SMM Morning Comments (Jul 19): Shanghai base metals opening trends mixed after rising US PPI and CPI

SHANGHAI, Jul 19 (SMM) — Opening trends of Shanghai base metals were mixed on Monday morning, as US PPI and CPI rose simultaneously last week, and Fed chairman reaffirmed the easing stance of monetary policies.

LME metals closed mixed last week. Copper gained 0.24%, aluminium fell 0.88%, lead lost 0.64%, and zinc increased 0.81%.

SHFE metals rose for the most part last Friday night. Copper inched up 0.03%, aluminium fell 0.31%, lead lost 0.35%, zinc gained 1.28%, nickel rose 1.49, and tin won 3.59%.

Copper: Three-month LME copper gained 0.24% last Friday to close at $9,447/mt, and is expected to trade between $9,940-10,020/mt today, and is expected to trade between $9,360-9,450/mt today.

The most-traded SHFE 2108 copper contract inched up 0.03% last Friday night to close at 69,230 yuan/mt, and is expected to trade between 68,800-69,400 yuan/mt today, with spot premiums between 240-360 yuan/mt.

On the macro front, US PPI and CPI rose simultaneously, boosting the hawkish sentiment in the market, while Fed chairman defended his easing stance to hedge inflation concerns. The market has heard some officials say that inflation and employment rates have reached the Fed's expectations. Powell also said that he will discuss plans to gradually reduce the scale of debt purchases at the Fed's meeting on interest rates in July. Therefore, this week’s focus is on the Fed's meeting on interest rates, as well as the initial PMI values of European and American countries. SMM expects that with the overall PMI data performing well, Fed will release some hawkish signals to test market sentiment, and copper prices will therefore be suppressed to a certain extent, but the overall direction is still uncertain before the July employment data is released. In terms of spot goods, this week is the last delivery period of long-term orders in July. Holders may continue to hold the prices high, while some buyers may have to receive the goods. The supply and demand sides will remain diverged, and the premiums may stand around 300 yuan/mt.

Aluminium: Three-month LME aluminium fell 0.88% last Friday.

The most-active SHFE 2108 aluminium contract shed 0.31% to end at 19,410 yuan/mt Last Friday.

Global liquidity remained ample, and China’s economic development was steady and positive. The current aluminium consumption showed signs of weakening, but the inventories of aluminium ingots was still going down. Yunnan, Henan and other places have announced the power curtailment policy recently, and the supply and demand have weakened. The inflexion point of the inventory in the off-peak season may change. If the stocks still decline this week, SHFE will continue to rise. Attention needs to be paid to the progress of power curtailment, inventory inflexion points, and long-short sentiment changes.

Lead: Three-month LME lead dropped 0.64% to end at $2,314.5/mt below the 5-day moving average support last Friday night. LME lead stocks fell to 67,500 mt on Friday.

The most-liquid SHFE 2108 lead contract fell 0.35% to end at 15,840 yuan/mt in overnight trading last Friday.

Domestic social stocks of lead ingots rose as expected, weighing on the increase of lead prices, and the SHFE bulls also reduced their positions to avoid risks, dragging down the futures prices slightly. TCs for lead concentrate was lowered again last week. In the future, power rationing in some regions may cause disturbances on the supply side, and increase in lead stocks may slow down. This week's focus remains the support from 15,800 yuan/mt.

Zinc: Three-month LME zinc ended 0.81% higher at $2,988/mt last Friday, with open interest decreasing 652 lots to 261,000 lots. Zinc stocks across LME-listed warehouses dropped by 200 mt or 0.08% to 248,725 mt. Although the US July consumer confidence index dropped unexpectedly last Friday amid the easing macroeconomics, the US June retail sales data went higher sharply, boosting expectations for the acceleration of economic growth in Q2, supporting the upward trend of LME zinc. The pressure from $3,000/mt is worth attention in the short term. LME zinc is expected to fluctuate between $2,930-2,980/mt today.

The most-traded SHFE 2108 zinc contract settled 1.28% higher at 22,575 yuan/mt on last Friday night, with open interest rising 5,586 lots to 85,443 lots. The easing overseas policies and the strong domestic consumption resilience led to a decline in zinc social inventories. This, coupled with the power curtailment policies in Yunnan, Guangxi and other places disturbed the production of smelters and boosted bullish sentiments. SHFE zinc is expected to fluctuate higher before the next release of national reserves. The August contract expected to move between 22,200-22,700 yuan/mt today, and spot premiums for domestic 0# Shuangyan will be seen at 190-220 yuan/mt against the August contract.

Nickel: The most active SHFE 2108 nickel contract advanced 1.49% to end at 142,930 yuan/mt last Friday night.

Although Fed continued to express its tolerance for temporary high inflation, there were also hawkish remarks in the market about the reduction in debt purchase. Under the uncertainty of the macro direction, the trading logic of the nickel market gradually returned to the fundamentals.

However, the focus of last week was the surging stainless steel prices due to the limited crude steel and ferrochrome production. Although the consumption of nickel-based raw materials will be reduced amid lower stainless steel production, bullish funds have finally dared to enter the market to push up nickel prices after stainless steel prices rose by 2,000 yuan/mt. However, considering that the nickel prices are close to the boll line and the spot transaction quickly weakened, nickel prices are expected to fall back this week. LME nickel is expected to trade between $18,600-19,200/mt, and SHFE nickel is likely to move between 139,000-144,000 yuan/mt today.

Tin: The most traded SHFE 2108 tin contract rose 3.59% to end at 233,620 yuan/mt last Friday night.      

The open interest did not show significant changes recently, indicating the narrowing differences between the bulls and bears. The expansion of the gains in the previous two trading days was driven by the main funds’ preparation for the contract shift amid the outbreak of fundamental contradictions. Therefore, whether the open interest will fall back amid high prices is worth attention today. SHFE tin is expected stand above 230,000 yuan/mt.