SMM Morning Comments (Jun 27): Base Metals Closed Mostly with Losses over Deep Worries over Potential Economic Recession

SHANGHAI, Jun 27 (SMM) – SHFE and LME base metals closed mostly with losses as poor economic data and the strengthening of the US dollar and pessimistic expectations of the global economic outlook caused by the Fed's interest rate hike led to the falling metals prices.

LME copper lost 0.18%, aluminium dropped 0.73%, lead fell 0.13%, and zinc slid 4.21%.

SHFE copper lost 1.52%, aluminium fell 0.7%, lead shed 0.17%, and zinc slid 4.87%.

Copper: LME copper opened at $8,293.5/mt last Friday, and once rose to $8,435/mt after falling to $8,122.5/mt. At last, the prices closed at $8,322/mt, down by $15/mt, or 0.18%. Trading volume was 24,500 lots, and open interest stood at 229,000 lots.

The most-traded SHFE 2208 copper contract opened at 63,300 yuan/mt last Friday, and once rebounded to 64,350 yuan/mt after dropping to 61,620 yuan/mt. At last, the prices closed at 63,450 yuan/mt, down 1.52%. The trading volume was 15,400 lots, and open interest stood at 143,000 lots.

On the macro front, LME copper recorded its biggest weekly decline this year last week, falling by more than 6.5%. The initial PMI of the Markit manufacturing industry in the US in June, announced last Friday, recorded 52.4, a 23-month low, which was significantly lower than the expected 56. Poor economic data and the strengthening of the US dollar and pessimistic expectations of the global economic outlook caused by the Fed's interest rate hike led to the falling copper prices. The market shall pay attention to China's official manufacturing PMI, comprehensive PMI, and steel PMI, which will be released on June 30, and the Fed Chairman Powell's speech at the European Central Bank Forum on June 29. If the argument that the Fed hawks will raise interest rates in the future continues, it may continue to suppress commodity prices.

In the spot market, on the last trading day before the delivery of long-term orders in June, the trading of the market picked up. Besides, the futures prices have been falling for nearly 10 trading days, and the premiums stabilised at around 100 yuan/mt supported by the downstream’s purchasing on dips. In the semi-annual settlement cycle this week, traders will mainly intend to gain cash, and the premiums may hardly rise. In addition, the downstream restocking demand is poor, and the inflow of overseas sources suppresses the spot premiums to a certain extent.

LME copper will trade between $8,320-8,420/mt today; SHFE copper prices are expected to move between 63,600-64,400 yuan/mt. Spot premiums are likely to fluctuate between 90-180 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,040 yuan/mt at last Friday’s night session, with its low and high at 18,705 yuan/mt and 19,225 yuan/mt before closing at 18,970 yuan/mt, down 135 yuan/mt or 0.7%.

LME aluminium opened at $2,468/mt last Friday and closed at $2,450/mt, down $18/mt or 0.73%.

The current macro environment is pessimistic, and commodity prices remain weak. SHFE aluminium fell again amid pessimism, and transactions in the spot market were sluggish. SHFE aluminium will meet resistance at around 19,600 yuan/mt. However, the potential boost to consumer confidence due to various stimulus policies and cost support may allow aluminium prices to rally. SHFE Aluminium is expected to move between 18,900-19,600 yuan/mt on Monday.

Lead: LME lead ended 0.13% lower at $1,939.5/mt on June 24 after ranging between $1,900.5/mt and $1,962.5/mt. The open interest increased by 2,190 lots to 91,363 lots.

The most-traded SHFE lead 2208 contract ended 0.17% lower at 14,940 yuan/mt on June 24 after opening at 14,825 yuan/mt and hitting a low of 14,800 yuan/mt. The open interest increased by 1,087 lots to 57,380 lots.

Zinc: LME zinc closed at $3,346/mt last Friday, down $147/mt or 4.21%. The open interest added 170 lots 201,000 lots. LME zinc is expected to move between $3,320-3,370/mt today. Overnight LME inventory fell 725 mt to 79,175 mt, down 0.91%. The metals market was suppressed by worries over slowing economic development in light of high inflation.

The most traded SHFE 2208 zinc contract closed at 23,330 yuan/mt last night, down 1,195 yuan/mt or 4.87% overnight. The open interest rose 1,872 lots to 111,000 lots. SHFE zinc is expected to move between 23,000-23,500 yuan/mt, and domestic Shuangyan zinc in premiums of 70-90 yuan/mt over SHFE 2207 contract. On the whole, though the supply tightness remained unchanged, zinc ingot social inventory across seven major markets were still falling. However, metals prices dropped on worries over US inflation and potential economic recession. And zinc prices could hardly manage a rally before the macro sentiment cools down.

Tin: The domestic tin ingot social inventories fell slightly last week, but the decline somehow fell short of expectations in light of the concentrated maintenance by smelters. LME tin inventories did not change much. The fact that LME tin underperformed SHFE tin allowed the import profit window to open. The most-traded SHFE tin contract fell below 200,000 yuan/mt at last Friday’s night session. However, the contract closed at above 200,000 yuan/mt as more bulls entered. The open interest was significantly reduced. Under the support of maintenance-driven destocking, SHFE tin will probably rebound following continuous sharp decline.

Nickel: Recently, the sharp drop in nickel prices has attracted market attention. Due to the Fed's interest rate hikes and the shrinking of the balance sheet on June 9, the nickel prices kept falling. On the evening of June 22, Fed Chairman Powell made a speech at the Senate Banking Committee, saying that the future tightening monetary policy may continue, so the negative impact on the non-ferrous metals prices will be further aggravated. On the supply side, influenced by the resumption of production of refined nickel by domestic nickel sulphate producers, domestic pure nickel output increased slightly, and imports of overseas pure nickel spots remained profitable, so the supply of pure nickel improved significantly from February and March. Besides, the Indonesian NPI and intermediate products production line will continue to be put into production, which may restrain the demand for pure nickel in the future. On the demand side, although the pandemic in Foshan and Wuxi has eased and the spot transaction of stainless steel has improved, the low proportion of pure nickel used in stainless steel production cast a limited impact on nickel prices. As for the alloy, electroplating and battery, due to the sharp drop in nickel futures prices, the purchasing volume of the alloy increased. The spot trading was slack in recent days due to the procurement cycle and other problems even though the futures prices were low. To sum up, at present, the demand for pure nickel is weak, while the supply is expected to be sufficient, thus the long-term nickel prices may remain rangebound with some downward potential.

[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.]