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SMM Morning Comments (Aug 5): Base Metals Closed Mostly with Gains amid Falling US Dollar Index
Aug 5, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mostly with gains as the US dollar index ended its short-term rebound and closed down by 0.55% yesterday. The Bank of England raised the interest rates by 50 basis points on Thursday, the largest increase in 27 years, and at the same time warned that a long-term recession was coming.

SHANGHAI, Aug 5 (SMM) – LME and SHFE base metals closed mostly with gains as the US dollar index ended its short-term rebound and closed down by 0.55% yesterday. The Bank of England raised the interest rates by 50 basis points on Thursday, the largest increase in 27 years, and at the same time warned that a long-term recession was coming.

LME copper gained 0.43%, aluminium jumped 0.75%, lead rose 1.44%, and zinc slumped 4.59%.

SHFE copper gained 1.26%, aluminium jumped 1.43%, lead rose 0.17%, and zinc added 3.51%.

Copper: LME copper contract opened at $7,677/mt yesterday and then hovered around the daily moving average. During the session, the contract climbed to $7,812/mt after dropping to $7,609.5/mt. At last, the contract closed at $7,743/mt, up 0.43%. Trading volume was 15,000 lots, and open interest stood at 234,000 lots.

The most-traded SHFE 2209 copper contract opened at 59,100 yuan/mt in overnight trading and fluctuated downward. After falling to 58,540 yuan/mt, the contract rose quickly to 60,220 yuan/mt. At last, the contract closed at 59,490 yuan/mt, up 1.26%. Trading volume was 107,000 lots, and open interest stood at 161,000 lots.

On the macro front, the Bank of England raised the interest rates by 50 basis points on Thursday, the largest increase in 27 years, and at the same time warned that a long-term recession was coming. The US dollar index ended its short-term rebound and closed down by 0.55% yesterday, while the copper prices rebounded and closed up. The upcoming non-farm data is of utmost concern. If the US job market continues to be strong, the US Fed will likely issue tightening monetary policies.

In the spot market, the social inventory of copper across China was still low. With the recent warming of orders of the leading wire and cable enterprises, the operating rates of copper rod producers remained high. Besides, the sharp drop in copper scrap supply stimulated the consumption of copper cathode. The downstream purchases were picked up after the wait-and-see sentiment conceded. However, the short-term copper cathode inventory cannot rise quickly though some imported copper will flow into the domestic market, which supports the copper prices to a certain extent. Spot premiums in the near future will maintain high.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,200 yuan/mt overnight and rose to 18,540 yuan/mt before closing at 18,450 yuan/mt, up 260 yuan/mt or 1.43%.

LME aluminium opened at $2,385/mt on Thursday and closed at $2,403/mt, an increase of $18/mt or 0.75%.

The European energy crisis boosted LME aluminium, which in turn pushed up SHFE aluminium. In July, the growth rate of domestic aluminium supply slowed down due to slower production resumption in Guangxi and other regions. Expanding losses discouraged smelters from increasing their production rapidly. High-cost smelters in Henan may reduce output. Aluminium inventory rose due to poor demand. Aluminium prices are expected to remain rangebound. The market shall closely watch potential output cuts in China and overseas, as well as whether consumption will recover.

Lead: LME lead opened at $2,017.5/mt overnight and fell during the Asian trading hours. During the European trading hours, LME lead rebounded to $2,050/mt. LME lead finally closed at $2,043/mt, up 1.44%.

The most traded SHFE 2209 lead contract opened at 15,170 yuan/mt overnight and fell to the lowest point at 15,090 yuan/mt. However, as the lead ingot inventory further declined, SHFE lead rebounded and stabilised at 15,180 yuan/mt amid the delivery expectations. SHFE lead finally closed at 15,175 yuan/mt, up 0.17%, with the open interest up 1,179 lots to 55,873 lots.

Zinc: LME zinc closed at $3,464.5/mt on Thursday, up $169/mt or 5.13%. The open interest fell 3,168 lots to 196,000 lots. Overnight LME inventory rose 3,075 mt to 70,000 mt, a big increase of 4.59%. On the fundamentals, Glencore reported potentially affected smelting production amid high energy prices, and low LME inventory as well as likelihood of production cuts induced huge volatility in zinc prices.

The most traded SHFE 2209 zinc contract closed at 24,485 yuan/mt overnight, up 830 yuan/mt or 3.51%. The open interest added 9,600 lots to 128,000 lots. On the supply side, China refined zinc output dropped more than expected in July, while August production growth is expected to fall short. The output stood at 475,900 mt in July. On the demand side, downstream operating rates all fell YoY, and the market players were generally pessimistic over future demand. In the spot market, spore premiums in Shanghai declined, while the transactions were subdued. Zinc prices are quite volatile recently amid great political risks and a potential short squeeze.

Overnight, mainland China continued military exercise around Taiwan Island; Wang Yi: the G7 statement on Taiwan is a "scrap of paper". The Bank of England raised interest rates by 50 basis points as expected, the largest since 1995, warning that the economy will enter recession in the fourth quarter, and the British 2 and 10-year government bond yield curve inverted for the first time since 2019.

Tin: The most-traded SHFE tin contract hovered sideways above 190,000 yuan/mt overnight, with capital flowing out of the market. Domestic tin inventory under warrants fell slightly yesterday. The performance of the spot market was poor. LME tin inventories accumulated slightly, mainly contributed by Asia. The import profit window was slightly opened. There were limited quotations of imported tin in the spot market. Tin prices will encounter resistance due to increased supply following production resumption by smelters, but may find support from rigid demand.

Nickel: On the supply side, due to high futures prices, premiums of domestic pure nickel were lowered, narrowing the SHFE/LME price ratio. With regard to NPI, Indonesia plans to issue a nickel export tax regulation, which stipulates that the import cost of Indonesian NPI will be increased in the future. Before the implementation of the tariff policy, Indonesian NPI will flow into China in a large amount. On the demand side, the spot prices of stainless steel dropped again, and the transaction remained sluggish. The weak supply and demand will remain still in the short term. In terms of alloy, the terminals generally held a wait-and-see attitude amid the high futures prices, and the demand for pure nickel was weak. To sum up, the demand for pure nickel remained weak, but the low inventory supported 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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