SMM Morning Comments (Sep 27): Base Metals Closed Mostly with Losses amid Surging US Dollar

SHANGHAI, Sep 27 (SMM) – LME and SHFE base metals closed mostly with losses again as the US dollar once again refreshed its 20-year high at 114.69 amid extended expectation of aggressive interest rate hikes as the US Fed officials were still hawkish.

LME copper fell 2.05%, aluminium lost 1.52%, lead slid 2.48%, and zinc dropped 3.76%.

SHFE copper fell 0.23%, aluminium gained 1.02%, lead slid 0.5%, and zinc dropped 0.58%.

Copper: LME copper opened at $7,372/mt yesterday, and once climbed to $7,461/mt. Then it fluctuated downward, hitting a low at the end of the session and closing at $7,292/mt, down 2.05%. Trading volume was 17,000 lots, and open interest stood at 249,000 lots.

SHFE copper opened at 60,100 yuan/mt in overnight trading and hit a high of 60,850 yuan/mt at the beginning of the session. The contract then fell rapidly and stabilised after dropping to 60,010 yuan/mt. At last, the contract closed at 60,180 yuan/mt, down 0.23%. Trading volume was 53,000 lots, and open interest stood at 139,000 lots.

On the macro front, the expectation of aggressive interest rate hikes continued as the US Fed officials were still hawkish. The US dollar index has performed strongly recently, and it hit a new 20-year high of 114.69 yesterday. Faced with such an impact, many countries have indicated that they will pay close attention to the foreign exchange market and take intervention measures. Therefore, copper futures prices surged before falling yesterday.

In terms of fundamentals, with the arrival of both imported and domestic copper over the weekend, the social inventory of copper increased slightly. And downstream companies increased their purchases amid the sharp drop in futures prices. It is expected that the increase in inventory over the weekend will be consumed within the week, and the domestic spot supply will remain tight. At present, copper prices are still dominated by macro factors, and the prices will continue to be under pressure under the suppression of the US dollar.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,275 yuan/mt overnight and rose to 18,415 yuan/mt before closing at 18,260 yuan/mt, up 185 yuan/mt or 1.02%.

LME aluminium opened at $2,169/mt on Monday and closed at $2,134/mt, down $33/mt or 1.52%.

On the supply side, aluminium production cuts in Yunnan were in line with market expectations. On the demand side, aluminium processing companies reported that their orders continued to pick up slowly, but the pace of recovery was much slower than in previous years. As the positive effect from supply cuts in Yunnan has been priced in, the short-term aluminium prices are expected to fluctuate widely.

Lead: LME lead opened at $1,814.5/mt and fell during the Asian trading hours. LME lead hit the highest point at $1,823.5/mt during the European trading hours, but then fell to the lowest point at $1,748/mt. LME lead finally closed at $1,752/mt, down $44.5/mt or 2.48%.

The most-traded SHFE 2210 lead contract opened at 14,930 yuan/mt last night and briefly hit the highest point at 14,965 yuan/mt. Due to the decline in LME lead, SHFE lead fell and closed at 14,860 yuan/mt, down 75 yuan/mt or 0.5%.

Zinc: LME zinc closed at $2,904/mt on Monday, down $113.5/mt or 3.76%. The open interest rose 4,024 lots 196,000 lots. Overnight LME inventory fell 1,975 mt to 59,500 mt. LME zinc inventory kept falling again for several straight days, offering some support to zinc prices.

The most traded SHFE 2211 zinc contract closed at 23,825 yuan/mt last overnight, down 140 yuan/mt or 0.58%. The open interest rose 8,096 lots to 106,000 lots. Falling spot premiums in Shanghai earlier boosted market transactions to some extent, but the social inventory stopped falling with the downstream players building up the stocks. As of September 26, SMM zinc ingot social inventory added 1,300 mt from last Friday to 94,000 mt. Though spot supply was still tight, it was slightly unable to support zinc prices. And market players shall watch the downward possibilities of SHFE zinc.

Overnight: Fed officials ignored rising volatility in global markets, saying inflation was the primary concern. EU plans to delay capping Russian oil prices as member states disagree.

Tin: Overnight, SHFE tin saw a slight rally and then moved sideways. The most-traded SHFE tin contract has shifted to the 2211 contract. The domestic tin inventory under SHFE warrants declined. Trades in the spot market improved slightly. LME tin inventory stayed at a high level, and there was no obvious signs of destocking. The import window remained open. Imported tin in the spot market still enjoyed a price advantage. Given the risk aversion ahead of the National Day holiday and eased supply-demand imbalance, it is expected that the short-term tin prices will hover sideways at lows.

Nickel: On the supply side, affected by the decline in the SHFE nickel, spot premiums of pure nickel stabilised yesterday, and the shipping sentiment improved. The current supply of Indonesian NPI was relatively scarce. At the same time, under the support of the high nickel ore prices, NPI plants held firm prices, so the short-term NPI prices are unlikely to drop. SMM research showed that in the last week before the National Day holiday, the downstream restocking did not grow sharply yesterday. The arrival of various kinds of spots was normal when the market trading was relatively sluggish, putting a certain pressure on the market inventory. In terms of alloys, due to the falling futures prices, the inquiries of alloy manufacturers improved. In general, the current demand was still slack, and the nickel prices may get weaker support.

[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.]