SMM Morning Comments (Jun 16): Base Metals Closed Mixed on 75-Basis-Point Rate Hike by the US Fed

Published: Jun 16, 2022 10:00

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As is expected by the market, the Fed raised its benchmark interest rate by 75 basis points, the largest rate hike since 1994. The base metals closed mixed as investors have already priced in such expectation, and Fed Chairman Jerome Powell placated the market by saying that a 75 basis point hike was not expected to become the norm.

SHANGHAI, Jun 16 (SMM) - As is expected by the market, the Fed raised its benchmark interest rate by 75 basis points, the largest rate hike since 1994. The base metals closed mixed as investors have already priced in such expectation, and Fed Chairman Jerome Powell placated the market by saying that a 75 basis point hike was not expected to become the norm.

LME copper rose 0.66%, aluminium added 2.23%, lead fell 0.34%, and zinc gained 2.66%.

SHFE copper fell 0.54%, aluminium added 0.55%, lead lost 0.24%, and zinc gained 0.17%.

Copper: LME copper opened at $9,246/mt on Wednesday and rose briefly to $9,300/mt. At last, the contract closed at $9,208/mt after hitting a low of $9,197/mt, up 0.66%. Trading volume was 14,000 lots, and open interest stood at 232,000 lots.

SHFE 2207 copper contract opened at 70,870 yuan/mt overnight and then fell to the intraday low of 70,550 yuan/mt. The contract closed at 70,630 yuan/mt, down 0.54%. Trading volume was 27,000 lots, and open interest stood at 139,000 lots.

On the macro front, as is expected by the market, the Fed raised its benchmark interest rate by 75 basis points, the largest rate hike since 1994. After the Fed's resolution was announced, the US dollar index rose as high as 105.79, the highest since December 2002, but then Fed Chairman Jerome Powell placated the market by saying that the pace of future rate hikes would depend on future data and that a 75 basis point hike was not expected to become the norm. The rate hike settled with short-term benefits cashing in early, and the dollar ended its previous surge and fell to close 0.59% lower.

In the spot market, SHFE front-month and next-month spread moved in a narrow range after reaching 0 yuan/mt, and market transactions were limited. The market players shall watch the arrivals of imported copper as well as the production resumption of smelters form maintenance. Spot premiums are likely to be pressured by the traders as buyers after the delivery of SHFE 2206 as they were still unsatisfied with the level.

LME copper will trade between $9,280-9,380/mt today; SHFE copper prices are expected to move between 70,700-71,300 yuan/mt. Spot premiums are likely to fluctuate between 100-200 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,915 yuan/mt overnight and rose to 20,040 yuan/mt before closing at 20,025 yuan/mt, up 110 yuan/mt or 0.55%.

LME aluminium opened at $2,567/mt on Wednesday and closed at $2,615/mt, up $57/mt or 2.23%.

The supply side pressure still existed with rising aluminium supply, but the consumption side kept improving though there has not yet been substantial changes. Market transactions picked up after aluminium prices dropped below 20,000 yuan/mt yesterday. Aluminium prices are likely to move rangebound with the mixture of longs and bulls as overseas information continues to exert influences.

Lead: LME lead ended 0.34% lower at $2,077/mt in the overnight trading after hitting a high of $2,113/mt and falling to a low of $2,075/mt due to the rising US dollar index. The open interest decreased by 1,366 lots to 92,837 lots.

The most-traded SHFE lead 2207 contract fell 0.24% at 14,845 yuan/mt in the overnight trading after moving between 14,830 yuan/mt and 14,910 yuan/mt. The open interest increased by 442 lots to 59,666 lots.

Zinc: LME zinc closed at $3,666/mt Wednesday, up $95/mt or 2.66%. The open interest fell 5,574 lots to 204,000 lots. LME zinc is expected to move between $3,600-3,650/mt today. Overnight LME inventory lost 1,825 mt to 80,125 mt. LME inventory remained low.

The most traded SHFE 2207 zinc contract closed at 25,950 yuan/mt last night, up 45 yuan/mt or 0.17% overnight. The open interest fell 370 lots to 99,000 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. On the supply side, SHFE/LME price ratio stood stable above 7.1, but imports losses were still as much as 3,000 yuan/mt. On the consumption side, the construction work in east and south China slowed down due to more rains, pulling down the demand for galvanizing and die-casing alloy.

Overnight, the Federal Reserve raised its benchmark interest rate by 75 basis points, the largest rate increase since 1994. The Kremlin said Putin and Xi Jinping agreed to boost cooperation between the two countries in energy and finance. China's State Council executive meeting said it would not only decisively increase efforts to stabilize the economic development, but also not over-issuing money and not overspending the future, and focus on protecting market players, preserving employment and stabilising prices, as well as stabilising the macro-economy. U.S. retail sales unexpectedly fell 0.3 percent in May from the previous month, with motor vehicle purchases down amid a severe supply shortage and record high gasoline prices pushing people to spend less on other goods.

Tin: On the fundamentals, domestic warrants dropped slightly with the recovery of spot market, and LME inventory remained largely unchanged. In the spot market, the quotations of imported refined tin dropped, and import losses narrowed slightly though the import window has closed.

In the futures market, the most-traded SHFE tin contract rebounded after opening, and then moved around 254,000 yuan/mt with little fluctuation. The contract performed relatively strongly with the leave of shorts, which indicated that the market is digesting the influences from the expected extensive maintenance. The market shall watch if the inventory could fall after the delivery of SHFE 2206.

Nickel: The most-liquid SHFE nickel 2207 contract rebounded above 200,000 yuan/mt in the overnight trading. Nickel futures opened at 200,300 yuan/mt and then rose sharply to 206,000 yuan/mt after the shorts left the market, with the highest transaction price at 206,000 yuan/mt at night. Nickel prices fell as the longs left the market and closed at 202,680 yuan/mt, an increase of 3520 yuan/mt or 1.77% from the settlement price of the previous trading day. On the macro front, the Fed's decision on the upper limit of interest rates finally came to an end in the early morning, leading to the fall of US dollar index. Commodities rebounded after risk aversion, so as SHFE nickel. In terms of the fundamentals, the market demand for new energy and stainless steel was still weak, and the prices of raw materials trended lower. However, pure nickel spot was relatively scarce, while warrants inventory still hovered at a low level and products have not been delivered. It is expected that nickel prices may still move rangebound.

[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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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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