SMM Morning Comment For SHFE Base Metals On May 27

SHANGHAI, May 27 (SMM) –

Copper

Last Friday evening, LME copper opened at $10,382/mt, hitting a session low of $10,316.5/mt before closing at $10,334/mt, a decrease of 0.24%. Trading volume reached 16,000 lots, and open interest was 348,000 lots. Last Friday evening, the most-traded SHFE copper contract opened at ¥83,750/mt. It initially rose to ¥84,170/mt before fluctuating widely, then declined to a session low of ¥83,450/mt before consolidating and closing at ¥83,490/mt, a decrease of 0.44%. Trading volume reached 50,000 lots, and open interest was 208,000 lots. On the macro front, US Fed Governor Waller indicated that factors driving down the neutral rate might reverse. If US fiscal supply starts to exceed demand, it will put upward pressure on the neutral rate. Concerns over maintaining high rates caused copper prices to drop slightly. On the fundamentals side, supply remains ample, with copper stocks in major domestic regions staying high. On the demand side, copper prices holding above ¥83,000/mt inhibited downstream purchasing sentiment, making a significant recovery in demand unlikely. Notably, due to copper prices hitting historical highs, some market participants reported that Grupo Mexico's mining company Asarco plans to resume operations at its idled copper smelters in the US. Overall, high interest rates combined with weak demand are putting pressure on copper prices.

Aluminum

On last Friday night, the most-traded SHFE 2407 aluminum contract opened at 20,975 yuan/mt, reaching a high of 21,085 yuan/mt and a low of 20,930 yuan/mt, and closed at 21,015 yuan/mt, up 125 yuan/mt or 0.6%. The previous trading day, LME aluminum opened at $2,608.5/mt, reached a high of $2,675/mt and a low of $2,603/mt, and closed at $2,658/mt, up $36.5/mt or 1.39%.

Summary: On the macro front, the final consumer confidence index for May improved compared to the initial value but still significantly declined from April, hitting a six-month low. With the latest statement from US Fed Governor Waller, hopes for a rate cut have diminished again. The China-Japan-South Korea leaders' meeting resumed after four and a half years, and many provinces and cities in China implemented new real estate policies, boosting expectations for a recovery in the property market. On the fundamentals, the operating capacity of domestic aluminium continued to rise during the week, with good progress in production resumption in Yunnan, which may be completed in June, gradually highlighting supply pressure. Social inventory of aluminum ingot increased last week, with high aluminium prices inhibiting inventory consumption, and LME aluminium inventory also maintained an overall upward trend. Alumina spot prices continued to rise during the week, with domestic aluminium costs continuing to climb, and the import window remained closed, potentially providing some support for aluminium prices. However, from the demand, aluminium prices hit a new high for the year last week, with strong volatility inhibiting downstream procurement enthusiasm, leading to a decrease in orders and operating rates for aluminium processing enterprises. Additionally, as it is currently the transition period between peak and off-peak seasons, many sectors are seeing slight declines in orders, and the overall operating rate is expected to weaken steadily. SMM expects aluminium prices to hover around the current level.

Lead

Last Friday, LME lead opened at $2,300/mt. Entering the European session, it fell to a low of $2,275/mt, then rebounded to a high of $2,305/mt, supported by a weaker US dollar index, and closed at this level, up $9.5/mt or 0.41%. Due to the UK Spring Bank Holiday, LME lead was closed on Monday.

Last Friday evening, the most-traded SHFE lead contract opened at ¥18,475/mt, reading a high of ¥18,565/mt. It finally closed at ¥18,480/mt, up ¥10/mt or 0.05%.

Zinc

Last Friday, LME zinc opened at $3,046.5/mt. During the European session, profit-taking by bulls led to a decline to $3,039/mt. During the night session, bulls pushed LME zinc to a high of $3,095.5/mt before it slightly fell back to consolidate around $3,055/mt, closing at $3,058.5/mt, up $6/mt or 0.2%. Trading volume decreased to 6,876 lots, and open interest increased by 402 lots to 236,000 lots. LME zinc stocks decreased by 400 tons to 257,225 tons, a drop of 0.16%. Although macro sentiment showed no significant changes last Friday, a weaker US dollar provided support for base metals, keeping LME zinc at high levels.

Last Friday, the most-traded SHFE zinc contract (2407) opened at ¥24,680/mt. Bulls increased their positions, pushing SHFE zinc up to ¥24,810/mt, with a high of ¥24,870/mt. Subsequently, profit-taking by bulls led to a decline below the daily moving average, falling to ¥24,660/mt, with a low of ¥24,625/mt, before closing at ¥24,635/mt, up ¥25/mt or 0.1%. Trading volume decreased to 93,382 lots, and open interest increased by 2,212 lots to 126,000 lots. Fundamentally, zinc consumption remained weak, but macro inflation logic and domestic policy support continued, suggesting that zinc prices are likely to remain high.

Tin

Last Friday night, SHFE 2406 tin contract closed down 0.82%, at 271,110 yuan/mt.

During last Friday's morning session, 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 500-800 yuan/mt over SHFE 2406 tin contract, versus discounts of 300 yuan/mt to premiums of 300 yuan/mt for delivery brands and premiums of 300-600 yuan/mt for Yunxi brand. Tin prices surged and then fell back last Friday, and downstream companies traded only as needed. Overall, the spot market transactions were relatively sluggish last Friday.

Nickel

Last week, SHFE nickel prices generally rose before falling back, with the highest price breaking through 160,000 yuan/mt, and then closing at 152,780 yuan/mt last Friday. Overall, nickel prices ran strong, mainly driven by positive macro sentiment and also affected by the updated progress of Indonesian RKAB approval under market expectations, with disclosed figures matching SMM's research. The RKAB approval progress reduced market expectations of a continued halt in nickel ore approvals in June, easing concerns about future nickel ore supply. However, the updated data is relatively low and represents quotas for three years rather than one year, which means that the total approved RKAB quotas in January-May will not be fully digested by the Indonesian market this year. Therefore, short-term expectations of tight nickel ore supply cannot be dispelled, supporting nickel prices. However, with the expectation of increased nickel ore supply in the future, the forecast of overcapacity for various nickel products in H2 remains unchanged. Thus, the future rise in nickel prices will face resistance from fundamentals. From a macro perspective, Iranian President Raisi was killed in a helicopter crash at the beginning of the week, leading to a general rise in non-ferrous metals sector amid the current turbulence in the Middle East. US inflation in April ended the three months of rebound, April retail data weakened, and non-farm payrolls fell since May, further strengthening market expectations of a Fed interest rate cut this year. After the latest Fed meeting clarified that rate cuts would be delayed, the market's biggest concern about interest rate hikes was dismissed. Meanwhile, gradual monetary easing started, also contributing to the rise in non-ferrous metal prices. Overall, the downside room for nickel prices is limited due to strong macro support.