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SMM Morning Comments (Aug 11): Base Metals Closed Mostly with Gains on Lower-than-Expected US CPI Reading
Aug 11, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mostly with gains as the US July CPI disclosed overnight was lower than expected, and the market players generally believed that the US inflation may have topped.

SHANGHAI, Aug 11 (SMM) – LME and SHFE base metals closed mostly with gains as the US July CPI disclosed overnight was lower than expected, and the market players generally believed that the US inflation may have topped. But US Federal Reserve is expected to extend its aggressive rate hike path.

LME copper gained 1.54%, aluminium jumped 0.99%, lead rose 0.65%, and zinc added 2.38%.

SHFE copper gained 0.85%, aluminium jumped 0.08%, lead fell 0.56%, and zinc added 1.84%.

Copper: LME copper opened at $7,987/mt on Wednesday and then rose rapidly to $8,099/mt before closing at $8,077.5/mt, up 1.54%. Trading volume was 16,000 lots, and open interest stood at 242,000 lots.

The most-traded SHFE 2209 copper opened at 61,960 yuan/mt in overnight trading, and once rose to 62,230 yuan/mt. At last, the contract closed at 61,870 yuan/mt, up 0.85%. Trading volume was 68,000 lots, and open interest stood at 157,000 lots.

On the macro front, the U.S. July CPI data disclosed overnight was lower than the previous value and the estimate as well, and the market interpreted that the inflation has topped. The Federal Reserve is expected to continue its aggressive interest rate hike path. The dollar index plunged upon this news, closing down sharply by 1%, boosting the copper futures.

On the fundamentals, copper smelting in Zhejiang and Anhui provinces were affected by power rationing, and the supply tightness of copper scrap, anode and blister copper also potentially weighed on copper smelting. On the other hand, falling sulphuric acid prices triggered concerns of overstock, and the August copper cathode production guidance is also likely to be lowered. On the consumption side, power rationing has affected the production of copper cathode rod, copper plate/sheet and strip, copper foil and copper billet to some extent. However, as the power rationing has just kicked off, the impact on copper consumption awaits further observation.

In the spot market, spot premiums are under pressure when SHFE 2208 and 2209 spread was in large backwardation structure in the last three trading days before the delivery of SHFE 2208.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,765 yuan/mt overnight and rose to 18,800 yuan/mt before closing at 18,715 yuan/mt, up 0.08%.

LME aluminium opened at $2,468/mt on Wednesday and rose to $2,500/mt following release of US CPI. LME aluminium closed at $2,496.5/mt, an increase of 0.99%.

The US CPI fell 0.6% month-on-month and was lower than market expectations. Therefore, metals generally strengthened after the data was released. The increase in aluminium supply may slow down following an accident at one smelter. Downstream purchases declined after aluminium prices strengthened. The operating rates of downstream processing enterprises in some areas fell amid power rationing. It is expected that aluminium prices will continue to fluctuate in a narrow range. The market shall be alert to how macro data and European energy shortage will affect aluminium prices.

Lead: LME lead opened at $2,167.5/mt overnight and rose by 0.65% to $2,179/mt, after hitting the highest point at $2,183.5/mt. 

The most-traded SHFE 2209 lead contract opened at 15,185 yuan/mt and fell by 0.56% to 15,165 yuan/mt, after hitting the lowest point at 15,125 yuan/mt in the overnight trading yesterday.

Zinc: LME zinc closed at $3,609/mt on Wednesday, up $84/mt or 2.38%. The open interest fell 94 lots to 197,000 lots. Overnight LME inventory rose 825 mt to 74,100 mt, up 1.13%.

The most traded SHFE 2209 zinc contract closed at 25,215 yuan/mt overnight, up 455 yuan/mt or 1.84%. The open interest rose 6,247 lots to 138,000 lots. On the supply side, the TCs of domestic zinc concentrate were low, and the import window has closed amid falling SHFE/LME price ration, pinning the supply tightness. On the consumption side, the operating rates of galvanizing plants rose, but were lower than in the same period in previous years; while the die-casting and zinc oxide sectors remained poor. On the whole, SHFE zinc has gained strong support from both the macro and fundamentals front.

Overnight, U.S. July CPI shows cooling inflation, and Fed officials remained hawkish on rate hikes. Goldman Sachs cut expectations for spot gold and silver prices. EU coal embargo on Russia will take effect soon. Rhine’s water level drops sharply, and European shipping artery faces cut-off crisis. The July CPI of China rose 2.7% year-on-year, up 0.5% from the previous month.

Tin: SHFE tin still moved within a narrow range overnight. Domestic tin inventories under SHFE warrants were little changed, with no obvious sign of increase, despite approaching delivery of the front-month contract. LME tin inventories remained stable. Import profits are expected to increase slightly. There were quotations of imported tin for future delivery in the market. In view of weak demand and increased supply following production resumption of smelters, SHFE tin may move rangebound.

Nickel: On the supply side, the spot premiums of pure nickel stopped falling and stabilised amid falling SHFE/LME price ratio. In terms of NPI, sluggish terminal demand continued to affect the industry chain negatively, and the inflow of Indonesia NPI back to China resulted in further oversupply. On the demand side, domestic stainless steel mills have shown signs of production ramp-up. For alloy, most downstream manufacturers were wait-and-see amid uncertainties over SFHE nickel futures. To sum up, pure nickel inventory has accumulated amid poor demand, and nickel prices were less supported.

[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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