SMM Morning Comments (Jul 28): Base Metals Closed Mostly with Gains Following Fed’s Rate Resolution

SHANGHAI, Jul 28 (SMM) – LME base metals closed mostly with gains following the US Fed’s rate resolution with a hike of 75 basis points. Powell reiterated that it might be appropriate to continue to raise the interest rates, but it might slow down the pace in the future, hence the US dollar experienced the largest drop in more than a week by 0.69%, closing at 106.48.

LME copper added 1.45%, aluminium gained 0.17%, lead slid 0.25%, and zinc jumped 0.07%.

SHFE copper added 1.01%, aluminium gained 1.36%, lead rose 0.2%, and zinc jumped 0.62%.

Copper: LME copper opened at $7,597.5/mt yesterday and rose to $7,764/mt after dropping to $7,530/mt. At last, the contract closed at $7,654.5/mt, up $109.5/mt, or 1.45%. Trading volume was 15,700 lots, and open interest stood at 233,000 lots.

The most-traded SHFE 2209 copper contract opened at 58,280 yuan/mt in overnight trading, and once surged to 59,170 yuan/mt because of the stronger longs. At last, the contract closed at 58,840 yuan/mt, up 590 yuan/mt, or 1.01%. Trading volume was 72,300 lots, and open interest stood at 154,000 lots.

On the macro front, in the early morning, the Fed announced that it would raise the interest rate by 75 basis points to 2.25%-2.50%, which is the second interest rate hike of 75 basis points, to suppress the highest inflation rate since the 1980s. Powell reiterated that it might be appropriate to continue to raise the interest rates, but it might slow down the pace in the future, hence the US dollar experienced the largest drop in more than a week by 0.69%, closing at 106.48. Copper futures suffered less pressure, and closed up.

In the spot market, on the last trading day in July, the spread between the front-month and next-month contracts once expanded to more than 300 yuan/mt in the backwardation structure, which restrained the high premiums to a certain extent. At the end of the month, some traders pressed the premiums with their cash demand, so the premiums dropped from highs for two consecutive days. The market highly expects to see a large inflow of imported goods in August, and the domestic output will also increase, thus the premiums may fall further.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,025 yuan/mt overnight and rose to 18,500 yuan/mt before closing at 18,300 yuan/mt, up 245 yuan/mt or 1.36%.

LME aluminium opened at $2,423.5/mt on Wednesday and closed at $2,426/mt, an increase of $4/mt or 0.17%.

On the supply side, rising supply across the chain has contained the momentum of aluminium. On the consumption side, insufficient demand also resulted in poor upside potential, and the social inventory has been on the upward trajectory already. Aluminium prices are likely to move rangebound amid bearish factors lingering on the macro front.

Lead: LME lead opened at $2,023/mt on Wednesday, and then dropped in Asian trading hours. The contact then moved around the daily moving average in European trading, and hit a low and high at $2,006/mt and $2,027.5/mt respectively. It finally closed at $2,010/mt, down 0.25%. The open interest rose 282 lots to 87,228 lots.

The most-traded SHFE 2209 opened at 15,185 yuan/mt overnight, and then hit a moderate low of 15,155 yuan/mt before rebounding to a high of 15,265 yuan/mt. The contract closed the session at 15,225 yuan/mt, up 0.2%. The open interest added 1,283 lots to 57,504 lots.

Zinc: LME zinc closed at $3,038/mt on Wednesday, up $2/mt or 0.07%. The open interest rose 1,083 lots to 199,000 lots. Overnight LME inventory dropped 425 mt to 71,825 mt, remaining low.

The most traded SHFE 2209 zinc contract closed at 22,880 yuan/mt overnight, up 140 yuan/mt or 0.62%. The open interest rose 1,080 lots to 108,000 lots.

Overnight, the US Federal Reserve announced a 75 basis point increase on Wednesday in an effort to drive down the highest inflation since the 1980s, with Fed Chairman Jerome Powell saying that another "unusually large" rate hike in September could be appropriate if the inflation remains high. The G7 plans to launch a price cap on Russian oil on December 5. JP Morgan warned that a looming gas crisis and new political troubles in Italy will push the eurozone into a mild recession early next year and limit the ECB's rate hikes.

Tin: On the fundamentals, SHFE warrants changed little yesterday, while LME inventory kept rising slightly. The SHFE/LME price ratio was relatively stable, and the import window remained closed. Transactions in the spot market improved with falling futures prices. In terms the futures contract, the most-traded SHFE contract was stable overnight, and moved in a narrow range above 190,000 yuan/mt. The longs and bears stood on the sidelines. To sum up, relatively weak demand has weighed on tin prices, and the withdrawal of capitals also deprived the contract with upside momentum. Hence the SHFE contract is expected to move rangebound recently.

Nickel: On the supply side, near the end of July, the premiums of pure nickel continued to decrease, and some of the sources had arrived at the market. As for NPI, the domestic NPI prices did not fall immediately along with the drop in pure nickel prices, so the NPI plants still got high costs. In addition, the overall supply remained weak as the plants cut their production to varying degrees, and they held firm to their prices. On the demand side, according to the SMM research, the prices of #304 stainless steel in the Wuxi market basically stayed flat in the early trading today, while the prices of #304 stainless steel produced by private mills in the Foshan market declined. Near the end of July, due to the return of funds, traders got a large bargaining space in actual transactions, but the overall trading was slack. As for the alloy, although the spot prices were high, the rigid demand for alloy still existed. To sum up, although the demand was weak, the current low inventory might support nickel prices to a certain extent.

[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.]