SMM Morning Comments (Jul 27): Base Metals Closed Mixed amid Diffusing Pessimism

Published: Jul 27, 2022 10:00 (GMT+8)

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LME base metals closed mostly with gains as recession fears, born from low new homes sales and consumer confidence index, pressured the US dollar index, which boosted the base metals to some extent. However, its counterparts in the SHFE mostly closed with losses amid diffusing pessimism on the macro front.

SHANGHAI, Jul 27 (SMM) – LME base metals closed mostly with gains as recession fears, born from low new homes sales and consumer confidence index, pressured the US dollar index, which boosted the base metals to some extent. However, its counterparts in the SHFE mostly closed with losses amid diffusing pessimism on the macro front.

LME copper jumped 0.84%, aluminium gained 0.58%, lead rose 0.2%, and zinc jumped 1.45%.

SHFE copper fell 0.16%, aluminium lost 0.25%, lead slid 0.46%, and zinc jumped 0.22%.

Copper: LME copper opened at $7,656/mt yesterday and then moved all the way down below the daily moving average to $7503.5/mt before closing at $7,545/mt, up $63/mt, or 0.84%. Trading volume was 18,000 lots, and open interest stood at 232,000 lots.

The most-traded SHFE 2209 copper contract opened at 58,730 yuan/mt in overnight trading and then fell to 57,720 yuan/mt. At last, the contract closed at 57,960 yuan/mt, down 90 yuan/mt, or 0.16%. Trading volume was 62,700 lots, and open interest stood at 149,000 lots.

On the macro front, the annualised total new home sales in the US was released on Tuesday at 590,000, falling to a new two-year low. The consumer confidence index fell for the third month in a row, increasing recession fears and bringing certain pressure on the US dollar, boosting copper prices. At present, the market is waiting in caution for the results of the Federal Reserve rate resolution to be announced at 2 a.m. on Thursday and the content of speeches by Federal Reserve officials.

In the spot market, market purchasing interest weakened approaching the end of long-term orders, and traders were increasingly unable to hold the premiums at 500 yuan/mt. The inflow of imported goods after the import window opens also weighed on the spot premiums. Looking ahead, with the inflow of imports and rising of domestic production, spot premiums are likely to fall with pressure.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 17,985 yuan/mt overnight and rose to 18,025 yuan/mt before closing at 17,950 yuan/mt, down 45 yuan/mt or 0.25%.

LME aluminium opened at $2,406.5/mt on Tuesday and closed at $2,422/mt, an increase of $14/mt or 0.58%.

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 accumulate. Given the poor fundamentals, it is expected that aluminium prices will remain under pressure.

Lead: LME lead opened at $2,011.5/mt last night and rose 0.2% to $2,015/mt, with the lowest and highest prices at $1,999.5/mt and $2,028/mt respectively. The open interest decreased by 546 lots to 86,946 lots from the previous trading day.

The most traded SHFE 2209 lead contract opened at 15,230 yuan/mt and fell 0.46% to 15,160 yuan/mt, after briefly hitting the highest point at 15,255 yuan/mt and the lowest point at 15,150 yuan/mt. The open interest decreased by 1,529 lots to 56,393 lots from the previous trading day.

Zinc: LME zinc closed at $3,036/mt on Tuesday, up $43.5/mt or 1.45%. The open interest fell 3,802 lots to 198,000 lots. Overnight LME inventory dropped 275 mt to 72,250 mt, remaining low.

The most traded SHFE 2209 zinc contract closed at 22,690 yuan/mt overnight, up 50 yuan/mt or 0.22%. The open interest rose 1,018 lots to 106,000 lots. The current SHFE/LME price ratio stood at around 7.4, and the import loss of refined zinc stood at around 2,400 yuan/mt considering the freight rate and other requirements. Both the import and export windows remained closed. On the consumption side, the downstream sectors remained sluggish. The galvanizing sector, the largest downstream segment, showed extremely low operating rates due to the poor real estate.

Overnight, US consumer confidence fell to a near one-and-a-half year low in July as concerns about high inflation and interest rate hikes persisted, pointing directly to a slowdown in economic growth at the start of the third quarter. The World Business Institute's consumer confidence index fell 2.7 points to 95.7 in July, the lowest level since February 2021 and the third consecutive month of decline. The International Monetary Fund (IMF) cut its global growth forecast again, warning that downside risks from high inflation and the war in Ukraine are becoming a reality and could push the global economy to the brink of recession if these issues are left unsolved.

Tin: The most-traded SHFE tin contract went down after opening slightly lower overnight, but still moved within a narrow range. Both longs and shorts exited the market. Domestic tin inventory under warrants fell slightly yesterday. The performance of the spot market was poor. LME tin inventories accumulated significantly, mainly contributed by Asia. The import profit window remains closed. There were only a few quotations of imported tin in the spot market, with the mainstream quotations at discounts of less than 1,000 yuan/mt. Given the stable supply-demand pattern and cautious attitude, SHFE tin is expected to hover sideways.

Nickel: On the supply side, pure nickel premiums kept falling amid rising supplies. In terms of NPI, the market has been in a stalemate for a week without signs for a clear direction mainly due to poor downstream demand. On the demand side, the spot prices of stainless steel dropped slightly in Wuxi, and was flat in Foshan. The market transactions were poor, and the spot prices are likely to remain sluggish in the near term. For alloy, the rigid demand still existed despite rising pure nickel prices. To sum up, nickel prices are now basically subject to the macro factors, and investors shall watch the upcoming US Fed monetary meeting.

[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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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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