SMM Morning Comments

Category:-Metal | 29-Sep-2022 09:06 AM

LME and SHFE base metals closed mostly with gains as the US dollar was pressured with the signs of slowing economic growth. In addition, the Bank of England announced an “unlimited” temporary purchase of long-term treasury bonds with a maturity of more than 20 years to stabilise the market.

LME copper rose 2.58%, aluminium gained 1.57%, lead advanced 5.21%, and zinc added 2.11%.

SHFE copper rose 1.25%, aluminium gained 1.01%, lead advanced 0.71%, and zinc added 0.19%.

Copper: LME copper opened at $7,324/mt yesterday, and once hit the lowest and highest price of $7,285/mt and $7,485/mt respectively. At last, the contract closed at $7,479/mt, up 2.58%. Trading volume was 21,000 lots, and open interest stood at 246,000 lots.

SHFE 2211 copper opened at 61,350 yuan/mt in overnight trading and fluctuated upward to 61,120 yuan/mt after falling to a low of 60,340 yuan/mt. At last, the contract closed at 60,950 yuan/mt, up 1.25%. Trading volume was 59,000 lots, and open interest stood at 147,000 lots.

On the macro front, the unexpected moves of the US dollar aroused anxiety in the world. Following Japan's act, yesterday, the Bank of England announced an “unlimited” temporary purchase of long-term treasury bonds with a maturity of more than 20 years to stabilise the market. In addition, the US durable goods orders in August announced yesterday continued to decline for the second consecutive month, the largest drop since February, and manufacturing data in recent weeks showed that the US economic growth momentum weakened, which also brought pressure to the dollar’s rise. At present, the world has entered a battle to defend the foreign exchange market, and the wild rise of the dollar has temporarily stopped, with the US dollar index falling 1.26% overnight, and copper futures rebounded and closed up.

In terms of fundamentals, overseas positions were delivered one after another, while domestic spot supply remained relatively tight due to the restocking before the National Day holiday. The widening of the spread between the front-month and next-month contracts and the rise of premiums yesterday indicated the spot supply tightness. The current high trading activity and firm prices stimulate the market ahead of the holiday. Overall, copper prices are still on a downward trend amid the macro pressure, while domestic spot premiums are expected to remain high before the holiday.

Aluminium: The most-traded SHFE 2211 aluminium contract opened at 17,905 yuan/mt overnight and rose to 18,055 yuan/mt before closing at 18,045 yuan/mt, up 180 yuan/mt or 1.01%.

LME aluminium opened at $2,109/mt on Wednesday and closed at $2,135/mt, an increase of $33/mt or 1.57%.

On the supply side, it is rumoured that the production reduction by aluminium smelters in Yunnan will expand again. The accident at the Nord Stream pipeline will make it difficult for short-term European energy prices to drop, fuelling a new round of bullish sentiment. On the demand side, the production and sales of downstream enterprises continued to recover, but at a much slower pace than in the same period of previous years. In the short term, the market will pay attention to whether the aluminium production reduction at home and abroad will expand again, and aluminium prices are expected to fluctuate strongly.

Lead: LME lead opened at $1,757/mt overnight. As the US dollar index fell, LME lead rose sharply and closed at $1,849/mt, up $91.5/mt or 5.21%.

The most traded SHFE 2211 lead contract opened at 14,885 yuan/mt and rose to highest point at 14,990 yuan/mt. LME lead finally closed at 14,965 yuan/mt, up 105 yuan/mt or 0.71%.

Zinc: LME zinc closed at $2,916.5/mt on Wednesday, up $60/mt or 2.11%. The open interest added 1,842 lots 197,000 lots. Overnight LME inventory fell 675 mt to 53,775 mt, which dropped more slowly compared with a day ago.

The most traded SHFE 2211 zinc contract closed at 23,655 yuan/mt last overnight, up 45 yuan/mt or 0.19%. The open interest lost 2,959 lots to 110,000 lots. On the supply side, the negotiations for domestic zinc concentrate TCs are under way, and the smelters have the greater say thanks to the open import window. The TCs are expected to be raised to 4,300-4,500 yuan/mt. And the support on the supply side weakened again. Nonetheless, falling spot inventory will offer some support, but the downward risks are still worth attention.

Overnight: The Fed's Bostic backed a 125 basis point rate hike by the end of the year, saying it was unaffected by the Bank of England's emergency bond purchases. Russia is poised to annex parts of Ukraine, releasing the results of a vote it says shows support for joining Russia in four partially occupied regions. China's central bank called to the market after the bell on Wednesday that the foreign exchange market is of great importance and maintaining stability is the first priority; the RMB exchange rate has a solid foundation to maintain basic stability, and members of the self-regulatory mechanism should consciously maintain the basic stability of the foreign exchange market and resolutely restrain large fluctuations in the exchange rate. The US merchandise trade deficit narrowed for the fifth consecutive month in August as imports fell, attributed to a slowdown in domestic demand at a time when the Federal Reserve is aggressively tightening monetary policy to curb inflation.

Tin: SHFE tin moved within a narrow range overnight, closing at above 180,000 yuan/mt. With the holiday approaching, risk aversion was heating up. The domestic tin inventory under SHFE warrants declined further. Trades in the spot market weakened due to higher tin prices. LME tin inventories fell slightly, but remained at high levels. The depreciation of the RMB will erode import profits. However, imported tin still has price advantages over domestic brands. Given the limited downstream stockpiling and pre-holiday risk aversion, it is expected that tin prices will hover sideways at lows.

Nickel: On the supply side, affected by the decline in futures prices, spot premiums of pure nickel stopped falling and stabilised, improving the upstream shipments. NPI prices kept rising in September. NPI plants’ shipment volume grew amid the better demand, thus their in-plant inventories were low. On the demand side, SMM research showed that the rhythm of arrivals was normal, but the unfavourable growth of demand put some pressure on the spot inventory. As the National Day holiday is approaching, the spot prices are expected to run steadily in the short term because of the traders’ withdrawal of funds. In terms of alloys, alloy firms’ purchases of pure nickel picked up amid the falling spot prices. In general, the current supply and demand of pure nickel have picked up, and the short-term nickel prices are expected to remain rangebound.

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