SMM Morning Comments (Jun 30): Base Metals Closed Mixed amid Hawkish Rhetoric from the US Fed

SHANGHAI, Jun 30 (SMM) – SHFE and LME base metals closed mixed as Fed Chairman Powell said the US economy is performing strongly and can avoid recession; while the US bond market predicted that the Fed will cut interest rates by 50 basis points next year.

LME copper rose 0.11%, aluminium fell 0.58%, lead lost 2.18%, and zinc slid 0.68%.

SHFE copper rose 0.39%, aluminium fell 0.34%, lead added 0.07%, and zinc jumped 0.17%.

Copper: LME copper opened at $8,431.5/mt yesterday and fell to the lowest at $8,386/mt after climbing to $8,489/nt. At last, the prices rebounded slightly and closed at $8,409.5/mt, up by $9.2/mt, or 0.11%.  Trading volume was 12,400 lots, and open interest stood at 235,000 lots.

SHFE 2208 copper contract opened at 64,440 yuan/mt in overnight trading and fell to 64,050 yuan/mt under the pressure of longs after rising to 64,680 yuan/mt. At last, the prices closed at 64,200 yuan/mt, up by 250 yuan/mt, or 0.39%. Trading volume decreased by 102,000 lots to 53,400 lots, and open interest stood at 138,000 lots.

On the macro front, when attending the European Central Bank Forum yesterday, Fed Chairman Powell said that the biggest risk to the US economy is the persistently high inflation, instead of raising interest rates, which will greatly slow down the economic growth rate. It is also possible to tighten monetary policy while avoiding the recession of the US economy, but it cannot be completely guaranteed. Powell's hawkish speech caused the US dollar to close up by 0.59% overnight, putting some pressure on copper futures, and the prices of copper fluctuated.

In the spot market, today is the last trading day of June. Spot premiums dropped quickly to around 0 yuan/mt again after the participants’ cash demand. Falling futures prices aroused fear in the downstream, and some non-standard goods were supplied so that the downstream was less willing to purchase standard-quality copper and other sources, which kept the market buying slack. The market shall pay attention to the release of domestic consumption after the fall of copper prices, and the fluctuation of premiums based on the spread between the front-month and next-month contracts in July.

LME copper will trade between $8,370-8,470/mt today; SHFE copper prices are expected to move between 64,200-64,800 yuan/mt. Spot premiums are likely to fluctuate between -30 - 50 yuan/mt.

Aluminium: The most-traded SHFE 2208 aluminium contract opened at 19,305 yuan/mt overnight, with its low and high at 19,200 yuan/mt and 19,385 yuan/mt before closing at 19,215 yuan/mt, down 65 yuan/mt or 0.34%.

LME aluminium opened at $2,491/mt on Wednesday and closed at $2,472.5/mt, down $14.5/mt or 0.58%.

On the supply side, spot premiums winded across the country, and goods holders were active in making shipment. But the downstream was less interest in buying and mostly stood on the sidelines. The spot market was quiet as a whole. And the SMM Spot Buying Index recorded a new low.

Lead: LME lead ended 2.18% lower at $1,929/mt in the overnight trading after moving between $1,923.5/mt and $1,981.5/mt. The open interest increased by 124 lots to 92,996 lots.

The most-traded SHFE lead 2208 contract rose 0.07% at 15,225 yuan/mt in the overnight trading after moving between 15,180 yuan/mt and 15,375 yuan/mt. The open interest increased by 6,513 lots to 55,530 lots.

Zinc: LME zinc closed at $3,335/mt Wednesday, down $23/mt or 0.68%. The open interest fell 152 lots 199,000 lots. LME zinc is expected to move between $3,320-3,370/mt today. Overnight LME inventory fell 450 mt to 81,075 mt, down 0.55%. LME zinc remained reangebound while awaiting more guidance from the macro front.

The most traded SHFE 2208 zinc contract closed at 24,085 yuan/mt overnight, up 40 yuan/mt or 0.17%. The open interest rose 187 lots to 114,639 lots. SHFE zinc is expected to move between 24,000-24,500 yuan/mt, and domestic Shuangyan zinc in premiums of 60-70 yuan/mt over SHFE 2207 contract. On the supply side, energy supply in the Europe was still tight, and ore supply was still in short as smelters that suspended the production before are unlikely to resume recently. On the consumption side, the recovery process was not as smooth as expected. To sum up, both the supply and demand of zinc remained weak, and market players shall watch the guidance from the macro front.

Overnight, Fed Chairman Powell said the US economy is performing strongly and can avoid recession; the US bond market predicted that the Fed will cut interest rates by 50 basis points next year and interest rates are expected to peak at the beginning of the year; NATO said it is facing "systemic competition" from China. US sanctions 25 more Chinese entities; China's central bank highlights stable employment and stable prices, and the quarterly survey shows residents' income confidence and employment expectations are pessimistic; the central government reportedly asks localities to apply for the third batch of special debt projects this year; China's manufacturing and non-manufacturing PMI for June to be released on Thursday is expected to return to the expansion zone.

Tin: SHFE tin hovered sideways at a low level overnight and funds of the most-traded contract left the market again. In terms of fundamentals, due to the difficulty of shipment in the spot market, the domestic inventory of warrants increased sharply again. LME inventories increased slightly, and the import window continued to open amid the profits, but the overall quotations of imported products in the spot market did not increase. In terms of the futures, the most traded SHFE tin contract hovered sideways at a low level last night, and the prices remained above 200,000 yuan/mt. The capitals withdrew and the open interest fell.  To sum up, both the basis between spot and futures and the price spread between front-month and next-month contracts narrowed. Therefore, the short-term contradiction between supply and demand eased. It is expected that the prices will continue to hover sideways at a low level in the short-term amid the long-short game.

Nickel: On the supply side, some nickel sulphate plants resumed the production of pure nickel and some of the goods were released into the market, and some overseas pure nickel is expected to arrive at ports this week. In terms of NPI, falling nickel ore prices reduced the costs of NPI, and plants that used these ores suffered fewer losses. However, plants that used high-priced ores got high costs, and they purchased new ores to reduce their costs, but the profit margin was still narrow. On the demand side, although the pandemic situation in Foshan, Wuxi has eased, the transaction in the spot market was still slack, and steel mills took orders before buying raw materials. Therefore, the market has no clear judgement on when the prices will rebound. In terms of alloy, producers still purchased on rigid demand, and the purchases were poor. In short, the supply and demand of pure nickel changed little, and the short-term nickel prices will keep fluctuating 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.]