SMM Evening Comments (Jul 9): Shanghai base metals mostly rose after China inflation data

SHANGHAI, Jul 9 (SMM) – SHFE nonferrous metals, except for tin, closed higher across the board on Thursday July 9, as the market prospects for economic recovery were upbeat following the release of Chinese inflation data.

Zinc continued to lead the increases and surged 4.37%. Copper extended a rally and added 2.09%, aluminium grew 1.17%, lead climbed 2.17%, nickel edged up 0.21%, while tin posted a slight fall of 0.08%. 

The ferrous complex also traded higher on Thursday, as iron ore advanced 1.02% amid coronavirus-induced supply woes. Rebar rose 1.31%, hot-rolled coil expanded 1.25%, stainless steel edged up 0.33% and coke climbed 0.61%.

China's consumer price index (CPI), a main gauge of inflation, rose by 2.5% year on year in June, said the National Bureau of Statistics (NBS) on Thursday. The reading, in line with market expectations, expanded 0.1 percentage points than May due to higher prices of pork and vegetables. 

Meanwhile, China's producer price index (PPI), which measures costs for goods at the factory gate, fell 3% from a year earlier, lower than the expected contraction of 3.2%. 

Copper: The most-traded SHFE August contract increased for the third consecutive day, as a rise in longs sent the contract to an intraday high of 50,800 yuan/mt, before it finished the day 2.09% higher at 50,690 yuan/mt. The SHFE copper futures remained in backwardation structure, with the price spread between the August and September contracts narrowing to around 20 yuan/mt. Tonight, the August contract is seen testing pressure from 51,000 yuan/mt. 
An SMM survey showed that China’s production of copper cathode may extend its decline in July, decreasing 2.79% from June to 738,000 mt, in view of maintenance at a number smelters. Expectations of reduced supply also supported the red metal. 

Aluminium: The most-liquid SHFE August contract increased as a broad rally in base metals sapped confidence in bearish positions. The contract advanced to a session high of 14,315 yuan/mt and closed up 1.71% on the day at 14,290 yuan/mt. Open interest lost 2,118 lots to 162,222 lots as investors cut their short positions. With fundamental support amid lower inventories, the contract will likely remain strong tonight. 

Zinc: The most-active SHFE August contract continued to trade robustly on Thursday, driven by buying enthusiasm among investors. It climbed to an intraday high of 17,650 yuan/mt, the highest level in almost five months, and finished 4.37% higher on the day at 17,540 yuan/mt. Bullish sentiment on the macroeconomic front outweighed weakness in zinc fundamentals in the short to medium term. 

Nickel: The most-traded SHFE October contract bounced back after loaded-up shorts weighed it to a session low of 106,040 yuan/mt before noon. A buildup of long lifted the contract, which finished the day 0.21% higher at 107,630 yuan/mt. Open interest continued to increase, by 7,464 lots on Thursday to 145,081 lots. The contract may track its LME counterpart and test the 108,000 yuan/mt level tonight. 

Lead: The most-active SHFE August contract rose to an intraday high of 14,145 yuan/mt in the afternoon following a rally in the stock market. The contract has climbed above the five-day moving average, ending the day 2.17% higher on the day at 15,075 yuan/mt. Pressure above was seen from 15,180 yuan/mt. SMM expects optimism from longs to keep the contract at high levels tonight. 

Tin: The most-liquid SHFE September contract rebounded after declined to a session low of 139,700 yuan/mt, closing the day slightly lower at 140,880 yuan/mt. With support from the 10-day moving average, the contract is seen facing pressure from 142,000 yuan/mt.