’s drop was mainly triggered by the macro environment, with no obvious bearish factors at fundamentals. Nickel prices fell back to the 60-day moving average level amid the fund withdrawal and the weaker nonferrous metals market. The industry chain performed well with lower prices. Spot transactions of nickel plate and briquette were active, and the prices of nickel sulphate and stainless steel stood firm. Nickel prices are expected to bottom at around 127,000 yuan/mt, and the market will be bullish. SHFE nickel is expected to move between 126,500-129,500 yuan/mt today, and spot quotations may rise further.