SMM Morning Comments (Sep 22): Base Metals Closed Mostly with Losses amid Firm Rate Hikes in US

SHANGHAI, Sep 22 (SMM) – LME and SHFE base metals closed mostly with losses as the dollar index once set a new 20-year high of 111.63 after the Federal Reserve announced a 75 basis point rate hike in the early hours of the morning. Fed Chairman Jerome Powell said at a press conference that policymakers would be "unwavering" in pushing inflation back down from a 40-year high.

LME copper lost 0.84%, aluminium slid 2.31%, lead fell 0.99%, and zinc lost 0.8%.

SHFE copper lost 0.45%, aluminium slid 0.88%, lead added 0.13%, and zinc lost 0.53%.

Copper: LME copper opened at $7,718/mt on Wednesday, and then rose to $7,730.5/mt. At last, the contract closed at $7,659/mt, down 0.84%. Trading volume was 13,000 lots, and open interest stood at 244,000 lots.

SHFE 2210 copper contract opened at 62,290 yuan/mt overnight and rose to 62,580 yuan/mt before falling to 62,060 yuan/mt. Then it closed at 62,270 yuan/mt, down 0.45%. Trading volume was 41,000 lots, and open interest stood at 127,100 lots.

On the macro front, the dollar index once set a new 20-year high of 111.63 after the Federal Reserve announced a 75 basis point rate hike in the early hours of the morning, closing up a sharp 1.03%. Fed Chairman Jerome Powell said at a press conference that policymakers would be "unwavering" in pushing inflation back down from a 40-year high. The Fed's firm stance on rate hikes will keep the dollar high and copper futures will be under significant pressure.

In the spot market, the market players started to monitor the downstream restocking progress ahead of the National Day holiday. Meanwhile, with the gradual inflow of imported copper, the cargo holders were also willing to take profit when the prices were still high. Therefore, spot premiums have been hovering around a high level despite recent falls. The downstream, on the other hand, demanded lower premiums after the futures prices fell after the US Fed meeting. The market was still in a stalemate at present.

Aluminium: The most-traded SHFE 2210 aluminium contract opened at 18,590 yuan/mt overnight and rose to 18,645 yuan/mt before closing at 18,505 yuan/mt, down 165 yuan/mt or 0.88%.

LME aluminium opened at $2,250.5/mt on Wednesday and closed at $2,203/mt, down $52/mt or 2.31%.

The supply and demand of aluminium showed no much changes recently, while the downstream purchased mainly on rigid demand. The restocking progress ahead of the National Day holiday slowed, and the market players were mainly wait-and-see after the US Fed rate meeting. SHFE aluminium is expected to fall slightly in the near term.

Lead: LME lead opened at $1,870/mt overnight, dragged down by the expectation of interest rate hike and the high US dollar index. Prices of most metals fell. LME lead further declined and finally closed at $1,853.5/mt, down 0.99%, after hitting the lowest point at $1,834/mt.

The most traded SHFE 2210 lead contract opened at 14,925 yuan/mt overnight as the consumption increased and the inventory of lead ingots fell. At the early stage, SHFE lead prices rose to 15,025 yuan/mt, but fell to 14,950 yuan/mt due to the decline in LME lead. SHFE lead rebounded amid the expectation of consumption improvement, and finally closed at 14,985 yuan/mt, up 0.13%, with the open interest down 4,704 lots to 35,492 lots.

Zinc: LME zinc closed at $3,099/mt on Wednesday, down $25/mt or 0.8%. The open interest fell 4,318 lots 194,000 lots. Overnight LME inventory fell 2,350 mt to 67,500 mt, a drop of 3.36%.

The most traded SHFE 2210 zinc contract closed at 24,520 yuan/mt overnight, down 130 yuan/mt or 0.53%. The open interest fell 5,555 lots to 89,512 lots. On the supply side, overseas natural gas prices fluctuated again, leading to higher supply cost. On the consumption side, the downstream player awaited further price cuts before the intensive pre-holiday restocking. On the whole, SHFE zinc will be potentially contained considering the macro pressure.

Overnight, the Fed raised the interest rate for the third consecutive time by 75 basis points as Powell vowed to stand firm against inflation; Nvidia CEO said there is still a big market for its data centre chips in China; US stocks plunged as investors digested the Fed's hawkish interest rate stance.

Tin: On the fundamentals, domestic warrants inventory kept falling, and more spot cargoes were shipped with fixed prices, but the overall transactions were muted. LME inventory rose again. Overseas premiums were low as a whole, and the import window remained open. In the futures market, the market moves were insignificant, and hovered above 180,000 yuan/mt with narrow fluctuations. The shorts and longs were both cautious. To sum up, the fundamentals were relatively stable recently, and the capitals were less interest in participating in the market. Hence the futures contract is expected to remain low.

Nickel: On the supply side, pure nickel imports were still in the loss-making territory, while pure nickel inventory in China and abroad were both low. For NPI, the market was in a stalemate with poor transactions. Nickel pre prices rose slightly recently, and NPI prices were underpinned with cost support. Meanwhile, NPI plants were firm to their prices in light of stabilising stainless steel prices. On the demand side, the spot prices of stainless steel in Wuxi and Foshan were stable as a whole, and the transactions were moderate though it has not revived the terminal sector. For alloy, the market players were generally on the sidelines in light of high pure nickel spot prices. To sum up, high nickel prices were not transmitted to downstream sectors smoothly, and SHFE nickel price has deviated from the fundamentals.

[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.]