SMM Morning Comments (Jun 20): Base Metals Closed Mostly with Losses on Aggravated Worries on Economic Recession

SHANGHAI, Jun 20 (SMM) – SHFE and LME base metals closed mostly in the negative zone as the market players were again deeply worried about the economic recession after the US Fed released "the most hawkish inflation-fighting language to date", saying that the commitment to restoring price stability is "unconditional".

LME copper fell 1.94%, aluminium lost 0.73%, lead slid 3.53%, and zinc shed 2.12%.

SHFE copper fell 1.55%, aluminium lost 1.04%, lead slid 0.83%, and zinc shed 1.9%.

Copper: LME copper opened at $9,103/mt yesterday and fell to $8,916.5/mt after climbing to $9,114.5/mt. At last, the prices closed at $8,949.5/mt, down 1.94%. Trading volume was 15,700 lots, and open interest stood at 229,000 lots.

SHFE 2207 copper contract opened at 69,450 yuan/mt in overnight trading, and once fell to 68,530 yuan/mt after falling below the daily moving average. At last, the prices closed at 68,660 yuan/mt, down 1.55%. Trading volume was 49,500 lots, and open interest stood at 129,000 lots.

On the macro front, last week, many central banks announced interest rate hikes, which made the market worry more about the global economic recession. In addition, last week, Fed Governor Waller made a speech on US monetary policy, supporting another 75 basis points interest rate hikes in July. The risk aversion sentiment pushed up the US dollar index again. Due to the tight monetary policy and the economic recession, copper prices continued to drop.

In the spot market, with the rapid decline in the futures prices, the market did not expect the downstream to restock as the downstream mainly held a wait-and-see sentiment in the bear market. With the opening of the import window, the imported goods gradually flowed into the domestic market. However, as the centralised overhaul in China ended and the output of the smelters in Shandong increased, the sources in the market rose, but the buying interest was not high. Spot premiums may not rise.

LME copper will trade between $8,920-9,020/mt today; SHFE copper prices are expected to move between 68,700-69,300 yuan/mt. Spot premiums are likely to fluctuate between 180-280 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,760 yuan/mt at last Friday’s night session, with its low and high at 19,550 yuan/mt and 19,770 yuan/mt before closing at 19,600 yuan/mt, down 205 yuan/mt or 1.04%.

LME aluminium opened at $2,518/mt last Friday and closed at $2,503/mt, down $18.5/mt or 0.73%.

Last week, under the macro influence of US inflation exceeding market expectations and US Fed officials’ hawkish stance about future interest rate hike and balance sheet reduction, aluminium prices fell along with other commodities. In terms of fundamentals, the domestic aluminium supply continued to rise, and the operating capacity has reached a historical high of 40.7 million mt. Recently, domestic aluminium consumption has improved, and the operating rates in aluminium processing sectors increased slightly. Downstream restocking amid falling aluminium prices allowed domestic aluminium ingot social inventory to maintain a downward trend. In the short term, aluminium prices may rebound due to improved macro sentiment and decline in social inventory. However, giving the increasing supply and pessimistic expectations for end demand such as the real estate sector, the upside room will be limited.

Lead: LME lead ended 3.53% lower at $2,050/mt on June 17 after opening at $2,106/mt and trending lower due to the rising US dollar index. The open interest increased by 9 lots to 90,809 lots.

The most-traded SHFE lead 2207 contract ended 0.83% lower at 14,865 yuan/mt on June 17 after moving between 14,860-15,050 yuan/mt. The open interest increased by 203 lots to 52,532 lots.

Zinc: LME zinc closed at $3,524/mt last Friday, down $76.5/mt or 2.12%. The open interest rose 220 lots to 204,000 lots. LME zinc is expected to move between $3,500-3,550/mt today. Overnight LME inventory added 700 mt to 80,275 mt, down below the 80,000 mt level.

The most traded SHFE 2207 zinc contract closed at 25,290 yuan/mt last night, down 490 yuan/mt or 1.9% overnight. The open interest fell 2,264 lots to 91,240 lots. SHFE zinc is expected to move between 25,000-25,500 yuan/mt, and domestic Shuangyan zinc in premiums of 60 yuan/mt. On the consumption side, the orders have not yet improved substantially. In the spot market, downstream companies mostly purchased on dips, and the overall restocking demand was only modest.

On Friday, the Federal Reserve released its semi-annual monetary policy report, saying its commitment to restoring price stability is "unconditional", which is described as "the most hawkish inflation-fighting language to date". The Minneapolis Fed president said he supports another 75 basis points in July. In the eurozone, the final reconciled CPI rose 8.1% year-on-year in May, continuing to set a new record high. Xi Jinping pointed out that the fundamentals of China's economy, which is resilient, full of potential and long-term prospect, have not changed, and we are confident in China's economic development. China will continue to promote high-quality development, unswervingly promote high level of openness, and advance high-quality construction along the "One Belt, One Road". China is ready to work with all countries in the world, including Russia, to create development prospects and share growth opportunities, and to make new contributions to deepening global cooperation and promoting the building of a community of human destiny.

Tin: The domestic tin ingot social inventory rose due to delivery of the SHFE 2206 tin contract. LME tin inventories accumulated significantly last Friday, mainly contributed by Asia. The inventory of imported tin in the domestic spot market remained low, and the import profit window remained closed. The most-traded SHFE tin contract went down at last Friday’s night session, affected by the fall in energy prices. The open interest declined sharply with the outflows of capital. Rising tin inventories prevented tin prices from rebounding. However, improved trades in the spot market indicate that buyers were willing to purchase after tin prices fell back. As such, tin prices will probably move sideways in the process of digesting tin inventories. 

Nickel: The most traded SHFE 2207 nickel contract opened at 197,100 yuan/mt in overnight trading, and once fell to the lowest price of 195,000 yuan/mt. At last, the prices closed at 197,480 yuan/mt, an increase of 370 yuan/mt, or 0.19%, from the previous trading day. Trading volume was 51,100 lots, and open interest decreased by 7,265 lots to 51,800 lots.  Due to the continuous influence of the Fed's interest rate hike, metals prices fell, and so did the nickel prices. On the fundamentals, the supply of nickel sulphate raw materials and NPI was sufficient, while the downstream and terminal demand did not improve. The rising purchases on rigid demand led to rare sources of pure nickel in the spot market, which will ease early this week. As the pure nickel prices have fluctuated based on the US Fed's interest rate hikes, SMM expects the nickel prices to remain rangebound at low levels this week.

[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.]