SMM Morning Comment For SHFE Base Metals On July 1

SHANGHAI, July 1 (SMM) –
Copper

Last Friday, LME copper opened at $9,625/mt. Initially, it saw slight fluctuations with a rising focus, reaching a session high of $9,674/mt. It then trended downward, hitting a session low of $9,578/mt at the end of the trading session, and finally closed at $9,586/mt, with a gain of 0.76%. Trading volume reached 16,000 lots, and open interest was 328,000 lots. The most-traded SHFE copper contract opened at 78,690 yuan/mt. It initially hit a high of 79,020 yuan/mt, then trended downward, hitting a session low of 78,230 yuan/mt at the end of the trading session, and finally closed at 78,350 yuan/mt, with a gain of 0.32%. Trading volume reached 48,000 lots, and open interest was 193,000 lots.

Macro-wise, the US core PCE price index for May recorded a YoY increase of 2.6%, the smallest since March 2021. After the data release, traders increased their bets on a US Fed rate cut. However, Fed officials stated that the fight against inflation is not yet won, the US economy is expected to remain resilient, and it is too early to determine when to cut rates. Overnight, copper prices opened higher but trended lower by the end of the session.

Fundamentally, from the demand side, due to the weak performance of copper prices last week and the widening price spread between the current-month and next-month contracts, downstream bearish sentiment was strong. Additionally, as it is mid-year, some companies were engaged in mid-year settlements, affecting the activity in the spot market. Overall consumption did not show a significant recovery. In summary, the US dollar index opened lower, which is expected to provide some support for copper prices. Today, attention will be on China's June Caixin Manufacturing PMI and the US June Manufacturing PMI.

Aluminum
Market: The most-traded alumina contract 2408 opened at 3,835 yuan/mt in the night session, reaching a high of 3,844 yuan/mt and a low of 3,798 yuan/mt, and closed at 3,819 yuan/mt, up 24 yuan/mt, an increase of 0.63%. Open interest was 53,500 lots, down 545 lots.

Summary: Recently, domestic spot prices continued to fluctuate at high levels, with a strong wait-and-see sentiment among downstream buyers. Meanwhile, sellers remain reluctant to sell, keeping their offers firm. Currently, alumina saw both production increases and cuts, while on the demand, the third phase of the Huayun aluminium project in Inner Mongolia is steadily advancing. SMM believes that the tight balance in the alumina market will persist. In the short term, spot prices are expected to fluctuate, but in the medium and long-term, there is still an expectation of new domestic alumina capacity. However, the supply of bauxite, the raw material, may not see a significant increase in the short term. Continued attention is needed on the supply of bauxite both domestically and internationally.

Lead
Last Friday, LME lead opened at $2,185.5/mt. Driven by the rise in SHFE lead, LME lead reversed the weakness of the previous two trading days, trending upward and reaching a one-and-a-half-week high of $2,230/mt. It finally closed at $2,221.5/mt, up 1.58%.

Last Friday, domestic raw material supply issues continued to affect ingot production, leading to a decrease in lead ingot inventory. The most-traded SHFE lead contract opened at 19,480 yuan/mt, continuing the recent upward trend, reaching a high of 19,580 yuan/mt, the highest since July 10, 2018. It finally closed at 19,550 yuan/mt, up 1.06%, with open interest increasing by 1,700 lots to 108,000 lots.

Zinc

Last Friday, LME zinc opened at $2,942/mt. Initially, longs increased their positions, pushing LME zinc upward to a session high of $2,969/mt during European trading hours. However, a significant increase in LME zinc inventory led to a sharp drop to $2,930/mt. Shorts took profits and exited, causing LME zinc to trend upward again. During the night session, shorts increased their positions, leading to a downward trend, and it finally closed lower at $2,941/mt, down $3/mt, or 0.10%. Trading volume increased to 11,388 lots, and open interest increased by 3,508 lots to 240,000 lots. LME zinc inventory increased by 22,475 mt to 262,075 mt, an increase of 9.38%. Bearish fundamentals, with a significant increase in LME zinc inventory reducing supply concerns, and the US core PCE data being lower-than-expected, suggest that LME zinc is expected to trend weakly.

Last Friday, the most-traded SHFE zinc contract opened at 24,660 yuan/mt. Initially, SHFE zinc briefly trended upward, reaching a high of 24,685 yuan/mt. However, funds exited, dragging SHFE zinc downward to a session low of 24,450 yuan/mt. It finally closed lower at 24,480 yuan/mt, down 185 yuan/mt, or 0.75%. Trading volume decreased to 89,135 lots, and open interest decreased by 7,909 lots to 98,560 lots. While supply concerns eased, tight ore supply continued to support zinc prices, suggesting that SHFE zinc is expected to trend sideways.

Tin
Last Friday night, the SHFE most-traded tin contract closed at 274,100 yuan/mt, up 3,570 yuan/mt, an increase of 1.32%.
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 premiums of 0 yuan/mt over SHFE 2408 tin contract, versus discounts of 500 yuan/mt to premiums of 200 yuan/mt for delivery brands and premiums of 200 yuan/mt for Yunxi brand. Last Friday morning, SHFE tin prices fluctuated upwards, and downstream producers' willingness to purchase weakened. Some trading companies made scattered transactions. Overall, the spot market cooled down last Friday.

Nickel
Last week, SHFE nickel prices rebounded slightly, closing at 135,480 yuan/mt on Friday. The logic behind nickel prices has not changed significantly, and attention should continue to be paid to the impact from both the macro and fundamental perspectives. The rise in nickel prices last week can be attributed to two main factors: first, the end-of-month fund operations and the news of SHFE lowering nickel trading fees boosted market trading enthusiasm; second, the domestic supply pressure temporarily eased due to the increasing exports. Therefore, nickel prices showed strong resilience. From the macro perspective, Bowman, a member of the Board of Governors of the Federal Reserve System, stated that if the inflation rate approaches 2%, a rate cut might be considered, but if inflation does not ease, another interest rate hike is still possible. The US initial jobless claims for the week ending June 22 reached 233,000, lower than the previous and expected values, reflecting a relatively stable US job market. The risk of rising inflation remains, weakening market expectations for a moderate decline in inflation within the year and dampening expectations for a rate cut. From the fundamental perspective, the supply of domestic brands in the spot market remained limited. Driven by previous macro factors and the Indonesian RKAB approval, together with the continuous rise in the USD/CNY exchange rate, overseas nickel prices have consistently been higher than domestic prices, prompting domestic refined nickel producers to export large quantities of nickel plates. Meanwhile, overseas nickel barely entered the domestic market, leading to a continuous decrease in the circulation of nickel plates in the domestic market. Additionally, on Friday, SHFE announced a reduction in the trading fee for the NI2409 contract from 6 yuan/lot to 3 yuan/lot, further increasing market trading activity. In summary, despite the long-term expectation of oversupply, SHFE nickel prices have limited downward room in the short term, supported by improving SHFE/LME nickel price ratio and the fact that macro environment has not shifted obviously. It is expected that the most-traded SHFE nickel contract will be 130,000-140,000 yuan/mt this week.