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SMM Morning Comments (Jul 1): Base Metals Closed Mostly with Losses on Recession Fears
iconJul 1, 2022 10:00iconCST
SHFE and LME base metals closed mostly with losses as US consumer spending in May fell for the first time in a year, which fuelled recession fears.

SHANGHAI, Jul 1 (SMM) – SHFE and LME base metals closed mostly with losses as US consumer spending in May fell for the first time in a year, which fuelled recession fears.

LME copper shed 2.05%, aluminium fell 1.15%, lead lost 0.39%, and zinc slid 5.77%.

SHFE copper shed 1.76%, aluminium fell 1.04%, lead lost 1.31%, and zinc slid 3.94%.

Copper: LME copper opened at $8,297.5/mt yesterday and fell to $8,218/mt after reaching a high of $8,302.5/mt. At last, the prices closed at $8,237.5/mt, down by $172/mt, or 2.05%. Trading volume increased by 1,511 lots to 14,000 lots, and open interest stood at 232,000 lots.

SHFE 2208 copper contract opened at 63,150 yuan/mt in overnight trading and fell to the lowest of 62,830 yuan/mt after climbing to 63,380 yuan/mt. At last, the prices stabilised and closed at 63,070 yuan/mt, down by 1,130 yuan/mt, or 1.76%. Trading volume decreased by 43,700 lots to 68,000 lots, and open interest stood at 141,000 lots.

On the macro front, the inflation-adjusted consumer spending in the US slowed down by 0.4% in May, the first decline since December 2022, and the core PCE price index increased by 4.7% year-on-year, the smallest increase since November 2021. At the same time, as of June 25, the number of initial jobless claims dropped by 2,000, but it was still at a high level. These economic data released on Thursday showed that the current inflation in the US is still at a high level, and the market may have a pessimistic outlook for the soft landing of the economy. The fear of economic recession lowered copper prices.

In the spot market, on the last trading day of June, the market did not improve due to the settlement. The spread between the front-month and next-month contracts of around 150 yuan/mt in the backwardation structure may pick up the trading, and the premiums will probably rise to above 100 yuan/mt. However, the downstream consumption is weak, and the imported goods continue to flow in, so it is hard to see a significant increase in premiums.

LME copper will trade between $8,190-8,290/mt today; SHFE copper prices are expected to move between 62,300-63,300 yuan/mt. Spot premiums are likely to fluctuate between 80-160 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2208 aluminium contract opened at 18,940 yuan/mt, with its and high at 18,875 yuan/mt and 19,080 yuan/mt before closing at 19,060 yuan/mt, down 200 yuan/mt or 1.04%.

LME aluminium opened at $2,472/mt on Thursday and closed at $2,444/mt, down $28.5/mt or 1.15%.

China has loosened its pandemic control measures, allowing SHFE aluminium to be more resilient to decline than LME aluminium. However, as the traditional off-season is coming, the recovery of downstream consumption may be affected. It is expected that the most-traded SHFE 2208 aluminium contract will remain weak today and move between 18,850-19,500 yuan/mt.

Lead: LME lead opened at $1,927/mt, and hit a high of $1,946/mt in Asian trading hours. The contract fell to a low of $1,883/mt in European trading hours, and closed at $1,921.5/mt, down 0.39%. The open interest rose 650 lots to 93646 lots.

The most-traded SHFE 2208 lead contract opened at 15,175 yuan/mt overnight, and then hit a high of 15,195 yuan/mt before falling to 15,040 yuan/mt. The contract closed at 15090 yuan/mt, down 1.31%. The open interest lost 4,834 lots to 54,837 lots.

Zinc: LME zinc closed at $3,142.5/mt Thursday, down $192.5/mt or 5.77%. The open interest rose 285 lots 199,000 lots. LME zinc is expected to move between $3,130-3,180/mt today. Overnight LME inventory was flat at 81,075 mt. LME zinc dropped steeply amid falling oil prices and recession fears.

The most traded SHFE 2208 zinc contract closed at 23,155 yuan/mt overnight, down 950 yuan/mt or 3.94%. The open interest rose 271 lots to 116,000 lots. SHFE zinc is expected to move between 23,000-23,500 yuan/mt, and domestic Shuangyan zinc in premiums of 70-80 yuan/mt over SHFE 2208 contract. Though SHFE zinc still gained support from the supply side, the market is still trading the logic of declining demand. Investors are advised to stay cautious before the prices stabilise.

Overnight, US consumer spending in May fell for the first time in a year, which fuelled recession fears; US stocks performed the worst in the first half of the year since 1970, and the 10-year US Treasury note yield fell below 3% intraday. Chinese stocks outperformed US equities and posted their best one-month performance in three years. China's State Council said it will use policy-based development-oriented financial instruments to issue bonds to raise 300 billion yuan to support the construction of major projects. Chinese real estate companies' sales jumped in June from a year earlier. Hong Kong financial markets will be closed on Friday; Xi Jinping will attend handover celebrations and inauguration of new administration of Hong Kong.

Tin: The domestic tin inventory under SHFE warrants dropped significantly, but transaction in the spot market did not show a significant improvement. LME tin inventories did not change much. The import profit window opened slightly, but the numbers of quotations of imported tin in the market did not increase. Overnight, the most-traded SHFE tin contract went down due to bearish sentiment and then moved in a narrow range. The most-traded SHFE tin contract will probably fluctuate widely in the short term amid strong caution in the market.

Nickel: On the macro front, the Fed once again said that it would continue to raise the interest rates in July and would possibly raise the rates by 75 basis points, which is bearish for the non-ferrous metals prices. On the supply side, due to the rebound of SHFE nickel prices and the high premiums of US dollars in the bonded zone, the price ratio further weakened, and spot imports turned into losses. As for the NPI, the falling prices suppressed upstream’s willingness to quote and ship. High costs of NPI plants brought losses to the market, but they had to accept the reality amid the poor demand. On the demand side, with the improvement of the pandemic in China, consumption has been picked up. However, in the short term, the demand release is slow, and the high inventory needs to be digested urgently. Affected by the purchase cycle and the rising spot prices of pure nickel, the purchase of alloy is poor. To sum up, due to the macro impacts and the weak demand, nickel prices are expected to remain rangebound at low levels.

[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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