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SMM Morning Comments (Sep 23): Base Metals Closed Mostly with Gains as Investors Digesting Rate Hike
Sep 23, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mostly with gains as the US dollar index inched up overnight. Global central banks followed the pace of US Federal Reserve and raised their interest rates, while the Japanese government and the central bank intervened in the currency market the first time in 24 years to buy the yen and sell the dollar.

SHANGHAI, Sep 23 (SMM) – LME and SHFE base metals closed mostly with gains as the US dollar index inched up overnight. Global central banks followed the pace of US Federal Reserve and raised their interest rates, while the Japanese government and the central bank intervened in the currency market the first time in 24 years to buy the yen and sell the dollar.

LME copper jumped 0.33%, aluminium gained 0.91%, lead fell 0.03%, and zinc rose 0.6%.

SHFE copper jumped 0.22%, aluminium gained 0.37%, lead fell 0.53%, and zinc rose 0.81%.

Copper: LME copper opened at $7,737/mt yesterday, and once hit the highest and lowest point of $7,770/mt and $7,667/mt respectively. At last, the contract closed at $7,684/mt, up 0.33%. Trading volume was 16,000 lots, and open interest stood at 242,000 lots.

SHFE 2210 copper contract opened at 62,990 yuan/mt in overnight trading and fluctuated downward. Then the contract continued to fall, and it dropped to 62,510 yuan/mt in the late session. At last, the contract closed at 62,530 yuan/mt, up 0.22%. Trading volume was 27,000 lots, and open interest stood at 121,000 lots.

On the macro front, the US Fed raised interest rates by 75 basis points as scheduled yesterday. After the meeting, Powell delivered a hawkish speech, and the US dollar index remained firm. After the Fed announced raising interest rates again, many central banks also started the rate hikes. Yesterday, the Japanese government and the central bank intervened in the foreign exchange market for the first time in 24 years by buying yen and selling dollars. In the intraday trading, the US dollar index fell sharply from highs, but the rebound in the night trading regained some of the losses, and the copper futures prices fell significantly overnight.

On the fundamentals, LME copper inventories have continued to increase for four consecutive days. As of yesterday, data showed that LME copper warrants added 4,775 mt to 122,775 mt. In China, the supply tightness of the spot has eased despite the current low social inventory. In particular, the recent inflow of imported goods was acceptable, which was one of the reasons for the drop in the spot premiums. The consumption in the peak season of September and October is not favourable, so the market shall pay attention to the downstream stockpiling before the National Day holiday. On the whole, the supply tightness was eased compared with before, and the copper prices will still fluctuate with some downward potential under the macro pressure.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,740 yuan/mt overnight and rose to 18,860 yuan/mt before closing at 18,755 yuan/mt, up 70 yuan/mt or 0.37%.

LME aluminium opened at $2,200.5/mt on Thursday and closed at $2,223/mt, an increase of $20/mt or 0.91%.

The US interest rate hike was in line with market expectations. Downstream producers will begin to stockpile for the upcoming National Day holiday. In the short term, the impact of macro factors will subside while aluminium prices will be influenced more by fundamentals. Domestic aluminium production cuts may expand, and there are signs of recovery in demand. It is expected that SHFE aluminium will move widely in the short term.

Lead: LME lead opened at $1,849.5/mt overnight. After the announcement of the interest rate hike results, the LME lead dropped slightly at the early stage. As the bears paid off, the prices of most metals increased. During the European trading hours, LME lead rose to the highest point at $1,897/mt and finally closed at $1,853/mt, a decrease of 0.03%.

The most-traded SHFE 2210 lead contract opened at 15,015 yuan/mt last night and fell to 14,915 yuan/mt as shorts increased the position. However, due to the expectation of peak season, the decline slowed down and SHFE lead finally closed at 14,910 yuan/mt, down 0.53%, after hitting the lowest point at 14,905 yuan/mt. The open interest increased by 1,415 lots to 34,395 lots.

Zinc: LME zinc closed at $3,117.5/mt on Thursday, up $18.5/mt or 0.6%. The open interest fell 1,090 lots 193,000 lots. Overnight LME inventory fell 3,650 mt to 63,850 mt, a drop of 5.41%.

The most traded SHFE 2210 zinc contract closed at 24,880 yuan/mt overnight, up 200 yuan/mt or 0.81%. The open interest fell 1,698 lots to 89,746 lots. On the supply side, SHFE zinc still outperformed LME zinc, hence SHFE/LME price kept rising, narrowing the import losses. On the consumption side, LME inventory dropped drastically recently, and the moves of capitals are worth attention. On the whole, low inventory would underpin zinc prices.

Overnight, many central banks follow the Fed's anti-inflation rate hike footsteps, with Japan and Turkey being the exception.

Tin: The most-traded SHFE tin contract moved sideways overnight. The tug-of-war between longs and shorts intensified. Domestic tin inventory under warrants rose slightly. Trades in the spot market declined due to higher prices. LME tin inventory rose again, with continuous increase in Asia. Imported profit is expected to remain stable. Imported tin has price advantage over domestic brands. As higher tin prices have suppressed downstream buying interest, it is expected that the short-term tin prices will move sideways.

Nickel: On the supply side, spot premiums of pure nickel continued to decline, but nickel prices remained high, resulting in poor shipments of traders. The NPI trading was sluggish, and the supply and demand were in a stalemate. Ore prices rose slightly recently, thus the NPI prices are unlikely to fall with the support of costs. On the demand side, the output of steel mills increased somewhat MoM in September, which was gradually being released to the market. As the National Day holiday is approaching, market transactions increased, but the transmission of demand was unsuccessful. In terms of alloys, the rigid demand for pure nickel still exists, but the overall demand declined due to the pure nickel market. To sum up, nickel prices continue to soar at present, but it is difficult for the high prices to transmit to downstream.

[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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