SMM Morning Comments (Jun 23): Base Metals Closed Mixed on Economic Recession Potentials and Firm Growth Target in China

SHANGHAI, Jun 23 (SMM) – SHFE and LME base metals closed mixed. At yesterday's congressional hearing, Federal Reserve Chairman Jerome Powell delivered a more hawkish sound, and market fears of a U.S. recession are also creeping up. On the other hand, Chins has repeatedly firm its commitment to stabilising economic development, boosting confidence on the consumption side.

LME copper lost 2%, aluminium added 0.36%, lead fell 2.2%, and zinc slid 0.59%.

SHFE copper lost 1.36%, aluminium fell 0.89%, lead notched down 0.33%, and zinc added 0.34%.

Copper: LME copper opened at $8,730/mt yesterday and rose to $8,791/mt after falling to a low of $8,656/mt before closing at $8,786/mt, down $179/mt or 2%. Trading volume was 22,600 lots, and open interest stood at 223,000 lots.

SHFE 2208 copper contract opened at 66,450 yuan/mt in overnight trading and then dropped to 66,040 yuan/mt. The contract once rose to 67,120 yuan/mt before closing at 66,850 yuan/mt, down 920 yuan/mt or 1.36%. Trading volume was 46,600 lots, and open interest stood at 120,000 lots.

On the macro front, at yesterday's congressional hearing, Federal Reserve Chairman Jerome Powell delivered a more hawkish sound, and market fears of a U.S. recession are also creeping up. Powell said the U.S. economy will be "very challenging" to achieve a "soft landing" and that a recession could occur as interest rates are raised to combat inflation. As fears of an economic slowdown will hurt energy consumption, oil prices fell 3% on Wednesday.

In the spot market, market players started their half-year settlement period around the end of June, and some goods holders lowered their premiums in order to gain cash. In addition, sluggish downstream demand also weighed on the premiums. Transactions with long-term orders in the near term will underpin the premiums to some extent.

LME copper will trade between $8,680-8,780/mt today; SHFE copper prices are expected to move between 66,200-66,800 yuan/mt. Spot premiums are likely to fluctuate between 190-290 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2207 aluminium contract opened at 19,300 yuan/mt, with its low and high at 19,260 yuan/mt and 19,575 yuan/mt before closing at 19,550 yuan/mt, down 175 yuan/mt or 0.89%.

LME aluminium opened at $2,524.5/mt on Wednesday and closed at $2,539/mt, an increase of $9/mt or 0.36%.

Under the interference of US interest rate hikes and expectations for economic downturn, SHFE aluminium fell again yesterday, setting a new low for the year. At present, the domestic aluminium supply maintains a steady rise. It is expected that the operating aluminium capacity will reach a high of 40.8 million mt by the end of June. The demand side has picked up, but it is not as good as in the same period last year. In addition, high temperature weather has slightly affected downstream production in some areas. Under the influence of pessimism, transactions in the spot market were sluggish. Spot prices in east China were at a premium of around 20 yuan/mt yesterday morning, but then turned into discounts against the SMM A00 aluminium prices due to falling SHFE aluminium prices. In the short term, aluminium prices will remain pressured due to macro tightening and growing supply.

Lead: LME lead opened at $2,060.5/mt, and moved between $2055-2060/mt in Asia trading hours. The contract dropped in European trading hours as US dollar index soared, before closing at $2,015/mt, down 2.2%.

Overnight, the most-traded SHFE 2208 contract opened at 15,120 yuan/mt, and fell from the 40-day moving average to the 20-day average after the longs fully paid off. The contract finally closed at 15,125 yuan/mt, down 0.33%.

Zinc: LME zinc closed at $3,551/mt on Wednesday, down $21/mt or 0.59%. The open interest fell 820 lots 202,000 lots. LME zinc is expected to move between $3,550-3,600/mt today. Overnight LME inventory rose 50 mt to 78,600 mt.

The most traded SHFE 2207 zinc contract closed at 25,380 yuan/mt last night, up 85 yuan/mt or 0.34% overnight. The open interest fell 4,520 lots to 69,754 lots. SHFE zinc is expected to move between 25,300-25,800 yuan/mt, and domestic Shuangyan zinc in premiums of 80 yuan/mt over the most-trade SHFE contract. On the supply side, the recovery of domestic and overseas mines were both disturbed, resulting in tight ore supply. On the supply side, relative stimulus policies in China are likely to keep the consumption prospect positive. In terms of inventory, as LME inventory in the Europe and US was at a low level, rising proportion of cancelled warrants triggered worries across the market, leading to abnormal moves of zinc.

Overnight, Xi Jinping presided over the 26th meeting of the Central Committee for Comprehensively Deepening the Reform. Xi Jinping: China will continue to raise the level of opening up to the outside world and warmly welcome investment and business in China to share development opportunities. China will increase macro policy regulation and take more effective measures to strive to achieve the annual economic and social development targets and minimise the impact of the pandemic. State Council: to further dig into the potential of auto consumption, activate the second-hand car market and support the consumption of new energy vehicles. Li Keqiang: there is no such issue as over-issuance of currency, the main indicators of monetary policy are currently in the normal range; it is also very important to prevent inflation and to respond to new challenges with flexibility.

Tin: In terms of fundamentals, domestic tin inventory under SHFE warrants declined thanks to improved trades in the spot market, while overseas LME tin inventories remained stable. The import profit window has not yet opened, and the amount of imported tin available in the spot market was limited. The most-traded SHFE tin contract rebounded rapidly after a lower opening overnight, and then moved around 228,000 yuan/mt. The open interest declined sharply with the outflows of capital as longs and shorts turned cautious after the prices hit a new low. The fact that SHFE tin prices hit a new low suggests that the market's response to the tight supply side was limited. Therefore, if there is no obvious destocking in tin inventory in the short term, it will be more difficult for SHFE tin prices to rebound sharply.

Nickel: Overnight, the most-traded SHFE 2207 nickel contract opened at 191,900 yuan/mt, and touched a low of 188,300 yuan/mt, affected by the US Fed's hawkish speech. The contract closed at 190,390 yuan/mt, down 6,770 yuan/mt or 3.43% from the settlement price of the previous trading day. Trading volume was 57,400 lots, and open interest decreased by 2,870 lots to 52,000 lots. SHFE nickel has been in a downward trend recently. Expectations for further US interest rate hike will have a lasting impact on nickel prices. The supply of nickel sulphate raw materials and nickel pig iron was abundant, while there was no obvious improvement in downstream and end demand. The import profit of pure nickel increased, but the customs clearance volume was lower than expected due to weak downstream demand. At present, the supply and demand of pure nickel remain weak. Given the US interest rate hike, nickel prices will remain under downward pressure.

[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.]