SMM Morning Comments (Aug 12): Base Metals Closed Mostly with Gains amid Lower-than-expected US CPI and PPI

SHANGHAI, Aug 12 (SMM) – LME and SHFE base metals closed mostly with gains as the macro sentiment eased as the data released last night showed that the U.S. July producer price index (PPI) unexpectedly fell MoM. Coupled with Wednesday night's release of lower than expected July U.S. CPI data, the market reduced the expectations for the Federal Reserve to stick to aggressive interest rate hikes.

LME copper gained 1.41%, aluminium jumped 0.83%, lead rose 0.62%, and zinc added 1.32%.

SHFE copper gained 1.22%, aluminium fell 0.4%, lead rose 0.79%, and zinc added 0.54%.

Copper: LME copper opened at $8,157/mt on Thursday and then fell slightly to $8,140.5/mt before closing at $8,191.5/mt, up 1.41%. Trading volume was 17,000 lots, and open interest stood at 242,000 lots.

The most-traded SHFE 2209 copper opened at 62,800 yuan/mt in overnight trading, and once fell to 62,420 yuan/mt before consolidating above the daily moving average at 62,720 yuan/mt. At last, the contract closed at 62,860 yuan/mt, up 1.22%. Trading volume was 43,000 lots, and open interest stood at 111,000 lots.

On the macro front, the data released last night showed that the U.S. July producer price index (PPI) unexpectedly fell MoM. Coupled with Wednesday night's release of lower than expected July U.S. CPI data, the market reduced the expectations for the Federal Reserve to stick to aggressive interest rate hikes, and the dollar index fell back for the fourth consecutive day.

The fundamentals changed little, and the inflow of imported copper was still a low level, which is unable to completely reverse the low social inventory in China. In other words, tight supply will underpin copper prices. In the spot market, the SHFE 2208 and 2209 spread was still in backwardation of around 400 yuan/mt when there was two trading days left before the delivery of SHFE 2208. Cargo holders were unwilling to sell with low prices when market sources were not abundant.  

Aluminium: Overnight, SHFE aluminium moved sideways after opening at 18,750 yuan/mt and closed at 18,655 yuan/mt, down 0.4%.

LME aluminium opened at $2,495.5/mt on Thursday and closed at $2,517/mt, an increase of 0.83%.

Spot market transactions were sluggish. According to SMM data, aluminium ingot inventory has been rising since August. This week, the inventory of aluminium ingots increased by 15,000 mt on a weekly basis to 693,000 mt. Inventory of aluminium billets also rose 5,100 mt to 121,500 mt. In view of poor fundamentals, SHFE aluminium will encounter resistance and may move rangebound in the short term.

Lead: LME lead opened at $2,181/mt overnight and rose by 0.62% $2,197/mt, after hitting the lowest point at $2,171/mt and the highest point at $2,208.5/mt.

The most-traded SHFE 2209 lead contract opened at 15,285 yuan/mt and rose by 0.79% to 15,290 yuan/mt, after hitting the lowest point at 15,255 yuan/mt in the overnight trading yesterday.

Zinc: LME zinc closed at $3,656.5/mt on Thursday, up $47.5/mt or 1.32%. The open interest added 4,278 lots to 202,000 lots. Overnight LME inventory rose 500 mt to 74,600 mt, up 0.67%. LME zinc rose amid energy crisis and easing macro sentiment.

The most traded SHFE 2209 zinc contract closed at 25,315 yuan/mt overnight, up 135 yuan/mt or 0.54%. The open interest fell 657 lots to 137,000 lots. On the supply side, the supply tightness extended in light of lingering overseas energy crisis and low social inventory. Currently, the transportation infrastructure sector improved to some extent, but the real estate sector remained poor. On the whole, supply tightness offered relatively strong support to zinc prices when the macro sentiment eased.

Tin: Overnight, SHFE tin jumped with the exit of shorts, and then stabilised at above 200,000 yuan/mt. Domestic tin inventory under SHFE warrants remained stable recently, despite upcoming delivery of front-month contract. LME tin inventories also remained stable. Import profit was thin, and imported tin in the domestic spot market was offered at discounts. Given the expected opening of the import window, inflows of cargoes from smelters following production resumption, and weak demand, SHFE tin may hover at lows.

Nickel: On the supply side, domestic pure nickel output stood at 16,000 mt in July, up 2.89% MoM. For NPI, the oversupply situation in China was still in place with the constant import of Indonesia NPI. On the demand side, domestic stainless steel mills have shown signs of ramping up the production. For alloy, the buyers mostly stood on the sidelines amid great uncertainties in the pure nickel market. In the mid and long run, nickel prices will remain on the downward track amid slightly sufficient supply. But the decline may be slow amid pessimism on the macro front.

[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.]