SMM Morning Comment For SHFE Base Metals On May 21

SHANGHAI, May 21 (SMM) –

Copper

Overnight, LME copper opened at $10,986.5/mt, initially reaching a high of $10,986.5/mt and then declining to a low of $10,819/mt before closing at $10,958.5/mt, up 2.27%. The trading volume reached 36,000 lots, and the open interest was 341,000 lots. Overnight, the most-traded SHFE 2407 copper contract opened at 86,670 yuan/mt, initially dipping to 86,560 yuan/mt, then steadily rising to a high of 87,760 yuan/mt, and finally closed at 87,600 yuan/mt, up 0.99%. The trading volume reached 91,000 lots, and the open interest was 226,000 lots. On the macro front, driven by positive domestic news, market speculators have been increasing. Fundamentally, copper cathode futures prices surged rapidly, while spot market quotations showed a large discount. Due to poor orders from processing enterprises, spot transactions were sluggish. It is expected that supply excess will continue. As of May 20, SMM copper inventory in China's major regions decreased by 7,600 mt from May 16 to 402,800 mt. Total copper stocks increased by 280,100 mt YoY. As market sentiment remains bullish, copper prices are expected to run at high levels.

Aluminum

The most-traded SHFE 2407 aluminum contract opened at 20,890 yuan/mt overnight, with its high and low at 21,075 yuan/mt and 20,855 yuan/mt before closing at 21,040 yuan/mt, up 95 yuan/mt or 0.45%. LME aluminum opened at $2,621/mt in the previous trading day, with its low and high at $2,605/mt and $2,648/mt respectively before closing at $2,626.5/mt, up $5.5/mt or 0.21%.

Summary: On the macro front, the Fed's willingness to cut interest rates wavered again, domestic economic data improved, expectations for a real estate recovery strengthened, and the government is determined to boost demand. The domestic aluminum operating capacity continued to grow. Around 660,000 mt of aluminium capacity in Yunnan has been resumed, and the remaining 630,000 mt are expected to be restarted and then reach full capacity in June. The consumption is transitioning to the off-season, together with high aluminum prices inhibiting downstream purchasing willingness, resulting in the social inventory of aluminum ingots increasing from a week ago and the same period last year. In the short term, the macro fundamentals will be intertwined with bullish and bearish factors, and aluminum prices are expected to move rangebound.

Lead

Overnight, LME lead opened at $2,293/mt, continuing its upward trend throughout the day and recording six consecutive days of gains. LME lead inventory continued to decline by over 3,000 mt, together with a weakening US dollar index during the session. After LME lead rose above the $2,300/mt mark, its trading focus gradually shifted upward, reaching a peak of $2,348.5/mt, the highest since May 6, 2022. By the night session, bullish sentiment eased, and LME lead ultimately closed at $2,332/mt, up 1.28%.

Overnight, SHFE lead warrant inventory sharply decreased by nearly 10,000 mt. The most-traded SHFE 2407 lead contract opened at 18,890 yuan/mt. Boosted by the rise in LME lead, SHFE lead showed a trend of opening low and moving higher. During the first half of the trading session, SHFE lead rose to around 19,000 yuan/mt, with a tug-of-war between bulls and bears, consolidating at this level for a long time. Subsequently, driven by the rise in LME lead, SHFE lead continued to surge, reaching a high of 19,175 yuan/mt, and finally closed at 19,085 yuan/mt, up 1.38%. Its open interest reached 88,188 lots, an increase of 5,897 lots from the previous trading day.

Zinc

Overnight, LME zinc opened at $3,044/mt, dipping to $3,037.5/mt, then rising to $3,076/mt before closing at $3,135/mt, up $92/mt, an increase of 3.02%. Trading volume increased to 13,652 lots, and open interest increased by 351 lots to 241,000 lots. Overnight, LME zinc recorded a large rise, with the KDJ indicator expanding upwards. LME inventory decreased by 525 mt to 258,850 mt, a drop of 0.20%. The macro bullish sentiment remained relatively high. Despite the continuous hawkish remarks from US Fed officials, the market still anticipated an interest rate cut in September. However, overseas supply was relatively ample as LME inventory stayed at a high level, putting pressure on price upward movement. Caution is advised for a potential fall from highs.
Overnight, the most-traded SHFE 2407 zinc contract opened at 24,255 yuan/mt, hitting a high of 24,935 yuan/mt before closing at 24,805 yuan/mt, an increase of 615 yuan/mt or 2.54%. The trading volume was reduced to 183,000 lots, and the open interest increased by 11,101 lots to 133,000 lots. Overnight, SHFE zinc recorded three consecutive bullish candlesticks, breaking above the upper Bollinger Band. Market sentiment remained relatively positive, with a general rise in the non-ferrous metals sector. However, domestic inventory increased amid weak consumption. In addition, as SHFE zinc deviated too much from fundamentals, caution is advised for potential high-level profit-taking and exit, indicating limited upward momentum for SHFE zinc.

Tin

The SHFE 2406 tin contract closed at 279,850 yuan/mt in the night session yesterday, down 450 yuan/mt or 0.16%, with a high of 281,280 yuan/mt and a low of 273,160 yuan/mt.

Yesterday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 500-1,500 yuan/mt for SHFE 2406 tin contract, versus discounts of 600 yuan/mt to premium of 300 yuan/mt for delivery brands and premiums of 200-500 yuan/mt for Yunxi brand. Yesterday morning, after a significant surge in SHFE tin prices, they fell back. Trading companies showed low willingness to quote prices, and the sharp rise in tin prices at the opening inhibited downstream companies' purchasing willingness. Few deals were heard among traders. Transactions were poor yesterday.

Nickel

According to the SMM survey, some nickel ore quotas in Indonesia have been approved, but are far from meeting the capacity demand from refined nickel, high-grade nickel matte and nickel intermediate products in 2024. Additionally, nickel ores from New Caledonia and Australia cannot be supplied normally due to various reasons. Affected by nickel ore supply tightness, SHFE nickel prices have been rising continuously. On May 20, SHFE nickel prices hit a new high at 159,800 yuan/mt since September 21, 2023, once rising by 6.11%, and closed up by 4.71% at the end of the day. Although gaining less than SHFE nickel prices, LME nickel prices still reached a new high at $21,730/mt since August 4, 2023, once rising by nearly 2.00%, and up 1.92% by 15:59.