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SMM Morning Comments (Aug 19): Base Metals Closed Mostly with Losses amid Surging US Dollar

iconAug 19, 2022 10:00
Source:SMM
LME and SHFE base metals mostly closed with losses after the US dollar index pulled up sharply in the US trading session and rose above 107.

SHANGHAI, Aug 19 (SMM) – LME and SHFE base metals mostly closed with losses after the US dollar index pulled up sharply in the US trading session and rose above 107. In addition, a number of Fed officials continued to deliver hawkish speeches, with "King Hawk" Bullard saying he was still inclined to raise interest rates by 75 basis points in September and that the US economy was not yet through the worst of the inflation spike.

LME copper rose 1.4%, aluminium shed 0.35%, lead slid 1.45%, and zinc lost 1.3%.

SHFE copper rose 1.1%, aluminium rose 0.57%, lead slid 0.4%, and zinc lost 0.22%.

Copper: LME copper opened at $8,014.5/mt yesterday and dropped to $8,007/mt after reaching $8,085/mt. At last, the contract closed at $8,031/mt, up 1.4%. Trading volume was 18,000 lots, and open interest stood at 243,000 lots.

SHFE 2209 copper contract opened at 62,100 yuan/mt in overnight trading and hovered around the daily moving average. Within the range, the contract hit the highest and lowest of 62,520 yuan/mt and 62,000 yuan/mt respectively. At last, the contract closed at 62,220 yuan/mt, up 1.1%. Trading volume was 49,000 lots, and open interest stood at 149,000 lots.

On the macro front, US Fed officials stressed the necessity of rate rises further, and the US dollar index surged to a one-month high. In addition, the number of US initial jobless claims dropped last week, and the Philadelphia Fed Manufacturing Index in the US rose sharply in August, all of which showed that labour demand was satisfactory. At present, the market has reached a consensus that the US Fed will continue to raise the interest rates, but there is controversy about the range. The short-term focus may turn to the Fed's annual meeting.

On the fundamentals, at present, the power rationing caused by the continuous hot weather reduces the output of smelters such as Daye, Tongling, Zhangjiagang, Fuye, etc. Problem of supply shortage is more serious than the gloomy underlying demand, which enables the cargo holders to push up the prices. Before the end of the delivery of long-term orders, if the power rationing still restricts the output, the domestic premiums will remain high. Copper prices may remain rangebound at high levels supported by the fundamentals.

Aluminium: Overnight, the most-traded SHFE 2209 aluminium contract opened at 18,490 yuan/mt, with its low and high at 18,425 yuan/mt and 18,565 yuan/mt before closing up 105 yuan/mt or 0.57%.

LME aluminium opened at $2,404.5/mt on Thursday, with its high and low at $2,440.5/mt and $2,381/mt respectively before closing at $2,405/mt, a drop of $8.5/mt or 0.35%.

Aluminium output cuts in Sichuan Province may expand further to 500,000 mt. Hydro's two aluminium smelters in Slovakia and Norway plan to reduce production, involving a production capacity of 185,000 mt. Under the context of energy shortage, there are frequent supply disturbances in China and overseas. Operating rates of domestic aluminium downstream processing enterprises have not seen any improvement recently. Regional outbreak of pandemic and power rationing triggered by high temperature have disrupted downstream production. Despite supply concerns, weak downstream demand and fears of economic recession will cap the upside room of aluminium prices. Short-term aluminium prices may maintain a wide fluctuation pattern.

Lead: LME lead opened at $2,101.5/mt last night and fell 1.45% to $2,066/mt, with the highest and lowest prices at $2,138/mt and $2,062/mt respectively. The open interest decreased by 1,300 lots to 85,520 lots from the previous trading day.

The most traded SHFE 2209 lead contract opened at 15,060 yuan/mt and fell 0.4% to 14,965 yuan/m, after briefly hitting the highest point at 15,075 yuan/mt. The open interest decreased by 2,364 lots to 45,606 lots from the previous trading day.

Zinc: LME zinc closed at $3,482/mt on Thursday, down $46/mt or 1.3%. The open interest added 956 lots to 199,000 lots. Overnight LME inventory lost 50 mt to 74,950 mt.

The most traded SHFE 2209 zinc contract closed at 24,835 yuan/mt overnight, down 55 yuan/mt or 0.22%. The open interest lost 2,215 lots to 112,000 lots.

Overnight, the US dollar index pulled up sharply in the US trading session and rose above 107. A number of Fed officials continued to deliver hawkish speeches, with "King Hawk" Bullard saying he was still inclined to raise interest rates by 75 basis points in September and that the US economy was not yet through the worst of the inflation spike. The Philadelphia Fed manufacturing index rose unexpectedly in August for the first time in three months, but the outlook for the future remained weak. European gas futures settled at a record high yesterday due to tight energy supplies. EU imports from Russia have fallen this year due to higher commodity prices, including oil, but the import amount has increased. Australia is considering cutting gas exports to fill domestic energy shortages.

Tin: Overnight, SHFE tin fell back after opening slightly higher and fluctuated below 200,000 yuan/mt. Open interest of the most-traded contract continued to decrease as longs and shorts rolled their positions onto distant-month contract. Domestic tin inventory under SHFE warrants fell further. Trades in the spot market improved slightly due to the fall in tin prices. LME tin inventories increased again. The import profit window opened slightly. A small amount of imported tin was offered at a discount. Given the stable market supply and demand relationship, SHFE tin will hover sideways at lows in the short term.

Nickel: On the supply side, premiums of pure nickel were on a downward trend amid the poor demand, and the SHFE/LME price ratio was narrowed. As for the NPI, according to some market news, there were many low-priced inquiries recently. And steel mills’ acceptance prices of NPI kept falling amid the slack stainless steel market, putting huge pressure on the NPI prices. On the demand side, according to SMM research, at present, Indonesian cold-rolled stainless steel keeps flowing into China. And the market shall keep an eye on the following situation. In terms of alloy, the rigid demand from the military sector still exists, but the orders of the civil alloy were less than expected. Besides, the output of a few manufacturers in the south could not reach the expectation due to the power rationing. To sum up, nickel prices get insufficient support from the fundamentals amid the poor demand and rising inventory.

[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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