SMM Morning Comments (Jul 15): Shanghai base metals were mixed as traders digested inflation data, Fed comments

SHANGHAI, Jul 15 (SMM) — Shanghai base metals traded mixed on Thursday morning as traders reacted to hotter-than-expected US and UK inflation figures and comments from Fed Chairman Jerome Powell. Meanwhile, their counterparts on the LME fell for the most part.

Shanghai base metals closed mixed in overnight trading. Copper slid 0.68%, zinc declined 0.21% and nickel weakened 0.55%, while lead climbed 0.42%, tin rose 0.11% and aluminium increased 0.31%.

The LME complex ended mostly lower on Wednesday. Zinc went down 0.72%, copper fell 0.71%, lead weakened 0.5%, aluminium dropped 0.83% and nickel slid 0.75%, while tin rose 0.73%.

Copper: Three-month LME copper fell 0.71% to end at $9,334.5/mt on Wednesday, and is likely to trade between $9,300-9,380/mt today.

The most-active SHFE 2108 copper contract went down 0.68% to close at 68,200 yuan/mt in overnight trading, and it is expected to move between 68,000-68,500 yuan/mt today, while spot discounts will be seen at 220–280 yuan/mt.

Due to the increase of refined oil inventories in the US and the possibility of OPEC+ reaching an agreement to increase production, US oil experienced the biggest decline in May, which was negative for copper futures. In addition, the PPI data released overnight in June in the US greatly exceeded expectations, and inflation worries caused copper futures to fall. However, Federal Reserve Chairman Powell dispelled people's expectation that the Fed would soon reduce the size of its asset purchases, and reiterated that any inflation surge could be eased. Powell's speech in Congress eased investors' concerns about the reduction and easing measures in the US, and the decline of copper futures at night was limited.

Aluminium: Three-month LME aluminium fell 0.36% to close at $2,517/mt on Wednesday. It is expected that the contract will trade between $2,480-2,550/mt today. 

The most-liquid SHFE 2108 aluminium contract rose 0.31% to settle at 19,320 yuan/mt on Wednesday night. It is expected that the contract will trade between 19,100-19,500/mt today.

The global liquidity situation has not changed. On fundamentals, many places in China have implemented off-peak power consumption, and the resumption of production of aluminium in Yunnan has been delayed. Aluminium in Henan and Inner Mongolia has been limited slightly. On the one hand, there are more interference from the supply side, and on the other hand, power curtailment has also inhibited the downstream aluminium processing enterprises, which is generally characterized by weak supply and demand. The impact of today's social inventory changes on market sentiment will continue to be monitored.

Zinc: Three-month LME zinc fell 0.72% to close at $2,916/mt on Wednesday. Zinc stocks at LME-listed warehouses fell 450 mt to 249,125 mt. The largest year-on-year increase in PPI in the US in June in the past 10 and a half years indicates that with the pressure on the supply chain brought by the strong demand driven by the recovery of the US economy from the new pandemic, inflation may remain at a high level, and the market worries about inflation heat up. However, Federal Reserve Chairman Powell said that the central bank will keep the existing loose monetary policy unchanged, which is expected to ease market worries. The contract is likely to trade between $2,900-2,950/mt today.

The most-liquid SHFE 2108 zinc contract fell 0.21% to end at 21,830 yuan/mt in overnight trading. Overseas worries dragged down SHFE zinc. On fundamentals, despite the recent disturbance of power curtailment and peak production of smelters in Yunnan, the overall impact was limited, and the pattern of increasing supply and decreasing demand remained unchanged. Macro guidelines will be monitored in the near term. The SHFE zinc contract is expected to move between 21,700-22,200 yuan/mt today, while spot premiums for domestic 0# Shuangyan will be 160-180 yuan/mt.

Nickel: The most-active SHFE 2108 nickel contract fell 0.55% to close at 138,430 yuan/mt on Wednesday. The emotional fermentation of limited production of stainless steel and the impact of sharply reduced production of raw material Ulanqab ferrochrome due to power curtailment reached a new high of 17,995 yuan/mt. The strong downstream stainless steel market has helped to stabilise the high nickel prices, but the nickel prices still need to wait for new stimulus. It may still fluctuate widely at a high level today.

Lead: Three-month LME lead settled 0.5% lower at $2,297/mt on Wednesday. Whether the contract could stand firm above 10-day moving average will be monitored today.

The most-active SHFE 2108 lead contract went up 0.06% to close at 15,660 yuan/mt on Wednesday night. Today is the July contract delivery date, and the spot market is actively handing over positions. Expectation for accumulated stocks continues. The contract will test support from 15,600 yuan/mt today.

Tin: Three-month LME tin closed up 0.73% at $32,620/mt on Wednesday.

The most-liquid SHFE 2108 tin contract rose 0.11% to close at 220,350 yuan/mt on Wednesday night. The contract is expected to fluctuate between 219,000-222,000 yuan/mt.