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SMM Morning Comments (Jun 24): Base Metals Closed Mostly with Losses as Overseas Consumption Expectation Collapsed
Jun 24, 2022 10:00CST
Source:SMM
SHFE and LME base metals closed mostly with losses as overseas consumption expectation collapsed. US manufacturing PMI falls to a two-year low, and the demand deteriorates significantly; Germany and France PMI growth slowed sharply and the UK PMI showed signs of stagnation. In addition, US Fed Chair Powell delivered even hawkish stance on hiking interest rate to curb the inflation.

SHANGHAI, Jun 24 (SMM) – SHFE and LME base metals closed mostly with losses as overseas consumption expectation collapsed. US manufacturing PMI falls to a two-year low, and the demand deteriorates significantly; Germany and France PMI growth slowed sharply and the UK PMI showed signs of stagnation. In addition, US Fed Chair Powell delivered even hawkish stance on hiking interest rate to curb the inflation.

LME copper lost 5.11%, aluminium dropped 2.8%, lead fell 3.62%, and zinc slid 1.65%.

SHFE copper lost 3.94%, aluminium fell 0.98%, lead shed 0.66%, and zinc slid 2.4%.

Copper: LME copper opened at $8,616/mt yesterday and fell to the lowest at $8,326/mt after rising slightly to $8,642/nt. At last, the prices closed at $8,337/mt, down by $449/mt, or 5.11%. Trading volume was 22,200 lots, and open interest stood at 227,000 lots.

SHFE copper 2208 contract opened at 65,390 yuan/mt and hit the low at 63,350 yuan/mt after climbing to 65,690 yuan/mt. At last, the prices closed at 63,580 yuan/mt, down by 2,610 yuan/mt, or 3.94%. Trading volume was 91,000 lots, and open interest stood at 136,000 lots.

On the macro front, the data released yesterday showed that the initial PMI of the Markit manufacturing industry in the US in June was significantly lower than expected, hitting a 23-month low. The 30-year mortgage interest rate in the US reached its highest level since 2008. Last week, the number of first-time jobless claims remained near the five-month high, and the market's worries about the economic recession continued to heat up. When Fed Chairman Powell testified in Congress overnight, he said that it was appropriate for the Fed to continue to raise interest rates and would take all necessary measures to restore price stability. The dollar was once again boosted higher, and copper prices fell sharply under pressure.

In terms of spot, the futures prices have dropped by more than 1,500 yuan/mt for two consecutive days, and the market buying has declined. In addition, last week, some of the downstream banks had already made stock on demand. At the end of June, under the pressure of funds and bills, enterprises focused on cash exchange, and the premiums dropped rapidly. The market shall pay attention to when SHFE copper will stop falling. In the short term, the premiums will fall further under the pressure of the cargo holders’ dumping of goods.

LME copper will trade between $8,380-8,480/mt today; SHFE copper prices are expected to move between 63,400-64,000 yuan/mt. Spot premiums are likely to fluctuate between 60-160 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2207 aluminium contract opened at 19,425 yuan/mt, with its low and high at 19,250 yuan/mt and 19,570 yuan/mt before closing at 19,295 yuan/mt, down 190 yuan/mt or 0.98%.

LME aluminium opened at $2,520/mt on Thursday and closed at $2,438/mt, down $71/mt or 2.8%.

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 strong as in the same period last year. In addition, high temperature weather has slightly affected downstream production in some areas. Transactions in the spot market were sluggish amid pessimism. In the short term, aluminium prices will remain pressured due to macro tightening and growing supply.

Lead: LME lead ended 3.62% lower at $1,942/mt in the overnight trading after dropping to a 15-month low of $1,940/mt due to the hawkish remarks of the Fed officials about raising interest rates.

The most-traded SHFE lead 2208 contract ended 0.66% lower at 15,025 yuan/mt in the overnight trading after moving between 14,950 yuan/mt and 15,120 yuan/mt. The open interest increased by 3,434 lots to 55,894 lots from the previous trading day.

Zinc: LME zinc closed at $3,493/mt on Thursday, down $58.5/mt or 1.65%. The open interest fell 1,083 lots 200,000 lots. LME zinc is expected to move between $3,500-3,550/mt today. Overnight LME inventory rose 1,300 mt to 79,900 mt.

The most traded SHFE zinc contract closed at 24,590 yuan/mt last night, down 605 yuan/mt or 2.4% overnight. The open interest fell 5,208 lots to 56,402 lots. SHFE zinc is expected to move between 24,500-25,000 yuan/mt, and domestic Shuangyan zinc in premiums of 60 yuan/mt over the most-trade SHFE contract. Zinc prices, though dropped along with the broad market due to the collapse of overseas consumption expectation, gained support from extremely low LME inventory in the Europe and US, which have been relatively firm recently.

Overnight, Powell Congressional Hearing Day 2: Even if the economy slows sharply, Fed policy will not turn as long as inflation does not decrease rapidly. China government: to control the number and scale of structural monetary policy tools at a consensual level; a few small and medium-sized banks have high risks, but controllable overall; capital market risks are generally mitigating and largely controllable. US manufacturing PMI falls to a two-year low, and the demand deteriorates significantly; Germany and France PMI growth slowed sharply and the UK PMI showed signs of stagnation. Germany warned that gas supply cuts would trigger a "Lehman-style crisis" and launched a secondary alert for gas emergency plans, and the consumers may face a surge in gas prices and European gas hit a six-month high.

Tin: In terms of fundamentals, domestic tin inventory under SHFE warrants rose slightly due to poor trades in the spot market, while overseas LME tin inventories fell slightly. The import profit window has not yet opened, and the overall market demand was weak. Overnight, the most-traded SHFE tin contract opened lower at 220,000 yuan/mt and moved around this level, affected by a sharp drop in LME tin. With the approaching delivery of the most-traded SHFE tin contract, its open interest decreased considerably.  To sum up, the simultaneous weakening of tin prices in the futures and spot markets indicates that the demand remains weak. Therefore, it is still necessary to pay attention to how will the tight supply affect the inventories in the near future.

Nickel: The most-traded SHFE nickel 2207 contract opened at 186,100 yuan/mt, and closed at 184,090 yuan/mt, a decrease of 5,080 yuan/mt, or 2.69%, from the previous trading day. Trading volume was 49,500 lots, and open interest decreased by 9,291 lots to 48,300 lots. The Fed's interest rate hike is expected to have a continuing impact. On the fundamentals, the supply of nickel sulphate raw materials and NPI was sufficient, while the downstream and terminal demand did not improve. On the supply side, the profit margin of imports of pure nickel spot expanded, but the customs clearance volume was less than expected due to the weak downstream demand. At present, the supply and demand of pure nickel remain weak, and it is expected that the nickel prices will remain volatile with some downward potential due to the macro factors such as the Fed’s interest rate hike.

[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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