SMM Morning Comments (Jun 22): Base Metals Closed Mostly In the Positive Zone with Contracting US Dollar

SHANGHAI, Jun 22 (SMM) – SHFE and LME base metals closed mostly in the positive zone, as the US dollar index dropped amid strong euro and poor U.S. home sales that fell to a low in nearly two years.

LME copper rose 0.38%, aluminium gained 0.62%, lead fell 1.72%, and zinc added 0.63%.

SHFE copper rose 0.69%, aluminium gained 0.71%, lead notched up 0.03%, and zinc added 1.56%.

Copper: LME copper opened at $8,985/mt yesterday and rose to $9,062/mt before closing at $8,965/mt, up 0.38%. Trading volume was 13,000 lots, and open interest stood at 227,000 lots.

SHFE 2208 copper contract opened at 68,320 yuan/mt in overnight trading and hovered around the daily moving average. The contract once rose to 68,760 yuan/mt after falling to 68,230 yuan/mt. At last, the contract closed at 68,350 yuan/mt, up 0.69%. Trading volume was 24,000 lots, and open interest stood at 111,000 lots.

On the macro front, the annual rate of US second-hand house sales in May fell for the fourth consecutive month, falling to a low in nearly two years. The US dollar index dropped amid strong euro and poor U.S. home sales. The Richmond Fed governor said that in the US inflation rate remains high, extensive and lasting, and the Fed should raise interest rates as fast as possible without hurting the financial markets or the economy. The macro atmosphere is still cautious.

In the spot market, goods holders were firm to their prices before the ending of the monthly long-term orders. However, standard-quality copper and hydro-copper faced challenges from the inflow of non-registered brands overseas that are favoured by the downstream. Some goods holders may sell off to gain cash with financial pressure and invoice issues in the second half of the year.

LME copper will trade between $8,870-8,970/mt today; SHFE copper prices are expected to move between 67,700-68,300 yuan/mt. Spot premiums are likely to fluctuate between 190-290 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,740 yuan/mt overnight, with its low and high at 19,740 yuan/mt and 19,955 yuan/mt before closing at 19,855 yuan/mt, up 140 yuan/mt or 0.71%.

LME aluminium opened at $2,515/mt on Tuesday and closed at $2,530/mt, an increase of $15.5/mt or 0.62%.

On the supply side, the operating aluminium capacity is expected to reach a high of 40.8 million mt, with new capacities commissioning and existing capacities resuming the production in Gansu and Guangxi. The demand side is in the past-pandemic recovery session, and domestic social inventory keeps de-stocking. SMM believes that aluminium prices may stabilise after rebounding amid recovering macro sentiment and falling aluminium inventory, but may be pressured by the supply side as well as the sluggish real estate sector.

Lead: Futures: LME lead opened at $2,090.5/mt and declined by 1.72% to $2,062/mt overnight. During the Asian trading hours, LME lead stabled at $2,095/mt amid the poor transactions while during the European trading hours, LME lead rebounded to $2,100/mt as the US dollar declined. But due to the weak fundamentals and the slight increase of LME lead inventories, LME lead still declined.

The most traded SHFE 2207 lead contract opened at 15,110 yuan/mt overnight. As the longs decreased positions intensively, the SHFE lead dropped to 15,080 yuan/mt. In the later stage, the longs increased position and SHFE lead rebounded quickly, but the positive news of tight supply came out and SHFE lead fell again to 15,080 yuan/mt and finally closed at 15,155 yuan/mt, up 0.03%, after the bears left. The open interest declined by 3,419 lots from yesterday to 35,195 lots.

In the lead spot market yesterday, the primary lead supply was relatively tight and the smelters were more willing to ship and the retail quotations were in discounts of 200-0 yuan/mt over the SMM 1# lead average price as the lead prices rose to 15,000 yuan/mt. In mainstream trade markets such as Jiangsu, Zhejiang and Shanghai, the mainstream quotation of domestic lead maintained a discount of 60-0 yuan/mt over the SHFE lead 2207 contract. In terms of secondary lead, the smelters were active about shipment and the secondary refined lead was shipped in discounts of 250-150 yuan/mt over SMM 1# lead average price. Lead futures rose significantly and cargo holder also raised their quotations while some discounts expanded from yesterday. The smelters also shipped in expanded discounts, but the inquiries and retail transactions were poor amid the downstream wait-and-see sentiment.

Zinc: LME zinc closed at $3,595/mt on Tuesday, up $22.5/mt or 0.63%. The open interest stood at 202,000 lots. LME zinc is expected to move between $3,580-3,630/mt today. Overnight LME inventory fell 875 mt to 78,550 mt.

The most traded SHFE 2207 zinc contract closed at 25,760 yuan/mt last night, up 395 yuan/mt or 1.56% overnight. The open interest added 311 lots to 79,811 lots. SHFE zinc is expected to move between 25,500-26,000 yuan/mt, and domestic Shuangyan zinc in premiums of 80 yuan/mt over the most-trade SHFE contract. On the supply side, ore supply was still relatively tight, keeping TCs at a relatively low level. On the supply side, power supply in some places in Guangxi was affected by frequent rainstorms in south-west China, which may disrupt the normal operations of some smelters in the region. On the consumption side, market outlook is still optimistic with policy support. The spot market was relatively quiet recently as the downstream has basically completed their restocking.

Overnight, Li Keqiang stressed during his visit to Hebei that the government will carry the responsibility of guaranteeing food and energy security and provide solid support to stabilise the economy and the prices. Bridgewater Fund Dalio: the Fed's cost of curbing inflation will be very high and the current policy will take the US to the path of stagflation. Russia overtook Saudi Arabia as China's largest crude oil supplier, with imports up 55% year-on-year in May.

Tin: Overnight SHFE tin fluctuated at a low level, and capitals intensively withdrew from the most-traded contracts. On the fundamentals, domestic warrants inventory and overseas LME inventory saw steady changes, and imported refined tin circulating in the market stood low with large discounts. The import window closed. To sum up, as the market react sleepily to extensive smelters’ maintenance, the contract is likely to stay rangebound before substantial de-stocking occurs.

Nickel: The SHFE most traded 2207 nickel contract went down slightly last night. Nickel futures opened at 198,100 yuan/mt overnight, and closed at 200,970 yuan/mt, an increase of 560 yuan/mt, or 0.28%, from the settlement price of the previous trading day. Trading volume was 37,800 lots, and open interest decreased by 7,725 lots to 50,600 lots. Nickel prices dropped as the expectation of the US Fed to raise interest rates still affected the non-ferrous metals market. In terms of fundamentals, the supply of nickel sulphate raw material and NPI was loose, but the demand of downstream and terminal was still weak. As the procurement increased significantly, the pure nickel spot supply was still in shortage, but the situation is expected to ease early next week. At present, the pure nickel supply and demand changed little and the nickel prices are expected to fall slightly in the short term amid the negative effect of macro factors.

[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.]