SMM Morning Comments (May 8): Base Metals Closed Mostly as US Job Gains Topped Expectations

SHANGHAI, May 8 (SMM) – LME and SHFE base metals closed mostly with gains last Friday night. On the macro front, the stronger-than-expected US employment data and wage growth rate hit expectations of the Federal Reserve’s interest rate cut. The labour market remains strong. Since the collapse of the third bank in the United States, the financial market has become more worried, and the market is concerned about the pressure on risky assets going forward.

Copper: LME copper prices closed at $8,580/mt last Friday evening, a rise of 0.53%. Trading volumes were 18,000 lots and open interest stood at 253,000 lots. The most active SHFE 2306 copper contract ended at 66,960 yuan/mt last Friday evening, up 0.56%. Trading volume was 49,000 lots, and open interest stood at 183,000 lots.

In terms of fundamentals, as of Friday May 5, copper stocks in Chinese markets tracked by SMM increased 4,600 mt from two Fridays ago to 168,100 mt. The current total inventory decreased 28,500 mt from before the Chinese New Year holidays and are 48,100 mt higher than the same period last year. After the Labour Day holidays, only Shanghai saw destocking, and while inventories increased across other regions. There was not a large volume of customs clearance of imported copper in Shanghai after the holiday, and some downstream buyers restocked inventories, driving lower local copper stocks. In other regions, due to insufficient demand during the holidays, smelters redirected cargoes to warehouses. That, combined with sluggish downstream purchasing, led to an increase in inventories. Although the US economy is still resilient, weak domestic demand will undermine the upward momentum for copper prices to rise. The market needs to pay attention to whether the subsequent financial market will hit copper prices.

Aluminium: At last Friday’s night session, the most-traded SHFE 2306 aluminium contract opened at 18,345 yuan/mt, with the highest and lowest prices at 18,500 yuan/mt and 18,315 yuan/mt before closing at 18,480 yuan/mt, up 35 yuan/mt or 0.19%.

LME aluminium opened at $2297/mt last Friday, with its low and high at $2,277.5/mt and $2,324/mt respectively before closing at $2,321/mt, an increase of $25.5/mt or 1.11%.

Recently, from a macro point of view, concerns about US debt default have intensified, and rumours of interest rate hikes have resurfaced. The banking crisis has not yet been resolved, and the risk aversion sentiment in the market is still strong, which puts great downward pressure on the aluminium market. On fundamentals, the downstream operating rates will be in downward trend, and the demand performance is not satisfactory. The domestic aluminium supply maintained a slight growth trend, and the cost of the industry has dropped significantly. An increasing amount of molten aluminium has been made into billets rather than ingots. 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. Factors to watch: macro front and supply in Yunnan.

Lead: Last Friday, LME lead prices opened at $2,120.5/mt and shuddered upwards to $2,133/mt. As the US dollar index strengthened, LME lead prices hit the lowest point at $2,105/mt and finally closed at $2,107/mt, down 0.94%. The ooen interest increased 1,159 lots to 109,000 lots and the trading volume decreased 809 lots to 4,010 lots.

The most-traded SHFE 2306 lead contract opened low at 15,315 yuan/mt and closed at 15,315 yuan/mt after hitting the lowest point at 15,280 yuan/mt and the highest point at 15,328 yuan/mt. The open interest decreased 1,628 lots to 60,850 lots and the trading volume decreased 32,973 lots to 17,933 lots.

Zinc: Overnight, LME zinc opened at $2,630.5/mt and finished at $2,681/mt, up $54.5/mt or 2.08%. Trading volume was down to 6,654 lots, and the open interest decreased by 470 lots to 186,000 lots. LME zinc inventory shed by 125 mt to 52,000 mt.  

The most active SHFE zinc 2306 contract opened at 21,215 yuan/mt and closed up 345 yuan/mt or 1.63% at 21,490 yuan/mt. Trading volume was down to 74,891 lots, and the open interest narrowed by 2,530 lots to 117,000 lots

The US seasonal-adjusted non-farm payrolls in April exceeded expectations by recording 25.3, and the US unemployment rate in April came in at 3.4%. The strong employment data has eased the market concerns over the short-term economic outlook, empowering zinc prices momentum. However, China’s Caixin services industry PMI contracted again, and it seems that the US banking crisis are still spreading, capping the growth of zinc prices. It is thus expected that zinc prices will fluctuate within a wide range.

Tin: The most-traded SHFE 2306 tin contract surged upwards to 209,120 yuan/mt and closed at 208,480 yuan/mt, up 0.82%.

In the spot market, SHFE tin prices fell while the discounts of small and medium-sized brands narrowed to around 800 yuan/mt. The sharp decline in tin prices last Thursday encouraged downstream enterprises to purchase. Some traders reported the improvement in transaction. But the procurement of downstream enterprises declined as tin prices rose last Friday.

Nickel: The FOMC announced on the evening of May 3 that it would hike the target rate from 4.75%-5.0% to 5.0%-5.25%, which was in line with expectations. The decision suggests that the current inflation outlook is not suitable for a Fed rate cut, but there may be a short-term pause in rate hikes. Under the long-term rate hike cycle, although inflation appeared to objectively reduce, its negative impact on the job market remained large, further suppressing consumption and increasing the risk of economic recession as well as weighing on the nonferrous metals prices. Last week, SHFE nickel prices once surged following the overseas nickel futures prices, while the spot premiums trended lower. The absolute prices still stood high, leading to lower-than-expected spot transactions. NPI traders were less willing to ship cargo amid low market supply and their high costs. On the demand side, the spot prices of stainless steel in the Wuxi and Foshan markets rose somewhat last Thursday when stainless steel mills’ slightly slowed down their spot shipments to the market, and the trades were average. In general, the low spot supply at home and abroad continues to beef up the nickel prices. SHFE nickel will move rangebound.

[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.]