SMM Morning Comments (May 15): Base Metals Closed Mixed on Biggest Weekly Rise for Dollar since February

SHANGHAI, May 15 (SMM) – LME and SHFE base metals closed mixed last Friday night. On the macro front, the US dollar rose last Friday and recorded its biggest weekly gain since February, mainly due to the decline in consumer confidence index, which intensified market concerns about the US debt ceiling and monetary policy, bolstering the risk appetite for the US dollar.

Copper: LME copper prices closed at $8,243/mt last Friday evening, a rise of 0.67%. Trading volume was 20,000 lots and open interest stood at 254,000 lots. SHFE 2306 copper contract finished at 64,940 yuan/mt overnight, up 0.87%. Trading volume was 64,000 lots, and open interest stood at 193,000 lots.

SMM data shows that as of April 12, SMM copper inventory across major Chinese markets stood at 152,000 mt, down 15,400 mt from May 8 and down 16,100 mt from two Fridays ago. The inventory was up 33,100 mt from the same period last year. Except for Tianjin where inventories increased slightly, inventories fell across other regions. The continuous sharp drop in copper prices narrowed the price spread between copper cathode and copper scrap, driving wire and cable plants to step up purchases of copper rod produced with copper cathode. This boosted copper cathode consumption. The import window has opened recently, and there will be customs clearance of imported copper. The recently released data grew market expectations over an economic recession in the United States. The financial market turmoil puts pressure on prices, and insufficient domestic demand can hardly give copper prices a boost.

Aluminium: The most-traded SHFE 2306 aluminium contract opened at 17,990 yuan/mt at last Friday’s night session, with its low and high at 17,970 yuan/mt and 18,135 yuan/mt before closing at 18,030 yuan/mt, up 160 yuan/mt or 0.9%. LME aluminium opened at $2,214/mt last Friday, with its low and high at $2,203.5/mt and $2,245/mt respectively before closing at $2,244/mt, an increase of $31/mt or 1.4%.

The US debt crisis escalated, while Chinese macro data fell short of expectations, thus market panic has soared. While aluminium ingot social inventories in China kept falling, the demand outlook is pessimistic. Aluminium output continued to rise, and aluminium prices lack cost support. SMM expects the short-term aluminium prices to come under downward pressure. Market players need to closely watch macro aspect and the supply in Yunnan.

Lead: Last Friday, LME lead prices opened at $2,109.5/mt and closed at $2,073.5/mt after hitting the lowest point at $2,070/mt, a decrease of 1.5%.

Last Friday, the most-traded SHFE 2306 lead contract opened at 15,225 yuan/mt and closed at 15,210 yuan/mt after hitting the lowest point at 15,180 yuan/mt due to the rising inventory caused by approaching delivery of SHFE 2305 lead contract, a decrease of 0.26%. The open interest reached 59,030 lots, a decrease of 894 lots compared to the previous trading day.

Zinc: LME zinc opened at $2,549/mt in last Friday’s night trading and finished at $2,554.5/mt, up $11/mt or 0.43%. Trading volume was 8,634 lots, and the open interest lost 1,849 lots to 188,000 lots. As the head of the World Bank warned against rising risks of US debt default, the market expectations for rate hike path slightly changed. The reduced short position drove LME zinc prices to rebound.

The most active SHFE zinc 2306 contract opened at 20,750 yuan/mt last Friday night and closed at 20,955 yuan/mt, up 140 yuan/mt or 0.67%. Trading volume was 910,000 lots, and the open interest decreased by 7,173 lots to 101,000 lots. SHFE zinc prices still enjoyed some cost support for zinc ingots, and the exit of shorts propelled futures prices to rally. However, the import window remains open with rising SHFE/LME zinc price ratio, which means that more imported zinc ore will inflow into the China market. As such, SHFE zinc prices may face some downward pressure.

Tin: Last week, the SHFE tin prices fell and the main reasons are: 1. Downstream demand saw no significant improvement while the smelters maintain stable production, hence the domestic supply of tin ingots did not significantly reduce. 2, Indonesia's exports of tin ingots to China increased in April. Indonesia exported 7268.9 mt of tin ingots, and 2,478.2 mt were exported to China, up 52% YoY. 3. CPI, PPI and domestic social finance data were weak, which weighed on tin prices.

The drop in SHFE tin prices last week led to a significant recovery in the spot market transactions and tin ingot social inventory fell slightly by 70 mt to 11,279 mt. But the subsequent downstream demand is unlikely to remain strong.

Nickel: Nickel prices moved with some downward potential last week on poor downstream demand and trades amid the economic recession. Under this background, nickel warrants rose, and the spot premiums once slumped. The NPI supply gradually grew with more ships from Indonesia arriving at Chinese ports, but the spot holders who carried low inventories were not in a hurry to ship their goods. On the demand side, stainless steel futures prices plunged following the dropping SHFE nickel prices, and the spot prices then fell slightly. All in all, the nickel prices lost momentum from multiple perspectives.

[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.]