SMM Morning Comments (Sep 21): Base Metals Closed Mostly with Losses as Investors Pricing in US Rate Hike

SHANGHAI, Sep 21 (SMM) – LME and SHFE base metals closed mostly in the negative territory with US stocks and crude oil falling back yesterday amid expectations of a 75bps rate hike to curb inflation in the market, and the overnight US dollar index also surged.

LME copper lost 0.62%, aluminium gained 0.27%, lead fell 0.53%, and zinc lost 1.2%.

SHFE copper lost 0.72%, aluminium slid 0.43%, lead added 0.3%, and zinc lost 0.12%.

Copper: LME copper opened at $7,734.5/mt on Tuesday, and then rose to $7,782.5/mt. At last, the contract closed at $7,724/mt, down 0.62%. Trading volume was 13,000 lots, and open interest stood at 248,000 lots.

SHFE 2210 copper contract opened at 62,400 yuan/mt overnight and rose to 62,640 yuan/mt before falling to 62,260 yuan/mt. Then it closed at 62,430 yuan/mt, down 0.72%. Trading volume was 29,000 lots, and open interest stood at 131,100 lots.

On the macro front, the Fed's interest rate meeting is imminent, with US stocks and crude oil falling back yesterday amid expectations of a 75bps rate hike to curb inflation in the market. Investors are ready for another big Fed rate hike, and the dollar stayed high in the overnight session and copper futures were pressured.

On the fundamentals, as of September 20, LME copper inventory has been rising for two days in a row, and the proportion of cancelled warrants fell to 11.41%. Domestic market also saw the inflow of imported copper cathode that was delayed by the typhoon, easing the spot supply tightness. However, the shortage of copper scarp and blister copper still restricted the smelting activities, and the imports were unable to fully fill the supply void. Hence the tightness on the supply side will extent. In the spot market, spot premiums fell amid slightly rising sources, demand for cash approaching the end of the month and the quarter, as well as wide backwardation structure between SHFE 2210 and 2211. In terms of consumption, though there is the expectation for pre-National Day holiday restocking, the demand has not been reflected in the market.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,655 yuan/mt overnight and rose to 18,695 yuan/mt before closing at 18,570 yuan/mt, down 80 yuan/mt or 0.43%.

LME aluminium opened at $2,256/mt on Tuesday and closed at $2,255/mt, up $6/mt or 0.27%.

On the supply side, the news of estimated production cuts in Yunnan province was still fermenting, and a number of smelters have already cut the production by 10%. And follow-up actions await notices. On the demand side, aluminium semis exports rose 7.11% YoY but fell 16.83% MoM. The purchases in the spot market were mostly made with rigid demand. Aluminium prices are likely to remain rangebound in the near term with the tug-of-war between the supply and demand side.

Lead: LME lead opened at $1,885/mt on Tuesday, and hovered around the daily moving average in Asia trade, and rose to $1,900/mt with strong SHFE lead. LME lead then fell to a two-month low as the US Fed rate meeting kicked off in Europe trade with Fed officials’ hawkish voices echoing the market. The contract closed the session at $1,872/mt, down 0.53%

The most-traded SHFE 2210 contract opened at 14,980 yuan/mt overnight, and then rose to 15,005 yuan/mt with the shorts leaving the market intensively. The game between shorts and longs intensified after the lead concentrate imports grew on rising SHFE/LME price ratio, and the falling lead-acid battery scrap prices also eased the supply tightness of raw materials. The contract finally closed the night session at 14,955 yuan/mt, up 0.3%. The open interest fell 1,908 lots to 41,754 lots.

Zinc: LME zinc closed at $3,124/mt on Tuesday, down $38/mt or 1.2%. The open interest fell 2,655 lots 198,000 lots. Overnight LME inventory fell 5,825 mt to 69,850 mt, a drop of 7.7%. Surging US dollar index overnight pressured the nonferrous metals.

The most traded SHFE 2210 zinc contract closed at 24,525 yuan/mt overnight, down 30 yuan/mt or 0.12%. The open interest fell 1,072 lots to 96,251 lots. On the supply side, refined zinc imports stood at 3,100 mt in August, up 58.88% MoM; zinc concentrate imports were 376,400 mt in physical content, up 28.65% MoM. On the consumption side, supporting policies were frequently introduced in an effort to offset the resurging covid. The market shall watch the actual performing of these polies, and how the pandemic is affecting the transportation and production, in addition to inventory changes and Fed rate meeting.

Overnight, four occupied regions in Ukraine plan to hold a referendum on Russia, while Kiev and the West did not recognise. ECB president Lagarde said interest rates may need to be raised to levels that limit economic growth. Canada's annual inflation rate slowed to 7.0% in August, analysts said rate hikes are starting to work but not yet over.

Tin: On the fundamentals, domestic warrants inventory kept falling, but the spot market transactions were lacklusture. LME inventory rose more slowly, but the level was high. The import window remained open, and China was a net imported for refined tin in August. In terms of the futures market, overnight SHFE tin contract was relatively resilient, and the shorts and longs were both cautious. On the whole, there have been no significant contradictions on the fundamentals, but the capital activities were not active.

Nickel: On the supply side, spot pure nickel imports still suffered losses, hence the customs clearance volume fell short. LME inventory dropped to a monthly low of 51,408 mt as of September 20. For NPI, the prices were stable with steel mills restocking actively. On the demand side, the stainless steel spot prices dropped in Wuxi and Foshan, and some sellers voluntarily lowered the prices to clinch a deal. Meanwhile, downstream restocking demand picked up slightly approaching the National Day holiday. For alloy, the demand was suppressed by high pure nickel spot prices. To sum up, nickel prices are likely to remain rangebound as the downstream demand is improving gradually.

[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.]