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SMM Morning Comments (Aug 1): Base Metals Closed Mostly with Gains amid Constantly Falling US Dollar
Aug 1, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mostly with gains and constantly falling US dollar index shored up base metals prices. The dovish voices of the US Fed as well as weaker-than-expected US economic readings have made the investors worry more about economic recession than inflation.

SHANGHAI, Aug 1 (SMM) – LME and SHFE base metals closed mostly with gains and constantly falling US dollar index shored up base metals prices. The dovish voices of the US Fed as well as weaker-than-expected US economic readings have made the investors worry more about economic recession than inflation.

LME copper added 2.4%, aluminium gained 0.71%, lead rose 1.52%, and zinc jumped 3.95%.

SHFE copper added 1.81%, aluminium lost 0.29%, lead rose 0.36%, and zinc jumped 1.52%.

Copper: LME copper opened at $7,813/mt last Friday and hovered around the daily moving average. During the session, the contract climbed to $7,939.5/mt after falling to $7,762.5/mt. At last, the contract closed at $7,925/mt, up 2.4%. Trading volume was 18,000 lots, and open interest stood at 236,000 lots.

SHFE 2209 copper contract opened at 60,180 yuan/mt last Friday night and rose rapidly to 61,220 yuan/mt after dropping to 59,920 yuan/mt at the beginning of the session. At last, the contract closed at 61,190 yuan/mt, up 1.81%. Trading volume was 82,000 lots, and open interest stood at 158,000 lots.

On the macro front, the US economic data showed that the inflation rate was high in June, and the US Fed is likely to raise the interest rates aggressively when necessary. Besides, the US Department of Labour said last Friday that ECI climbed by 1.3% in the second quarter after rising by 1.4% in the first quarter.

In the spot market, on the last trading day of July, quotes of premiums remained rangebound due to the wide fluctuation in the spread between the front-month and next-month contracts. Although the import ratio was slightly improved, the absolute value of inventory was still low, and traders held firm to their prices when the SHFE warrants were less than 8,000 mt. It is expected that the buyers and sellers will wrestle centring the price level, and the market shall keep an eye on the fluctuation in the spread between the front-month and next-month contracts and the change of premiums based on the SHFE/LME price ratio.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,720 yuan/mt at last Friday’s night session and rose to 18,775 yuan/mt before closing at 18,695 yuan/mt, down 55 yuan/mt or 0.29%.

LME aluminium opened at $2,462/mt last Friday and closed at $2,482.5/mt, an increase of $17.5/mt or 0.71%.

The US interest rate hike was in line with the market expectations. Aluminium smelters in south-west China suffered losses, which slowed their pace of production resumption. Some aluminium smelters in Sichuan reduced production due to staggered power use. However, the domestic operating aluminium production capacity increased slightly in July. There are few new orders in downstream sectors in the off-season. Poor consumption caused aluminium ingot social inventory to stop falling while aluminium billet inventory rose. On the whole, the digestion of bearish macro events has allowed aluminium prices to rebound, but whether the rally can sustain will depend on fundamentals.

Lead: LME lead opened at $2,009.5/mt last Friday and rose after the beard paid off. During the Asian trading hours, LME lead ran at $2,020/mt while during the European hours, LME lead rose to the highest point of $2,050/mt as the US dollar index fell sharply. Finally, LME lead closed at $2,036.5/mt, up 1.52%.

The most traded SHFE 2209 lead contract opened at 15,340 yuan/mt last Friday. As the lead ingot social inventory continued to fall, the SHFE lead rose to the highest point at 15,355 yuan/mt. However, due to the increase in supply and demand, SHFE lead fell. SHFE lead finally closed at 15,300 yuan/mt, up 0.36%, with the open interest down 564 lots to 59,219 lots.

Zinc: LME zinc closed at $3,302/mt last Friday, up $125/mt or 3.95%. The open interest added 1,905 lots to 199,000 lots. Overnight LME inventory dropped 300 mt to 70,500 mt, which dropped further.

The most traded SHFE 2209 zinc contract closed at 24,340 yuan/mt overnight, up 365 yuan/mt or 1.52%. The open interest rose 3,052 lots to 121,000 lots. On the fundamentals, the smelters in Inner Mongolia, Shaanxi and Sichuan brought their production back to normal levels after ore supply shortage earlier. In other words, the smelting side is now subject to the profit situation rather than ore supply. To sum up, there is already a short squeeze amid low inventory and high warrants concentration. Investors are advised to stay on the sidelines.

Tin: The most-traded SHFE tin contract moved up at last Friday’s night session amid improved market sentiment, and closed at above 200,000 yuan/mt. Open interest decreased sharply. Domestic tin ingot social inventory fell slightly last week. LME tin inventory rose last week, causing LME tin prices to underperform SHFE tin. The import profit window showed signs of opening again. Imported tin was offered at small discounts in the domestic spot market, with no obvious price advantage over domestic brand. In view of production resumption of smelters and poor downstream demand, SHFE tin will hover at lows after bullish market sentiment subsides.

Nickel: On the macro front, last week, the US Fed raised the interest rates by 75 basis points, which was in line with market expectations, boosting the nonferrous metal prices. On the supply side, pure nickel premiums kept falling last week, and the SHFE/LME price ratio expanded, but the customs clearance volume was less than expected due to the weak demand. In terms of NPI, the prices were low as the Indonesian NPI kept flowing into the domestic market and the supply of ferronickel was sufficient. Under the pressure of inferior cost competition, domestic NPI plants were suffering losses, and they held their prices firm. On the demand side, the steel mills actively reduced their production because of the losses, hence the overall supply and demand remained weak. As for the alloy, the spot prices were high, and the demand also weakened. To sum up, although the demand was weakened slightly amid the high nickel prices, the 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.]


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