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SMM Morning Comments (Jul 22): Base Metals Mostly Closed with Losses after ECB Raises Interest Rate beyond Expectation
Jul 22, 2022 10:00CST
Source:SMM
SHFE and LME base metals closed mostly with losses after the European Central Bank raised the interest rates by 50 basis points to curb inflation, breaking its own guidance of 25 basis points, which fuelled recession fears.

SHANGHAI, Jul 22 (SMM) – SHFE and LME base metals closed mostly with losses after the European Central Bank raised the interest rates by 50 basis points to curb inflation, breaking its own guidance of 25 basis points, which fuelled recession fears.

LME copper lost 0.43%, aluminium gained 0.72%, lead dropped 1.07%, and zinc fell 1.12%.

SHFE copper lost 0.19%, aluminium slid 0.5%, lead dropped 1.34%, and zinc fell 1.03%.

Copper: LME copper opened at $7,255/mt yesterday, and once hit the lowest and highest of $7,215/mt and $7,332.5/mt respectively. At last, the contract closed at $7,299/mt, down $31.5/mt. Trading volume was 12,100 lots, and open interest stood at 232,000 lots.

The most-traded SHFE 2208 copper contract opened at 56,180 yuan/mt in overnight trading and climbed to 56,520 yuan/mt after falling to 55,740 yuan/mt. At last, the contract stabilised and closed at 56,380 yuan/mt, down 110 yuan/mt, or 0.19%. Trading volume was 44,700 lots, and open interest stood at 110,000 lots.

On the macro front, on Thursday, the European Central Bank raised the interest rates by 50 basis points to curb inflation, boosting the euro, while the US dollar index dropped slightly by 0.44%. However, investment banks were generally bullish on the US dollar, believing that the euro's rebound in the economic recession crisis was only temporary. The market expects the Fed to raise the rates by 75 basis points. At the same time, it is necessary to pay attention to the US GDP data for the second quarter after the Fed announces its decision next week.

The import window remained closed in the spot market, and the import volume fell sharply. On July 19, the narrow spread between the front-month and next-month contracts attracted traders' purchases. Yesterday, the shipment decreased significantly. There are only a few days left before the end of the long-term order this month, and the cargo-holders seem to regain the right on the prices. Downstream and traders are active to restock, while they cannot lower the prices. The market shall pay attention to the trading opportunities brought by the change of spread between the front-month and next-month contracts, and the premiums may continue to be firm before the end of long-term orders.

Aluminium: The most-traded SHFE 2208 aluminium contract opened at 17,905 yuan/mt overnight and rose to 17,990 yuan/mt before closing at 17,915 yuan/mt, down 90 yuan/mt or 0.5%.

LME aluminium opened at $2,427/mt on Thursday and closed at $2,439.5/mt, an increase of $17.5/mt or 0.72%.

On the supply side, there have been no reports of aluminium smelters suspending or reducing their production recently. The domestic aluminium ingot social inventory totalled 668,000 mt as of July 21, down 29,000 mt from last Thursday. Downstream purchases in Gongyi improved, allowing the spot discounts to narrow. The improvement of downstream consumption has led to a decrease in the social inventory of aluminium ingots. Overseas energy crisis intensified. It is expected that the short-term aluminium prices will fluctuate rangebound.

Lead: LME lead opened at $2,015.5/mt overnight and fell by 1.07% to $1,996/mt after hitting the highest point at $2,031/mt, and the lowest point at $1,985.5/mt.

The most traded SHFE 2208 lead contract opened at 15,210 yuan/mt and fell by 1.34% to 15,060 yuan/mt overnight.

Zinc: LME zinc closed at $2,958.5/mt on Thursday, down $33.5/mt or 1.12%. The open interest fell 43 lots to 202,000 lots. Overnight LME inventory fell 600 mt to 72,825 mt, up 0.82%. Overnight, ECB raised interest rate more than expectation, fueling recession fears.

The most traded SHFE 2208 zinc contract closed at 22,535 yuan/mt overnight, down 235 yuan/mt or 1.03%. The open interest fell 533 lots to 84,730 lots. On the supply side, zinc concentrate imports stood at 293,300 mt, up 49,500 mt or 20.29% MoM, and up 24.01% YoY, slightly easing ore supply tightness. On the consumption side, die-casting zinc alloy orders dropped again after zinc prices rebounded, and finished products inventory rose.

Overnight, the European Central Bank took the interest rate back to 0%, which exceeded expectations; U.S. initial jobless claims rose to an eight-month high, and key factory output indicators fell to the lowest in more than two years; U.S. President Joe Biden tested positive for the COVID, symptoms are now mild; U.S. stocks closed higher, boosted by growth-focused stock giants like Tesla.

Tin: The most-traded SHFE tin contract hovered around 190,000 yuan/mt after opening lower overnight. Domestic tin inventory under warrants and LME tin inventories were little changed yesterday. The import profit window was closed. Imported tin lacked price advantages over domestic brands. Spot premiums were lowered, and transaction in the spot market was limited. The market should be alert to the impact of tin smelters resuming production on the supply side. SHFE tin prices are expected to remain rangebound in the short term.

Nickel: On the supply side, due to the continuous surge of pure nickel futures, the premiums of domestic pure nickel were lowered, improving the market sentiment. The poor import of overseas pure nickel was mainly caused by the small profit margin and weak demand. For the NPI, the prices were still at a stalemate, and the plants suffered huge losses due to the high cost, so they were more willing to hold firm prices. In addition, the overall supply remained weak as the plants cut or suspended their production to varying degrees. On the demand side, in terms of stainless steel, the prices of #201 cold-rolled in the Foshan market were raised by 50 yuan/mt, and the market saw more trading. In the Wuxi market, the prices and transactions did not change much. In terms of alloy, due to the rebound of the futures, the prices of pure nickel were high, hence the purchases this week were weakened. To sum up, the macro situation seriously affected the nickel prices, and the fundamentals were poor, so the nickel prices will remain volatile.

[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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