SMM Morning Comments (Aug 9): Base Metals Closed Mostly with Gains on Falling US Dollar

SHANGHAI, Aug 9 (SMM) – LME and SHFE base metals closed mostly with gains after the US dollar index closed down on the news that the chairman of the Fed in San Francisco said that the interest rate might be raised by 50 basis points next time.

LME copper gained 0.73%, aluminium jumped 0.78%, lead rose 3.05%, and zinc fell 1.22%.

SHFE copper gained 0.94%, aluminium jumped 0.05%, lead rose 0.69%, and zinc fell 0.52%.

Copper: LME copper opened at $7,844/mt yesterday and fell rapidly after climbing to $8,020/mt. At last, the contract closed at $7,947/mt, up 0.73%. Trading volume was 14,000 lots, and open interest stood at 237,000 lots.

The most-traded SHFE 2209 copper opened at 60,880 yuan/mt in overnight trading, and once rose to 61,700 yuan/mt. At last, the contract closed at 61,140 yuan/mt, up 0.94%. Trading volume was 72,000 lots, and open interest stood at 160,000 lots.

On the macro front, the strong US non-farm data last week once boosted the sharp rebound of the US Dollar. However, the chairman of the Fed in San Francisco said that the interest rate might be raised by 50 basis points next time. As a result, the US dollar index fell and closed down, while the copper futures closed up.

On the fundamentals, as of August 8, SMM copper inventory across major Chinese markets increased by 3,900 mt from last Friday to 72,800 mt. However, the total inventory still fell by 97,200 mt compared with the same period last year when the inventory was recorded at 170,000 mt. Copper cathode inventory in China remained low. In terms of consumption, recently, wire and cable companies maintained stable production, and their orders continued to increase. Therefore, the operating rates of wire and cable companies in August may rise to a level close to that in the same period of previous years, pushing up the operating rates of copper rods. Besides, the sharp drop in copper scrap supply stimulated the consumption of copper cathode. The fundamentals continue to support copper prices.

In the spot market, the low inventory made the recent premiums high. Yesterday, the market was sluggish due to the high futures and spot prices, and then the premiums dropped rapidly. In the future, the premiums may further fall amid the wide spread between the front-month and next-month contracts in the backwardation structure.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,470 yuan/mt overnight, but then dropped after hitting a brief high before closing at 18,435 yuan/mt, up 0.05%.

LME aluminium opened at $2,418/mt on Monday and closed at $2,440/mt, up 0.78%.

On the fundamentals, aluminium supply has been rising, which recorded a combined output of 3.5 million mt in July, up 6.7% YoY. The operating aluminium capacity is expected to reach 41.59 million mt in August, with an estimated monthly output of 3.52 million mt. On the demand side, the downstream orders fell amid the seasonal low, including aluminium plate/sheet and extrusion, especially construction extrusion. And the demand was muted. In addition, aluminium social inventory is now accumulating, weighing on spot discounts. Aluminium prices are likely to fall under pressure recently.

Lead: LME lead opened at $2,066/mt overnight and rose by 3.05% to $2,143/mt, after hitting the highest point at $2,165/mt. 

The most-traded SHFE 2209 lead contract opened at 15,425 yuan/mt overnight and closed at 15,375 yuan/mt, up 0.69%, after hitting the highest point at 15,450 yuan/mt and the lowest point at 15,335 yuan/mt.

Zinc: LME zinc closed at $3,427.5/mt on Monday, down $42.5/mt or 1.22%. The open interest fell 1,772 lots to 197,000 lots. Overnight LME inventory lost 375 mt to 73,550 mt, down 0.51%. LME zinc was capped by rate hike expectations on the macro front despite supply concerns.

The most traded SHFE 2209 zinc contract closed at 24,075 yuan/mt overnight, down 125 yuan/mt or 0.52%. The open interest fell 729 lots to 118,000 lots. On the supply side, refined zinc import loss expanded to over 3,700 yuan/mt amid falling SHFE/LME price ratio, and market players shall watch when the import window will open. On the consumption side, the operating rates of die-casting and zinc oxide sectors were both poor, with galvanizing performing relatively moderately. And the downstream has not yet pivoted. On the whole, zinc prices lack strong upside momentum, and investors are advised to stay cautious.

Overnight, Ukraine and Russia blamed each other for the shelling of a nuclear power plant and the international community warned that the fighting could lead to disaster; the US will provide another US$4.5 billion in budget support to the Ukrainian government. A survey by the New York Fed in July showed that Americans' inflation expectations for the next one and three years generally fell.

Tin: On the fundamentals, domestic warrants inventory dropped slightly, and the spot market was relatively muted with few sources of non-deliverable brands. LME inventory also fell slightly. The import window seems to open, but sources of imported goods were not that abundant. In the futures market, the most-traded SHFE tin rebounded after opening low, and remained rangebound afterwards. Narrowly fluctuating contract has prevented the investors from participating actively, and both longs and shorts left the market. To sum up, the tin market is in a tight balance recently, and the futures contract is expected to consolidate in the near term.

Nickel: On the supply side, overseas pure nickel spots kept being imported, which will probably arrive within the week. Besides, spot premiums of pure nickel continued to decrease because of the weak demand. The NPI prices were close to the break-even point, thus the NPI plants were reluctant to ship and were cautious about the market outlook, and they cut their output to varying degrees. According to the SMM survey, on the demand side, stainless steel spot prices dropped yesterday, and the market mainly saw purchases on rigid demand. Affected by the hot weather in various places, local governments have successively introduced power rationing policies, hence the monthly output of stainless steel mills in August may not meet the plan. In terms of alloy, most downstream manufacturers held a wait-and-see attitude amid the unstable pure nickel futures. In short, pure nickel inventory rose due to the poor demand, and the support for nickel prices weakened.

[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.]