SMM Morning Comments

Category:-Metal | 03-Aug-2022 09:59 AM

LME and SHFE base metals closed mostly with losses amid overnight geopolitical tensions, which rattled the nerves of investors who watched the progress of the event closely.

LME copper dropped 0.58%, aluminium lost 1.47%, lead fell 0.78%, and zinc slid 2.54%.

SHFE copper dropped 0.37%, aluminium gained 2.06%, lead fell 0.72%, and zinc slid 1.44%.

Copper: LME copper opened at $7,772.5/mt yesterday, and once fell to below the daily moving average after reaching $7,887/mt. At last, the contract closed at $7,755/mt, down 0.58%. Trading volume was 16,000 lots, and open interest stood at 234,000 lots.

The most-traded SHFE 2209 copper contract opened at 60,450 yuan/mt in overnight trading and stabilised at around the daily moving average after dropping to 59,510 yuan/mt. At last, the contract closed at 60,030 yuan/mt, down 0.37%. Trading volume was 96,000 lots, and open interest stood at 152,000 lots.

On the macro front, the US Fed policymakers said on Tuesday that they and their colleagues remained steadfast and united in their efforts to raise the interest rates to a level that could more obviously curb economic activities and lower the inflation rate from the highest level since the 1980s. Fed officials' remarks caused the US dollar index to rebound, and copper futures fell under pressure yesterday.

In the spot market, premiums in the Shanghai market plummeted yesterday, mainly due to the inflow of imported goods and the dumping of goods by some cargo holders.  On the second trading day of August, the gradual inflow of imported goods at the weekend aroused panic in the market, hence the premiums plunged. Besides, at present, the backwardation structure of around 400 yuan/mt restricts market buying. Whether the premiums will stand at 200 yuan/mt depends on the completion of domestic smelters’ maintenance and the inflow of imported goods.

Aluminium: The most-traded SHFE 2209 aluminium contract opened at 18,070 yuan/mt overnight and rose to 18,260 yuan/mt before closing at 18,165 yuan/mt, up 95 yuan/mt or 2.06%.

LME aluminium opened at $2,445.5/mt on Tuesday and closed at $2,414/mt, down $36/mt or 1.47%.

On the supply side, the domestic operating aluminium capacity is still at a relatively high level, and there are no expectations for production reduction. There are few new orders in downstream sectors in the off-season. Poor consumption caused aluminium ingot social inventory to accumulate. On the whole, the current macro environment is still bearish. Aluminium supply remains in a surplus. As such, aluminium prices are expected to remain under pressure.

Lead: LME lead opened at $2,051.5/mt overnight and continued to increase amid the tight energy supply in Europe. As the US dollar index fell, LME lead rose further. However, due to the tense geopolitical situation, LME lead once fell to $2,029.5/mt. LME lead finally closed at $2,044/mt, down 0.78%.

The most traded SHFE 2209 lead contract opened at 15,160 yuan/mt and fell rapidly to 15,135 yuan/mt amid the slight increase of SHFE inventory and the tense geopolitical situation. As the controversial visit was kicked off without military conflict, the market sentiment eased and SHFE lead finally closed at 15,140 yuan/mt, down 0.72%. The open interest decreased 947 lots to 57,811 lots.

Zinc: LME zinc closed at $3,282/mt on Tuesday, down $85.5/mt or 2.54%. The open interest fell 275 lots to 199,000 lots. Overnight LME inventory dropped 1,675 mt to 68,050 mt, with the decrease contributed by warehouses in Singapore. The risk appetite weakened amid geopolitical tensions, interfering with the non-ferrous production transactions.

The most traded SHFE 2209 zinc contract closed at 23,570 yuan/mt overnight, down 345 yuan/mt or 1.44%. The open interest fell 2,710 lots to 115,000 lots. On the supply side, output on the smelting end returned to normal, and the ore supply is no longer the issue constraining smelting activities with the inflow of imported ore. On the demand side, the operating rates of galvanizing plants rose slightly, but the overall recovery on the consumption side still awaits verification. In the spot market, the transactions contracted amid high premiums and zinc prices. And investors are advised to stay on the sidelines amid on-going geopolitical tensions.

Tin: The most-traded SHFE tin contract moved within a narrow range after falling back overnight. Longs and shorts continued to exit the market amid intensified wait-and-see sentiment. Domestic tin inventory under warrants increased, despite improved sales in the spot market. LME tin inventories continued to rise. Trades in the spot market picked up after tin prices fell back. The import profit window was slightly opened. There were limited quotations for imported tin in the spot market. With an expected increase in supply, it is expected that SHFE tin will continue to fluctuate rangebound.

Nickel: On the supply side, the import profits of pure nickel narrowed, and the premiums maintained a downward trend. In the intraday trading, NPI transactions were slack, and the SS contract rebounded, narrowing the steel mills’ losses to a certain extent. On the demand side, according to the SMM research, stainless steel spot prices in the Wuxi market stabilised, but these in the Foshan market rose. Although the profits of the steel mill have been narrowed, the demand has not been fully reflected in the terminals. In terms of alloy, pure nickel prices remained high, and the terminal companies held a strong wait-and-see sentiment. To sum up, the demand for pure nickel remained weak, but the low inventory supported nickel prices to a certain extent.

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