SMM Evening Comments (Jun 22): Shanghai Nonferrous Metals Closed Mixed with Bears Dominating the Market

SHANGHAI, Jun 22 (SMM) – Shanghai nonferrous metals closed mixed today, but the market was still dominated by the bears as US officials supported a 50bps or 75 bps rate hike in the following month.

Shanghai copper slid 1.64%, aluminium fell 1.45%, lead rose 0.23%, zinc inched up 0.08%, tin shed 5.08%, and nickel lost 4.25%.

Copper: The most-traded SHFE 2207 copper closed down 1.64% or 1,120 yuan/mt at 67,060 yuan/mt, with open interest down 6,760 lots to 107,154 lots.

On the macro front, the annual rate of US second home sales fell for the fourth consecutive month in May, dropping to a near two-year low as home prices jumped to a record high, breaking the US$400,000 mark for the first time. And mortgage rates rose further, pushing first-time buyers out of the market and sharply increasing recession expectations. The Fed's mid-term report gave a promise of inflation control, which guides a gloomy liquidity outlook, with the dollar index moving up.

On the fundamentals, SHFE copper inventory dropped 1,177 mt to 17,162 mt, and LME copper inventory lost 975 mt to 114,175 mt. Low inventories in both China and overseas underpinned copper prices. On the consumption side, falling copper prices recently encouraged downstream purchases, and narrowing spread between copper cathode and scrap pushed up the consumption of copper cathode.

Aluminium: The most-traded SHFE 2207 aluminium closed down 1.45% or 285 yuan/mt to 19,430 yuan/mt, with open interest down 11,444 lots to 106,738 lots.

On the supply side, operating aluminium capacity is expected to reach an all-time high of 40.8 million mt with new capacities commissioning and old capacities resuming the production in Gansu and Guangxi. The demand side is still recovering, pulling down the social inventory. But aluminium prices will still be pressured by a gloomy real estate market and rising supply.

Lead: The most-traded SHFE 2207 lead closed up 0.23% or 35 yuan/mt at 15,185 yuan/mt, with open interest down 8,890 lots to 29,724 lots.

Lead futures prices hovered at a high level, and the traders actively made shipments mostly with discounts. Secondary lead smelters also sold with large discounts. However, the downstream posted little rigid demand, and turned away when the prices were high. The transactions with small orders were sluggish.

Zinc: The most-traded SHFE 2207 zinc closed up 0.08% or 20 yuan/mt at 25,295 yuan/mt, with open interest down 5,226 lots to 74,274 lots.

On the supply side, some smelters were forced to reduce or suspend the production due to maintenance and energy issues, resulting in relatively tight supply. Currently, LME inventory stood at 78,200 mt. Though there have been inflows into the warehouses, the extremely low inventory offered rooms for capital game apart from underpinning zinc prices. The consumption side remained sluggish. The spot market saw less transactions amid rebounding zinc prices.

Tin: The most-traded SHFE 2207 tin closed down 5.08% or 12,230 yuan/mt at 228,390 yuan/mt, with open interest up 1,249 lots to 32,571 lots.

In the spot market, smelters continued to firm their quotes in morning trade, and some have even suspended making shipments. However, quotes from the upstream dropped along with falling futures prices, and stood at 235,500 yuan/mt on average, down 9,250 yuan/mt from yesterday. The downstream still purchased on demand. SHFE warrants fell 228 mt to 3,087 mt, and LME tin inventory added 15 mt on June 21, and lost 10 mt to 3,335 mt today. Import losses expanded further, and the spread between SHFE near-month and forward-month contracts also expanded.

Nickel: The most-traded SHFE 2207 nickel closed down 4.25% or 8,510 yuan/mt at 191,900 yuan/mt, with open interest down 3,458 lots to 54,844 lots.

On the supply side, delivered nickel plate with SHFE 2206 has entered the market, and some imported plates have arrived in China amid constant import profits, slightly easing pure nickel supply tightness. But the demand side remain sluggish, and the transactions in the alloy sector were muted. The fundamentals of pure nickel have been stable recently, that is, the supply stays relatively sufficient and the demand side remains sluggish. SHFE warrants inventory has dropped to a historical low, underpinning nickel prices to some extent. The market shall watch how nickel prices will be affected by macro factors in the future.

[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.]