SMM Morning Comments

Category:-Metal | 02-Aug-2022 08:48 AM

LME and SHFE base metals closed mostly with losses because following the previously poor US GDP data, the manufacturing PMI, ISM new orders index, and monthly rate of construction expenditure of the US in July, which were released on Monday, all declined.

LME copper dropped 1.57%, aluminium lost 1.31%, lead rose 1.15%, and zinc slid 0.4%.

SHFE copper dropped 0.51%, aluminium lost 0.03%, lead fell 0.16%, and zinc inched up 0.22%.

Copper: LME copper opened at $7,932/mt yesterday and kept dropping after hitting a high of $7,970/mt. At last, the contract closed at $7,800/mt, down 1.57%. Trading volume was 15,000 lots, and open interest stood at 232,000 lots.

SHFE 2209 copper contract opened at 61,020 yuan/mt in overnight trading and rose to the daily moving average at the end of the session after falling to 60,120 yuan/mt. At last, the contract closed at 60,530 yuan/mt, down 0.51%. Trading volume was 68,500 lots, and open interest stood at 159,000 lots.

On the macro front, following the previously poor US GDP data, the manufacturing PMI, ISM new orders index, and monthly rate of construction expenditure of the US in July, which were released on Monday, also declined. Weak economic data threw cold water on the market's expectation that the US would continue to increase the interest rates, and at the same time aggravated the market's worries about the economic recession and weak demand. Yesterday, the US dollar index closed down, with crude oil dropping by more than 4%, and copper futures rose and then fell.

In the spot market, on the first trading day of August, the imported goods did not flow into the domestic market at the weekend as expected, arousing firm prices amid the low inventory. The high premiums and high futures prices suppressed the buying interest, thus the overall quotes fell from high. Meanwhile, the backwardation structure of around 400 yuan/mt of the near-month contracts also restricted the buying. The premiums in the future market will drop further under pressure.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,190 yuan/mt Monday night session and rose to 18,240 yuan/mt before closing at 18,210 yuan/mt, down 5 yuan/mt or 0.03%.

LME aluminium opened at $2,481.5/mt on Monday and closed at $2,450/mt, a drop of $32.5/mt or 1.31%.

On the supply side, domestic aluminium smelters in south-west China suffered losses, and some in Sichuan reduced the production due to staggered power use. Therefore, domestic aluminium operating capacity is likely to rise only slightly in July. On the demand side, the seasonal low has not yet ended, evidenced by few new orders. SMM social ingot inventory totaled 678,000 mt as of Monday, up 7,000 mt from last Thursday. The short-term bullish macro factors offered some support to aluminium prices, while the sustainability will be subject to the fundamentals.

Lead: LME lead opened at $2,035.5/mt overnight as the US dollar index fell. During the Asian trading hours, LME lead remained at $2,020/mt, dragged by the decline in SHFE lead. During the European trading hours, the US dollar index recorded a new low and LME lead inventory fell by 625 mt. Therefore, LME lead rose to the highest point of $2,065/mt and closed at $2,060/mt, up 1.15%.

The most-traded SHFE 2209 lead contract opened at 15,315 yuan/mt overnight and rose sharply in the early stage. However, due to the high premiums of spots and expanded price difference between spots and futures, deliveries are expected to increase and SHFE lead fell to the lowest point at 15,200 yuan/mt. SHFE lead finally closed at 15,210 yuan/mt, down 0.16%, with open interest increasing 3,529 lots to 57,829 lots.

Zinc: LME zinc closed at $3,353/mt on Monday, down $13.5/mt or 0.4%. The open interest remained flat. Overnight LME inventory dropped 775 mt to 69,725 mt, which dropped further.

The most traded SHFE 2209 zinc contract closed at 24,065 yuan/mt overnight, up 5 yuan/mt or 0.02%. The open interest rose 519 lots to 118,000 lots. On the supply side, the smelters in Inner Mongolia, Shaanxi and Sichuan gradually resumed normal production with the supplement of imported zinc. And the focus now has changed to the profit situation of smelters when sulphuric acid prices keep falling. The demand side was lacklustre, though the galvanizing operating rates rose slightly. The traders shipped actively for fear of further expanding SHFE front-month and next-month contract, but the overall transactions were still limited.

Overnight, China's central bank: to maintain stable and moderate growth in money and credit, keep real estate credit, bonds and other financing channels stable, and implement a differentiated housing credit policy based on city policies. Ministry of Industry and Information Technology, together with two other departments, issued a carbon peaking action plan for the industrial sector: to promote the electrification of industrial energy and accelerate the construction of green micro grid. Media said U.S. House Speaker Pelosi may still visit Taiwan; the China Foreign Ministry warned: China is standing by. The U.S. and eurozone manufacturing PMI in July both hit a two-year low, and German retail sales in June recorded the biggest drop in nearly three decades.

Tin: On the fundamentals, domestic warrants inventory rose palpably amid rising spot tin prices and poor sales; LME inventory rose steadily with Asia contributing most of the growth. The import window closed again, resulting in less customs clearance volume. In terms of futures moves, the most-traded SHFE tin contract moved narrowly around 200,000 yuan/mt. The contract lacked momentum as the longs left the market. To sum up, the weak downstream demand weighed on tin prices, while the supply is on track for a growth as the smelters will resume the production soon.

Nickel: On the supply side, the profit margin of pure nickel imports expanded amid the high SHFE nickel prices, but the customs clearance was less than expected. In summer, the mainstream Chinese refined nickel manufacturers still maintain the normal production. Besides, the Indonesian NPI keeps flowing into China, and the overall supply in domestic and foreign NPI markets is far higher than the demand, arousing a bearish outlook on the NPI prices. On the demand side, in the spot market, according to the SMM research, the spot prices stopped falling and stabilised, but the transactions remained slack. In terms of alloy, the demand for pure nickel weakened due to the continuous increase in the absolute spot price. To sum up, the demand for pure nickel remained weak, but the low inventory in Chinese and foreign markets supported nickel prices to a certain extent.

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