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SMM Morning Comments (Jul 7): Base Metals Closed Mostly with Gains with Shorts Leaving the Market after Paying off

iconJul 7, 2022 10:00
Source:SMM
SHFE and LME base metals mostly closed with gains as the shorts withdrew from the market after paying off. Another big concern at present is that the minutes of the policy meeting released by the Fed show that, in the face of the deteriorating inflation situation and fears that the public will lose confidence in the Fed, the "hawkish" and "dovish" officials unanimously supported to raise the interest rate by 75 basis points in July.

SHANGHAI, Jul 7 (SMM) – SHFE and LME base metals mostly closed with gains as the shorts withdrew from the market after paying off. Another big concern at present is that the minutes of the policy meeting released by the Fed show that, in the face of the deteriorating inflation situation and fears that the public will lose confidence in the Fed, the "hawkish" and "dovish" officials unanimously supported to raise the interest rate by 75 basis points in July.

LME copper jumped 0.38%, aluminium grew 1.31%, lead gained 2.97%, and zinc rose 0.86%.

SHFE copper jumped 0.43%, aluminium grew 0.71%, lead gained 1.04%, and zinc rose 1.75%.

Copper: LME copper opened at $7,565.5/mt yesterday and fell to $7,474/mt after hitting a high of $7,637/mt. At last, the prices rebounded and closed at $7,596/mt, down by $29/mt, or 0.38%. Trading volume was 25,200 lots, and open interest stood at 236,000 lots.

SHFE 2208 copper contract opened at 58,000 yuan/mt in overnight trading, and once reached the highest and lowest price of 58,320 yuan/mt and 57,160 yuan/mt respectively. The prices later rebounded to above the daily moving average and rose continuously. At last, the prices closed at 58,110 yuan/mt, up by 250 yuan/mt, or 0.43%. Trading volume decreased by 170,000 lots to 98,700 lots, and open interest stood at 158,000 lots.

On the macro front, the minutes of the policy meeting released by the Fed show that, in the face of the deteriorating inflation situation and fear that the public will lose confidence in the Fed, the "hawkish" and "dovish" officials unanimously supported to raise the interest rate sharply, and firmly reaffirmed their determination to control prices. Recently, the macro support was weak, and the US dollar index rose by 0.54% overnight to a 20-year high. After gaining profits, the shorts left the market, and copper prices rebounded.

In the spot market, the futures prices once again plunged below 58,000 yuan/mt, resulting in poor downstream buying. Traders restocked when the copper contract was in the backwardation structure, so the premiums stabilised at around 100 yuan/mt. The market shall pay attention to the decline in futures prices and the downstream and terminal purchases. The short-term premiums will remain deadlocked.

LME copper will trade between $7,570-7,670/mt today; SHFE copper prices are expected to move between 57,400-58,500 yuan/mt. Spot premiums are likely to fluctuate between 80-150 yuan/mt.

Aluminium: The most-traded SHFE 2208 aluminium contract opened at 18,330 yuan/mt overnight before closing at 18,340 yuan/mt, up 130 yuan/mt or 0.71%.

LME aluminium opened at $2,375/mt on Wednesday and rose to $2,423/mt before closing at $2,400/mt, an increase of $31/mt or 1.31%.

SHFE aluminium showed signs of stabilising mainly due to exit of shorts. From a fundamentals point of view, aluminium supply is still on the rise, while demand has not shown significant improvement. In the past two days, due to the sharp drop in spot prices, downstream inquiry picked up slightly, but trades remained thin. The current aluminium prices are close to the costs of smelters. It is expected that SHFE aluminium will move between 18,000-18,700 yuan/mt today.

Lead: Overnight LME lead opened at $1,941.5/mt, and hit a low of $1,925/mt briefly before rising to a high of $1,995/mt. The contract finally closed at $1,993/mt, up 2.97%.

The most-traded SHFE 2208 contract opened at 14,960 yuan/mt, and then rose to 15,110 yuan/mt before closing at 15,085 yuan/mt, up 1.04%.

Zinc: LME zinc closed at $3,033/mt on Wednesday, up $26/mt or 0.86%. The open interest rose 711 lots to 200,000 lots. LME zinc is expected to move between $3,000-3,050/mt today. Overnight LME inventory stood flat at 83,150 mt.

The most traded SHFE 2208 zinc contract closed at 22,980 yuan/mt overnight, up 395 yuan/mt or 1.75%. The open interest added 323 lots to 117,000 lots. SHFE zinc is expected to move between 22,800-23,300 yuan/mt, and domestic Shuangyan zinc in premiums of 50 yuan/mt over SHFE 2208 contract. On the supply side, smelters suffered losses amid tight ore supply and falling zinc futures prices, highlighting expected supply cuts. On the consumption side, terminal players were less sensitive to falling prices of raw materials after active restocking earlier, and the downstream operating rates remained low. In the spot market, the traders raised their premiums after zinc futures prices dropped, coupled with limited arrivals and expanding backwardation between SHFE front-month and next-month contract. Overall, the fundamentals have now limited impact on zinc prices, which are now mainly subject to the macro front.

Overnight, the minutes of the Federal Reserve meeting said policymakers unanimously agreed to raise interest rates by 75 basis points due to concerns about the deteriorating inflation outlook, and the IMF chief said he "cannot rule out" the possibility of a global recession. China's Ministry of Industry and Information Technology and other departments jointly released the "14th Five-Year Plan" to promote the development of small and medium-sized enterprises, said it would make comprehensive use of monetary, fiscal and other policy tools and differentiated regulatory measures to guide financial institutions to increase credit support for small and micro enterprises.

Tin: A slight recovery in the willingness to purchase allowed transactions in the spot market to improve. Domestic tin inventory under warrants fell slightly, while LME tin inventory has not changed much recently. The import profit window is closed, and imported tin lacks obvious price advantage over domestic products.  Overnight, SHFE tin fell rapidly after a slight rally, and then moved sideways. A large amount of capital flowed out of SHFE tin market. SHFE tin is expected to move rangebound amid poor market sentiment.

Nickel: On the supply side, the output of refined nickel increased by 8.74% month-on-month in June due to the production resumption of refined nickel in salt plants and the improvement of downstream demand. Overseas pure nickel spots kept being imported. The market saw a supply surplus of NPI, and domestic NPI plants were competing with Indonesian NPI, and the sufficient supply could hardly change. As for nickel sulphate, the supply of small orders was tight, as most orders were signed in the form of long-term orders in the self-production or OEM of integrated manufacturers. On the demand side, due to the pandemic situation and the shutdown of steel mills, the demand for pure nickel and other primary nickel remained weak. In terms of alloy, the overall demand from alloy remained poor. To sum up, the fundamentals of nickel prices were weak, and the prices may remain rangebound 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.]


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