SMM Evening Comments (May 5): Shanghai Nonferrous Metals Closed Mostly with Losses amid Expanding US Regional Banking Crisis

SHANGHAI, May 5 (SMM) - Shanghai nonferrous metals closed mostly with losses in day trading. 

On the macro front, the euro weakened slightly as the European Central Bank (ECB) raised interest rates by 25 basis points as expected. The ECB also indicated that inflation has generally declined in recent months, but underlying price pressures remain strong. The US dollar moved rangebound with occasional falls as the regional banking crisis in the US continued to expand.

SHFE copper closed down 0.27%, aluminium dipped 0.68%, lead lost 0.13%, zinc grew 0.64%, tin dropped 0.42%, and nickel crashed 2.07%.

Copper: SHFE 2306 copper closed down 180 yuan/mt or 0.27% at 66,810 yuan/mt. The open interest grew 4,760 lots to 183,407 lots.

The futures prices hovered at lows, boosting downstream purchases. The supply of hydro-copper and non-registered goods was tight, and thus the holders raised their quotes. Spot copper premiums were on the rise after the Labour Day holiday as the inventory in Shanghai dropped greatly during this period. The spread between the front-month and next-month moved between 100-120 yuan/mt in the backwardation structure. SMM expects that the spots will still be traded at premiums of 50-100 yuan/mt next week.

Aluminium: SHFE 2306 aluminium dipped 125 yuan/mt or 0.68% to 18,320 yuan/mt, with open interest falling 6,917 lots to 204,708 lots.

Shortly after the Fed announced its interest rate decision, the US banking crisis has escalated again. Last night, the European Central Bank’s interest rate hike slowed down as expected, restoring market confidence. However, European Central Bank President Christine Lagarde made it clear that the ECB will not suspend interest rate hikes, thus the uncertainty of interest rate hikes still exists, keeping the market risk aversion strong.

On fundamentals, the domestic aluminium supply maintained a slight growth trend, and the cost of the industry has dropped significantly, which will deprive aluminium prices of cost support. An increasing amount of molten aluminium has been made into billets rather than ingots, driving the social inventory of aluminium ingots to keep falling. The current downstream operating rates diverge from the inventory data. If the end demand is still lower than expected in the future, aluminium billet inventory may grow, which will drive smelters to produce more ingots instead of billets. As it takes time for weak consumption to be reflected in inventory, aluminium ingot inventory may remain low and continue to drop in May, thus giving some support to aluminium prices. To sum up, SMM predicts that aluminium prices will come under downward pressure, but low inventory may limit the downside room.

Lead: SHFE 2306 lead lost 20 yuan/mt or 0.13% to 15,345 yuan/mt. The open interest decreased 3,480 lots to 62,478 lots.

SHFE lead declined after growing today. This, coupled with the increase in market supply, forced many smelters to quote the spots picked up at factories at huge discounts. Spot supply in Jiangsu, Zhejiang and Shanghai markets stood low, and thus the holders quoted their cargo at small premiums. However, the downstream enterprises purchased on rigid demand and preferred low-priced sources. The spot lead trades remained slack today. The most-traded SHFE lead contract will move rangebound in the short term on a stable macro front.

Zinc: SHFE 2306 zinc grew 135 yuan/mt or 0.64% to 21,285 yuan/mt. The open interest gained 1,689 lots to 120,013 lots.

Approaching the delivery of the SHFE 2305 zinc, some traders quoted their spots at premiums of around 260 yuan/mt against the 2306 contract. The market barely saw successful trades at high prices. Downstream enterprises were not willing to purchase amid the rising premiums. The transactions were mainly made among traders. The traders were cautious in shipments amid low inventory, and the overall premiums remained firm.

Tin: SHFE 2306 tin dropped 890 yuan/mt or 0.42% to 208,830 yuan/mt. The open interest rose 6,934 lots to 54,724 lots.

Nickel: SHFE 2306 nickel crashed 3,870 yuan/mt or 2.07% to 183,260 yuan/mt. The open interest rose 1,947 lots to 70,650 lots.

On May 5, premiums of Jinchuan nickel were 8,500-9,000 yuan/mt. The average premium stood at 8,750 yuan/mt, down 50 yuan/mt from the previous trading day. NORNICKEL nickel was quoted at premiums of 7,000-7,500 yuan/mt, with an average of 7,250 yuan/mt, down 500 yuan/mt from a day ago. Under the interest rate hikes, the risk of economic recession still existed, hence the SHFE nickel prices remained low under the pressure. Nickel briquette prices were 188,100-188,600 yuan/mt, a decrease of 6,300 yuan/mt from a day ago. The transactions of nickel briquette were slack as it was still traded at premiums over nickel sulphate.

[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.]