SMM Morning Comment For SHFE Base Metals July 27

SHANGHAI, Jul 27 (SMM) –

Copper

LME copper closed at $8,604/mt in overnight trading, a drop of 0.65%. Trading volume was 13,000 lots and open interest stood at 274,000 lots. The most active SHFE 2309 copper contract finished at 69,070 yuan/mt overnight, down 0.16%. Trading volume was 24,000 lots, and open at 187,000 lots. On the macro front, the Federal Reserve raised interest rates by 25 basis points as scheduled, and Powell said at a subsequent press conference that inflation in the United States remained high. The hike raised the target range for the benchmark overnight rate to 5.25-5.50%, and the accompanying policy statement left the door open for another hike. Most of the downstream buyers stood on the sidelines, and the overall transaction was quiet. Downstream buyers are expected to purchase as needed in the near term due to market caution.

Aluminum

The most-traded SHFE 2309 aluminium contract opened at 18,295 yuan/mt overnight, with the lowest and highest prices at 18,270 yuan/mt and 18,335 yuan/mt before closing at 18,300 yuan/mt, down 55 yuan/mt or 0.3%. LME aluminium opened at $2,238/mt on Wednesday, with its high and low at $2,240/mt and $2,206/mt respectively before closing at $2,208/mt, a decrease of $28.5/mt or 1.27%.

On the macro level, the Fed raised interest rates as expected. Domestic stimulus policies may be more frequent in H2 2023. In terms of fundamentals, the resumption of aluminium production in Yunnan is speeding up, and it is expected that some large smelters in the region will be able to produce at full capacity by the end of August, potentially fueling the total domestic operating capacity to a record high. At present, the amount of resumed production is mainly liquid aluminum, and there is no large aluminum ingot oversupply pressure. In terms of consumption, domestic downstream demand is in the off-season. So far, the domestic aluminium ingot inventory accumulation is lower than expected. The low inventory in the off-season may give support to aluminium prices. SHFE aluminium may move range bound in the short term.

Lead

On Wednesday, LME lead opened at $2173.5/mt and fell to $2139/mt before finally closing at $2145/mt, down $31.5/mt, or 1.45%.

Overnight, the most-traded SHFE lead contract opened at 15,970 yuan/mt and hit a session low of 15,895 yuan/mt, and finally closed at 15,905 yuan/mt, down 80 yuan/mt, or 0.5%.

On the macro level, the Federal Reserve resumed raising interest rates in July, raising the benchmark interest rate by 25 basis points. The supply of circulating goods in the spot market is not sufficient. SHFE lead warrants have increased, but are still low. Downstream transaction situation was poor. Some battery companies consider delaying production through holidays to cope with the high lead price. However, the third quarter is the peak season for traditional lead consumption. At present, the total open interest of SHFE lead has decreased by 2,758 lots to 170,000 lots, which is still at a historical high. It is expected that the lead price will have limited downside room.

Zinc

Overnight, the Federal Reserve announced that it would raise the policy rate target range by 25 basis points to 5.25%-5.50%. Fed Chairman Powell said that the economy still needs to slow down and the labor market needs to be weak before the inflation rate can "credibly" return to the Fed's 2% goal. Chinese Foreign Minister Wang Yi expressed willingness to strengthen strategic cooperation with Turkey. U.S. Treasury Department officials said they would take "targeted" actions against China, but emphasized that it was not decoupling. New U.S. single-family home sales slipped in June after three straight months of gains, but the trend remained strong as a severe shortage of existing homes underpinned demand.

Overnight, LME zinc closed at $2,470/mt, down $23/mt or 0.92%. The trading volume was 8,036 lots, and open interest added 45 lots to 200,000 lots.  U.S. home sales data continued to testify to the resilience of the economy. The Federal Reserve announced that it would raise interest rates and leave room for further interest rate hikes in the future. The price of non-ferrous metals rose sharply, and the range of decline of non-ferrous metals was also narrow.

Overnight, the most active SHFE 2309 zinc contract close at 20,625 yuan/mt, up 65 yuan/mt or 0.32%. Trading volume stood at 65,000 lots, and open interest gained by 657 lots to 130,000 lots.   Prices may fall on weak consumption and ample supply.

Tin

SHFE 2308 tin contract price rose sharply after the opening to 238,100 yuan/mt and then declined slightly. After that, it maintained a sideways trend before closing up 1.07% at 236,210 yuan/mt.

Nickel

SHFE 2308 nickel contract opened at 171,470 yuan/mt overnight, and closed at 172,990 yuan/mt, up 2,060 yuan/mt. Trading volume fell by 19,146 lots, and open interest decreased by 14,143 lots.

From a macro point of view, due to the intensifying conflict between Russia and Ukraine, domestic stimulus policies, and the rising Chinese yuan, nickel prices went up. In terms of fundamentals, according to SMM research, spot nickel prices were too high, even after spot premiums were lowered. The downstream trade sentiment is low and some downstream plants still have nickel plate inventory, so the spot market turnover was weak yesterday. To sum up, the current market is intertwined with positive and negative factors. It is expected that the subsequent nickel price may show a volatile trend.