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SMM Morning Comments (Jul 6): Base Metals Closed Mostly with Losses on Surging US Dollar
Jul 6, 2022 10:00CST
Source:SMM
SHFE and LME base metals all closed with losses because the US dollar index, boosted by risk aversion and a better-than-expected monthly rate of U.S. factory orders in May, rose above its previous high of 106.80 recorded on November 27, 2002, and closed with a sharp increase of 1.25%.

SHANGHAI, Jul 6 (SMM) – SHFE and LME base metals all closed with losses because the US dollar index, boosted by risk aversion and a better-than-expected monthly rate of U.S. factory orders in May, rose above its previous high of 106.80 recorded on November 27, 2002, and closed with a sharp increase of 1.25%.

LME copper shed 4.33%, aluminium fell 3%, lead lost 0.49%, and zinc slid 2.56%.

SHFE copper shed 4.01%, lead lost 0.13%, and zinc slid 2.01%.

Copper: Overnight, LME copper opened at $7,847.5/mt, and rose to a modest high of $7,863.5/mt before moving all the way down and hitting a low of $7,597/mt. The contract closed at $7,625/mt, down $354/mt or 4.33%. The open interest stood at 235,000 lots, and the trading volume was 20,600 lots.

The most-traded SHFE 2208 contract opened at 56,490 yuan/mt overnight, and was then on the downward trajectory though it rebounded slightly in the American trading hours. The contract closed at 58,460 yuan/mt, down 2,240 yuan/mt or 4.01%. The trading volume stood at 98,600 lots, with open interest being 159,000 lots.

On the macro front, boosted by risk aversion and a better-than-expected monthly rate of U.S. factory orders in May, the U.S. dollar index rose above its previous high of 106.80 recorded on November 27, 2002, and closed with a sharp increase of 1.25%. Market concerns about the recession still exist. Overnight international crude oil futures plunged, and WTI plunged 10%, the largest single-day decline since March; the Brent closed down 7.67%, hitting a three-month low. The entire commodity market is in great uncertainty, and copper prices were under pressure.

In the spot market, on the third trading day in July, the futures prices moved around 61,000 yuan/mt yesterday, but it failed to attract downstream buyers. And when the SHFE front-month and next-month spread narrowed to backwardation of 50 yuan/mt, the traders actively forced down the prices and purchased, and the premiums stood stable around 70 yuan/mt.

LME copper will trade between $7,640-7,740/mt today; SHFE copper prices are expected to move between 58,000-59,500 yuan/mt. Spot premiums are likely to fluctuate between 80-150 yuan/mt.

Aluminium: Commodity market fell across the board amid spreading pessimism. The most-traded SHFE 2208 aluminium contract opened lower at 18,340 yuan/mt overnight, and dropped to 18,130 yuan/mt, a new low in 15 months.

The contract closed at 18,225 yuan/mt, down 580 yuan/mt or 3%. LME aluminium fell below at $2,400/mt on Tuesday and closed at $2,369/mt.

The release of new capacity and resumption of idled capacity have not slowed down. According to SMM statistics, the domestic operating aluminium capacity is 41 million mt. Downstream orders declined, leading to poor trades in the spot market. Aluminium ingot inventory has stopped falling. The most-traded SHFE 2208 aluminium contract is expected to remain pressured and move between 18,000-18,700 yuan/mt today.

Lead: LME lead open at $1,945/mt and closed at $1,935.5/mt overnight, down 0.49%, after hitting the highest point of $1,960.5/mt and the lowest point of $1918.5/mt. 

The most-traded SHFE 2208 lead contract opened at 14,960 yuan/mt and fell 0.13% to 14,965 yuan/mt overnight, after hitting the lowest point at 14,875 yuan/mt and the highest point at 15,000 yuan/mt.

Zinc: LME zinc closed at $3,007/mt on Tuesday, down $79/mt or 2.56%. The open interest fell 1,364 lots 19,000 lots. LME zinc is expected to move between $3,000-3,050/mt today. Overnight LME inventory lost 175 mt to 83,150 mt.

The most traded SHFE 2208 zinc contract closed at 22,685 yuan/mt overnight, down 465 yuan/mt or 2.01%. The open interest fell 323 lots to 118,000 lots. SHFE zinc is expected to move between 22,500-23,000 yuan/mt, and domestic Shuangyan zinc in premiums of 100 yuan/mt over SHFE 2208 contract.

Overnight, Biden could remove tariffs on just $10 billion of Chinese goods under a plan being discussed within the US government. The S&P 500 closed slightly higher, while the Dow Jones Industrial Average fell 129.44 points or 0.42%. The dollar touched its highest since 2002, driven by safe-haven demand, while the euro fell to a 20-year low as a recent spike in European gas prices fuelled recession fears.

Tin: Domestic tin inventory under warrants decreased as the drop in tin prices allowed trades in the spot market to improve. LME tin inventory was little changed. The import profit window was closed again, thus there were limited quotations of imported tin in the market. Overnight, SHFE tin hit a recent low and then moved within a narrow range, with large amounts of capital flowing out of the market. Given the basically balanced supply-demand dynamics and low willingness to enter the market, SHFE tin is expected to move sideways.

Nickel: On the supply side, pure nickel supply is expected to rise as domestic salt factories have resumed the production of pure nickel, and imported nickel remains profitable. For NPI, as nickel ore prices dropped, and production cost of NPI is likely to fall after these low-priced ores arrive at the manufacturers’. In addition, NPI is still in oversupply with rising output and weak demand. On the demand side, a few steel trading centers in Wuxi have been closed due to resurging pandemic, which is likely to weigh on the consumption recovery in the short term. For alloy, the purchases were less than expected after nickel prices rebounded slightly recently. To sum up, nickel prices are likely to fall on the back of weak fundamentals.

[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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