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SMM Morning Comments (Jun 15): Base Metals Closed Mostly with Losses on Expectations of Aggressive US Rate Hike
Jun 15, 2022 10:00CST
Source:SMM
Shanghai and LME base metals closed mostly with losses as US PPI in May posted strong growth, and gasoline prices rose sharply, indicating that current inflation is still at a high level. High inflation triggered market concerns that the Federal Reserve may be more aggressive in interest rate hiking.

SHANGHAI, Jun 15 (SMM) - Shanghai and LME base metals closed mostly with losses as US PPI in May posted strong growth, and gasoline prices rose sharply, indicating that current inflation is still at a high level. High inflation triggered market concerns that the Federal Reserve may be more aggressive in interest rate hiking.

LME copper slid 1.9%, aluminium lost 3%, lead fell 0.26%, and zinc shed 1.75%.

SHFE copper fell 0.85%, aluminium slid 1.08%, lead lost 0.6%, and zinc shed 0.44%.

Copper: LME copper opened at $9,273/mt on Tuesday and rose briefly to $9,313.5/mt. At last, the contract closed at $9,147.5/mt, down 1.9%. Trading volume was 14,800 lots, and open interest stood at 233,000 lots.

SHFE 2207 copper contract opened at 71,270 yuan/mt last night and rose to the intraday high of 71,350 yuan/mt. At last, the contract closed at 70,780 yuan/mt, down 0.85%. Trading volume was 35,600 lots, and open interest stood at 139,000 lots.

On the macro front, the US PPI in May posted strong growth, and gasoline prices rose sharply, indicating that current inflation is still at a high level. High inflation triggered market concerns that the Federal Reserve may be more aggressive in interest rate hiking. Overnight, the dollar index continued to surge to a nearly 20-year high of 105.67, recorded five consecutive gains. Overnight copper prices dropped.

In the spot market, spot premiums changed along with the SHFE front-month and next-month spread on the last trading day before the delivery of SHFE 2206, and market transactions also picked up in the form of long-term orders. But the premiums are unlikely to rise significantly after the delivery. The cancelled warrants at LME Asian warehouses are expected to flow into China, and domestic smelters have also resumed the production, but the consumption side lacked spotlights. The front-month premiums of 250 yuan/mt over the next-month contract yesterday will offer guidance for the market prospect.

LME copper will trade between $9,200-9,300/mt today; SHFE copper prices are expected to move between 70,500-71,100 yuan/mt. Spot premiums are likely to fluctuate between 0-60 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,890 yuan/mt overnight and rose to 19,950 yuan/mt before closing at 19,740 yuan/mt, down 215 yuan/mt or 1.08%.

LME aluminium opened at $2,637/mt on Tuesday and closed at $2,558/mt, down $79/mt or 3%.

There are growing expectations for US interest rate hike, which coupled with the increase in domestic aluminium supply, kept aluminium prices in check. The spot buying strength index began to stabilise, and some traders held their offers firmly. Given the tug-of-war between longs and shorts, it is expected that SHFE aluminium will remain relatively weak in the short ter

Lead: LME lead opened at $2,092.5/mt and closed at $2,084/mt overnight, down 0.26%. During the Asian trading hours, LME lead rose to $2116.5/mt while during the European trading hours, LME lead declined to $2,065/mt due to the increase of US dollar index. The open interest decreased by 748 lots to 94,203 lots from the previous trading day.

The most traded SHFE 2207 lead contract fell 0.6% to 14,860 yuan/m, after briefly hitting the highest point at 14,930 yuan/mt and the lowest point at 14,825 yuan/mt. The open interest decreased by 3,609 lots to 60,428 lots from the previous trading day.

Zinc: LME zinc closed at $3,571/mt Tuesday, down $63.5/mt or 1.75%. The open interest fell 4,274 lots to 210,000 lots. LME zinc is expected to move between $3,550-3,600/mt today. Overnight LME inventory lost 550 mt to 81,950 mt. LME inventory kept falling.

The most traded SHFE 2207 zinc contract closed at 25,760 yuan/mt last night, down 115 yuan/mt or 0.44% overnight. The open interest fell 1,394 lots to 101,000 lots. SHFE zinc is expected to move between 25,700-26,200 yuan/mt, and 0# Shuangyan zinc in premiums of 50 yuan/mt over SHFE 2207. SHFE zinc dropped following LME zinc. SHFE/LME price ratio rose to 7.07, and the import window re-opened theoretically. LME dropped again though domestic zinc has been delivered to overseas warehouses. Tight supply of zinc spot underpinned zinc prices.

Overnight, the market is expecting an 89% chance of the Federal Reserve raising interest rates by 75 basis points on Wednesday. U.S. fuel and trucking costs are driving producer prices up sharply, which may force the Fed to raise rates by 75 basis points. The White House said it was discussing revising "irresponsible" Trump-era tariffs on Chinese goods. And OPEC representatives and industry sources said world oil demand growth will slow in 2023 as soaring crude and fuel prices help push up inflation and weigh on the global economy.

Tin: The increase in domestic tin inventory under warrants slowed down thanks to the recovery of the spot market, while overseas LME tin inventories remained stable. The amount of imported tin available in the spot market declined sharply, and the import profit window remains closed. The most-traded SHFE tin contract rebounded after opening lower overnight, and hovered around 240,000 yuan/mt. The open interest declined with the outflows of capital. A growing number of domestic tin smelters undertook maintenance, but tin prices failed to gain much upward momentum due to growing inventories. In the short term, the market shall pay attention to the progress of maintenance by smelters and the digestion of inventories following delivery of futures contract.

Nickel: SHFE nickel opened at 202,110 yuan/mt and fell to 197,000 yuan/mt when the longs left the market. At last, the prices closed at 197,360 yuan/mt, a decrease of 6,740 yuan/mt, or 3.3%, from the previous trading day.  On the fundamentals, pure nickel spot supply was tight as the downstream purchasing was aroused by the rising futures prices. NPI prices could not be high due to the oversupply. The demand for stainless steel was slack, and the operating rates in Foshan were halved. As for the nickel sulphate, the costs fell as the raw materials were sufficient. In the short term, the nickel prices may fluctuate with some downward potential.

[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.]


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