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SMM Morning Comments (Jul 26): Base Metals Changed Little as Investors Await Fed Monetary Resolution

iconJul 26, 2022 10:00
SHFE and LME base metals closed mixed with little changes as the market players were cautious ahead of the US Fed meeting, after the market has already priced in the 75-basis-point rate hike expectations.

SHANGHAI, Jul 26 (SMM) – SHFE and LME base metals closed mixed with little changes as the market players were cautious ahead of the US Fed meeting, after the market has already priced in the 75-basis-point rate hike expectations.

LME copper jumped 1.25%, aluminium lost 2.07%, lead rose 0.05%, and zinc inched up 0.02%.

SHFE copper jumped 0.45%, aluminium lost 0.11%, lead rose 0.07%, and zinc fell 0.75%.

Copper: LME copper opened at $7,477.5/mt yesterday and remained rangebound due to the competition between longs and shorts. During the session, driven by the weakening of the US dollar index, the prices climbed to $7,555/mt and then hovered beyond the daily moving average. At last, the contract closed at $7,482/mt, up $92.5/mt, or 1.25%. Trading volume was 15,900 lots, and open interest stood at 230,000 lots.

The most-traded SHFE 2209 copper contract opened at 57,290 yuan/mt in overnight trading and fell after rising to 58,000 yuan/mt. At last, the contract closed at 57,420 yuan/mt, up 260 yuan/mt, or 0.45%. Trading volume decreased by 85,300 lots to 57,900 lots, and open interest stood at 137,000 lots.

On the macro front, the international crude oil futures have fluctuated at a low level since February. On Monday, the oil prices ended the three-day drops, and the US oil and Brent Crude closed up by 1.85% and 1.61% respectively, mainly due to the fall of the US dollar and the remaining supply worries. At 2 a. m. this Thursday morning, the Fed will announce the result of the interest rate hikes. The market has fulfilled the expectation of raising interest rate by 75 basis points ahead of schedule, and the US dollar has recently fallen back. At present, the market becomes more cautious. The speech made by Fed Chairman Powell after the announcement will be the key, and the copper futures will volatile.

In the spot market, approaching the end of July, the decrease of more than 20,000 mt in SHFE inventory last week tightened the supply again. Even though the import window remained open, the imports were still at losses over the 2208 copper contract, and the imported goods were relatively limited. Smelters are still at the end of the overhaul, and due to the tight supply of copper scrap and the shortage of blister copper, the output of some smelters is slightly less than expected. In the future market, under the expectation of sufficient supply in August, the overall premiums will surge before dropping amid the poor demand.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 17,775 yuan/mt overnight and rose to 17,840 yuan/mt before closing at 17,755 yuan/mt, down 20 yuan/mt or 0.11%.

LME aluminium opened at $2,459/mt on Monday and closed at $2,408/mt, down $51/mt or 2.07%.

In terms of supply, although some aluminium smelters in Sichuan have reduced production, this has not reversed the relationship between supply and demand. In terms of demand, downstream consumption remained poor, causing the social inventory to begin to accumulate. Given the poor fundamentals, it is expected that aluminium prices will remain under pressure.

Lead: LME lead opened at $2,008.5/mt last night and rose by 0.05% to $2,011/mt, with the lowest and highest prices at $1,993/mt and $2,019.5/mt respectively. The open interest decreased by 1,171 lots to 87,492 lots from the previous trading day.

The most traded SHFE 2209 lead contract opened at 15,255 yuan/mt and closed at 15,220 yuan/mt, up 0.07%, after briefly hitting the highest point at 15,275 yuan/mt and the lowest point at 15,195 yuan/mt. The open interest increased by 1,060 lots to 57,963 lots from the previous trading day.

Zinc: LME zinc closed at $2,992.5/mt on Monday, up $0.5/mt or 0.02%. The open interest fell 636 lots to 202,000 lots. Overnight LME inventory rose 50 mt to 72,525 mt, with a net growth of 100 mt in Kaohsiung, Taiwan.  

The most traded SHFE 2209 zinc contract closed at 22,400 yuan/mt overnight, down 170 yuan/mt or 0.75%. The open interest rose 2,508 lots to 99,837 lots. On the supply side, domestic zinc concentrate TCs rose to 3,700 yuan/mt in metal content with the inflow of overseas concentrate. On the consumption side, the three major downstream sectors all showed little increment in terms of exports, and the exports of galvanized plate and zinc alloy both dropped MoM in June.

Overnight, Russia said on Monday it would further cut gas supplies delivered through the Nord Stream 1 gas pipeline. US Treasury officials said that even though data to be released this week showed gross domestic product (GDP) falling for the second straight quarter, overall income and employment figures suggest the US economy is in good shape and not in recession. Evergrande is set to announce a debt restructuring plan that will provide guidance for resolving China's real estate crisis. Crude oil stocks in the US Strategic Petroleum Reserve fell by 5.6 million barrels to 474.5 million barrels in the week ended 22 July, the lowest level since June 1985, data from the US Department of Energy showed

Tin: The most-traded SHFE tin contract moved up after opening slightly higher overnight. Longs and shorts continued to exit the market. In terms of fundamentals, domestic tin inventory under SHFE warrants rose slightly on Monday due to poor trades in the spot market, while overseas LME tin inventories remained largely stable. The import profit window was still closed. Discounts of imported tin expanded slightly. Following the recent resumption of production of tin smelters, more cargoes will flow into the spot market in early August. In light of the strong wait-and-see sentiment, it is expected that the short-term tin prices will still hover sideways.

Nickel: On the supply side, pure nickel premiums kept falling, picking up the purchases. In terms of NPI, at present, the comprehensive profit of NPI is poor, and most enterprises cut or suspend their production due to their losses. Besides, the NPI plants held firm to their prices amid the decreasing supply. On the demand side, according to the SMM research, the mainstream spot prices of stainless steel in the Wuxi market remained stable yesterday, while the prices in the Foshan market dropped slightly. The market saw few transactions, and traders were not willing to restock. SMM expects that the prices will be stable with some potential drops, and the spread between spots and futures may narrow further. As for the alloy, although nickel prices kept rising, the rigid demand for the alloy still existed. To sum up, the nickel prices were supported by the low inventory, but at the same time, the prices will be limited by the uncertainty on the macro front. The interest rate meeting to be held at the end of this month will be the key to the macro sentiment.

[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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