SMM Evening Comments (Jul 6): Shanghai Nonferrous Metals Closed with Losses as Investors Weighing Surging US Dollar

SHANGHAI, Jul 6 (SMM) – Shanghai nonferrous metals closed mixed as the investors weighed surging US dollar index, which set a new high since 27 November 2002 at 106.80, indicating recession fears.

Shanghai copper slumped 5.39%, aluminium lost 2.53%, lead dropped 0.43%, zinc fell 1.12%, tin shed 5.34%, and nickel declined 0.95%.

Copper: The most-traded SHFE 2208 copper closed down 5.39% or 3,280 yuan/mt at 57,620 yuan/mt, with open interest up 8,893 lots to 164,552 lots.

Last night, the US dollar index set a new high since 27 November 2002 at 106.80, closing the trading session with a sharp increase of 1.25%. Meanwhile, WTI August crude oil futures closed down $8.93/barrel, or 8.24% to $99.50 per barrel. Brent September crude oil futures closed down $8.86/barrel or 7.94%, to $102.77 per barrel.

Spot premiums were relatively stable today, and the traders purchased on dips, while the downstream was generally wait-and-see. Standard-quality copper was offered in premiums of 100-110 yuan/mt in the morning, with few purchase interest. Then the sellers voluntarily lowered the premiums to 90 yuan/mt, which stimulated purchases. The purchasing sentiment improved compared with the past two days, and the premiums were firmly above 100 yuan/mt. The spread between good-quality and standard-quality copper was still around 20 yuan/mt, which was less favoured by market players. Currently, the import window has closed again, resulting in few imports.

Aluminium: The most-traded SHFE 2208 aluminium closed down 2.53% or 475 yuan/mt to 18,330 yuan/mt, with open interest down 10,630 lots to 182,636 lots.

Currently, commodity prices dropped broadly amid market pessimism. In terms of aluminium, the supply pressure has been great with steady commissioning of new capacities and resumption of existing capacities. And the operating aluminium capacity is estimated at 41 million mt. On the demand side, orders received by downstream players fell, and the transactions of aluminium ingot in the spot market were less satisfying. As such, the social inventory of aluminium ingot stopped falling. Aluminium prices hence dropped on bearish outlook on the demand side.

Lead: The most-traded SHFE 2208 lead closed down 0.43% or 65 yuan/mt at 14,920 yuan/mt, with open interest down 653 lots to 51,883 lots.

In the spot market, discounts offered by smelters narrowed again after SHFE lead dropped for several straight days, and the sellers refrained from selling. The downstream, on the other hand, purchased only on rigid demand amid fears of further price drops. In addition, the discounts of secondary refined lead over SMM #1 lead narrowed to 50-100 yuan/mt, and smelters were also less willing to sell due to factors like poor profits. Lead gained strong cost support.

Zinc: The most-traded SHFE 2208 zinc closed down 1.12% or 260 yuan/mt at 22,890 yuan/mt, with open interest down 1,606 lots to 116,879 lots.

In the spot market, smelters’ production dropped, resulting in less sources circulating in the market. Goods holders raised the premiums with better transaction situation today.

Tin: The most-traded SHFE 2208 tin closed down 5.34% or 10,570 yuan/mt at 187,310 yuan/mt, with open interest up 332 lots to 52,137 lots.

In the past two days, SHFE tin prices dived again, which is mainly the result of market recession fears of the U.S. economy. In addition, U.S. consumer confidence index in June stood at 98.7, a new low since February 2021, indicating that U.S. consumer confidence has been hurt by high inflation. However, the consumption is the main economic growth engine in the US, and the market expects a mild recession of the US economy, with Morgan Stanley lowering the US GDP growth rate to 0.3% in the second quarter. However, the Federal Reserve's determination to raise interest rates remains firm, with a 75 basis point hike expected in July. As a result, the expectations of severe inflation-induced economic recession and US rate hike exist at the same time.

However, due to the Russian-Ukrainian conflict and a series of factors leading to problems such as high energy prices and inflation in Europe, the market's expectations of a recession in Europe are even stronger. Evidences are as follows. The US dollar index rose by 1.33% in a single day on July 5, reaching 106.392 during intraday trading, a new high since 2003; the euro fell by 1.44% against the dollar in a single day. On the other hand, U.S. Treasury note yields fell across the board, with the 2-year and 10-year yields inverted again.

In the spot market, there were few quotes from smelters in morning trade, and they were also less willing to sell. Premiums from traders rose slightly from yesterday, and rose further after futures prices dropped. But market purchases increased slightly after the prices slumped. SHFE warrants fell 100 mt to 3,623 mt, and LME tin inventory fell 25 mt to 3,535 mt.

Nickel: The most-traded SHFE 2208 nickel closed down 0.95% or 1,620 yuan/mt at 169,370 yuan/mt, with open interest up 3,936 lots to 80,746 lots.

On the fundamentals, pure nickel supply has been rising with the inflow of imports and supply from salt factories. On the demand side, several steel trading centres in Wuxi market were closed due to resurging pandemic, exerting short-term influence on steel consumption. In terms of alloy, the purchasing amount was less than expected amid rising nickel prices. To sum up, pure nickel market was still subject to the 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.]