SMM Morning Comments (Jul 4): Base Metals Closed Mostly with Losses on Rebounding Risk Aversion Sentiment

SHANGHAI, Jul 4 (SMM) – SHFE and LME base metals closed mostly with losses as the weak US economic data released last week restrained the upward trend of the US dollar to a certain extent.

LME copper shed 2.22%, aluminium added 1%, lead gained 0.44%, and zinc slid 3.1%.

SHFE copper shed 1.81%, lead lost 0.07%, and zinc slid 1.34%.

Copper: LME copper opened at $8,010/mt last Friday and rose to around the daily moving average after falling to $7,955/mt. At last, the prices stabilised and closed at $8,055/mt, down by $182.5/mt, or 2.22%. Trading volume was 19,700 lots, and open interest stood at 228,000 lots.

SHFE 2208 copper contract opened at 61,400 yuan/mt last Friday night and dropped to 60,930 yuan/mt after climbing to 61,880 yuan/mt. At last, the prices closed at 61,460 yuan/mt, down by 1,130 yuan/mt, or 1.81%. Trading volume decreased by 101,000 lots to 76,500 lots, and open interest stood at 151,000 lots.

On the macro front, the weak US economic data released last week restrained the upward trend of the US dollar to a certain extent. Recently, the market has turned the focus to the expectation of a global economic recession, heating the risk aversion sentiment of the US dollar. Last week, the U.S. dollar rose to 0.38%, putting pressure on copper and other commodities prices.

In the spot market, on the first trading day in July, the trading was not active, resulting in the premiums once falling to below 100 yuan/mt. However, the overall supply was still tight, and the premiums stopped falling and stabilised due to some demand for H2. The market shall keep an eye on the guidance of the spread between the front-month and next-month contracts on the premiums and the downstream restocking after the futures prices continued to decline. In the short term, the premiums may stabilise.

LME copper will trade between $8,000-8,100/mt today; SHFE copper prices are expected to move between 61,000-61,600 yuan/mt. Spot premiums are likely to fluctuate between 90-170 yuan/mt.

Aluminium: The most-traded SHFE 2208 aluminium contract opened at 18,905 yuan/mt at last Friday's night trading session and touched a low of 18,810 yuan/mt before closing at 18,980 yuan/mt.

LME aluminium opened at $2,435/mt last Friday and fell to $2,380/mt before closing at $2,468/mt, an increase of $24.5/mt or 1%.

Despite the economic stimulus policies, it remains to be seen how strong the recovery of downstream consumption will be as the off-season is approaching. The most-traded SHFE 2208 aluminium contract is expected to move between 18,500-19,500 yuan/mt today.

Lead: LME lead opened at $1,931/mt last Friday, and met resistance at $1,930/mt before falling to a brief low of $1,896.5/mt. The contract finally closed at $1,930/mt, up 0.44%.

The most-traded SHFE 2208 lead contract opened at 15,085 yuan/mt last Friday, and fell quickly to 15,015 yuan/mt after hitting a modest high of 15,145 yuan/mt. The contract closed the session at 15,075 yuan/mt, down 0.07%.

Zinc: LME zinc closed at $3,045/mt last Friday, down $97.5/mt or 3.1%. The open interest rose 1,478 lots 201,000 lots. LME zinc is expected to move between $3,010-3,060/mt today. Overnight LME inventory added 1,725 mt to 82,800 mt. LME zinc dropped amid bearish sentiment on the macro front.

The most traded SHFE 2208 zinc contract closed at 22,780 yuan/mt last Friday, down 310 yuan/mt or 1.34%. The open interest rose 226 lots to 114,000 lots. SHFE zinc is expected to move between 22,700-23,200 yuan/mt, and domestic Shuangyan zinc in premiums of 100 yuan/mt over SHFE 2207 contract. On the supply side, the smelters were considering raising the TCs slightly amid falling zinc futures prices. LME inventory rallied, but was still at an absolute low level. On the consumption side, downstream operating rates rose slightly, but the rally seemed not sustainable.

Last Friday, the US manufacturing activity index in June fell to a two-year low of 53.0, with the index of new orders contracting for the first time in two years, as the economy cools amid an aggressive tightening monetary policy by the Federal Reserve. The preliminary Eurozone Consumer Price Index (HICP) rose at an accelerated pace to 8.6% in June from 8.1% in May, another record high, as the price inflation pressure expanded and may take several months to top, which would strengthen the case for the ECB to start raising interest rates quickly this month. China Central Bank: China Development and Agricultural Bank set up 300 billion yuan financial instruments to provide capital to major projects.

Tin: The domestic social inventory of tin ingots rose last week due to the weak performance of the spot market, while LME tin inventory continued to increase slightly. The import profit window is somehow still closed, and the amount of imported tin available in the spot market was limited. SHFE tin moved in a narrow range at last Friday's night trading session. The open interest of the most-traded SHFE tin contract declined with the outflows of capital. It is expected that SHFE tin will continue to fluctuate rangebound.

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 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. Recently, affected by the drop in nickel sulphate prices, the salt plants were less willing to ship. On the demand side, in terms of stainless steel, the pandemic in China has been controlled, and consumption improved. 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 was poor. To sum up, due to the macro impacts and the weak demand, nickel prices are expected to remain rangebound at low levels. To sum up, the demand for pure nickel remains poor even though the downstream purchased on rigid demand, while the supply is expected to be sufficient. Therefore, in the long run, nickel prices will 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.]