SMM Morning Comments (Aug 18): Base Metals Closed Mostly Corrected with Easing Market Sentiment

SHANGHAI, Aug 18 (SMM) – LME and SHFE base metals corrected and mostly closed with losses amid the easing market sentiment. And the US rate hike expectation weakened after the Federal Reserve released its July meeting minutes, showing that for the first time, Fed policymakers acknowledged the risk of excessive interest rate hikes and thought that interest rate hikes might be slowed down at some point in the future

LME copper fell 1.07%, aluminium rose 0.71%, lead slid 2.69%, and zinc lost 3.22%.

SHFE copper inched up fell 1%, aluminium rose 0.49%, lead slid 0.43%, and zinc lost 2.64%.

Copper: LME copper opened at $7,963/mt yesterday and rose to $7,974.5/mt before pulling back to $7,885/mt. At last, the contract closed at $7,920/mt, down 1.07%. Trading volume was 14,000 lots, and open interest stood at 243,000 lots.

SHFE 2209 copper contract opened at 61,770 yuan/mt in overnight trading and rose to 61,990 yuan/mt before closing at 61,460 yuan/mt, down 1%. Trading volume was 53,000 lots, and open interest stood at 150,000 lots.

On the macro front, retail sales, known as the "scary data", were unexpectedly flat in the US yesterday. In the early hours of this morning, the Federal Reserve FOMC released the minutes of its July monetary policy meeting, showing that for the first time, Fed policymakers acknowledged the risk of excessive interest rate hikes and thought that interest rate hikes might be slowed down at some point in the future, with participants noting that recent spending and production indicators had softened, while job growth was strong and unemployment remained low. Against this backdrop, all participants felt that a 75 basis point rate hike in July was appropriate. The US Dollar Index ended up a modest 0.15% after a choppy trading session overnight.

On the fundamentals, power rationing extended with a number of smelters reducing the production. The inventory in the bonded zone dropped, hence sources available in the market were also low with few imported copper. The traders heightened the spot premiums in light of extremely low inventory in China. The supply tightness extended, with eyes on future power rationing.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,640 yuan/mt overnight, with its low at 18,525 yuan/mt, and the contract finally closed at 18675 yuan/mt, up 90 yuan/mt or 0.49%. Shorts exited due to output cuts, pushing aluminium prices up.

LME aluminium opened at $2,400/mt on Wednesday and hit a high of $2,440.5/mt before closing at $2,413.5/mt, up $17/mt or 0.71%.

Lead: LME lead opened at $2,150/mt, and then rose to $2,162.5/mt during European trading hours. The contract then fell to $2,096.5/mt with longs existing the market, and closed at $2,096.5/mt, down 2.69%. The open interest fell 3,566 lots to 86,820 lots.

The most-traded SHFE 2209 contract opened at 15,040 yuan/mt, and the rose to 15,110 yuan/mt beflore falling to 15,025 yuan/mt with longs reducing their positions. The contract closed the session at 15,045 yuan/mt, down 0.43%. The open interest dropped 1,492 lots to 47,880 lots.

Zinc: LME zinc closed at $3,528/mt on Wednesday, down $117.5/mt or 3.22%. The open interest fell 697 lots to 198,000 lots. Overnight LME inventory rose 175 mt to 75,000 mt. The market sentiment stabilized considering the rate hike cycle and sluggish consumption, following impact from energy crisis. As such, zinc futures corrected.

The most traded SHFE 2209 zinc contract closed at 24,940 yuan/mt overnight, down 675 yuan/mt or 2.64%. The open interest lost 5,926 lots to 121,000 lots. Currently, the smelting cost stood at around 23,500-24,000 yuan/mt, which, coupled with poor downstream demand, offered little support to zinc prices. As such, the sentiment front is still the main factor steering the futures directions. In the spot market, premiums in Tianjin were high amid delayed arrivals, while fell in other regions due to high zinc prices and sluggish demand. SMM zinc social inventory across seven markets in China totaled 132,300 mt as of this Monday, down 6,900 mt from last Friday.

Tin: On the fundamentals, domestic warrants inventory dropped steadily, and the shipments in the spot market was suppressed by rising prices. LME inventory dropped slightly, and import profits are expected to narrow. In terms of futures market, SHFE tin consolidated in overnight trading, and moved around 200,000 yuan/mt. The open interest of the most-traded contract kept falling. To sum up, the supply and demand in the market was relatively stable, and rising prices have contained the demand, which in turn put pressure on the prices. As such, tin prices are more than likely to stay rangebound recently.

Nickel: On the supply side, premiums of pure nickel kept falling amid high futures prices and sluggish demand, while the SHFE/LME price ratio dropped, hence the customs clearance volume this week is expected to fall short. For NPI, some plants were quite bearish on NPI price outlook, hence were less firm to their prices and shipped more actively. Nonetheless, there were still those who were bullish due to the expected Indonesian export tariff, hence built up stocks and awaited future price hike. On the demand side, the social inventory of all series of stainless steel was falling, but the consumption has not yet improved significantly, hence the supply and demand are expected to remain poor in the near term. In terms of alloy, though the military-oriented alloy sector has been resilient, and civil alloy sector saw palpable decrease in demand. To sum up, as the nickel industry chain is plagued by weak demand, nickel prices will gain weaker support especially when the social inventory is on the rise.

[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.]