SMM Evening Comments (Jul 6)

SHANGHAI, Jul 6 (SMM) – SHFE base metals closed mixed on Friday July 6 after the US launched the opening salvo in the trade war with China at noon. Copper fell over 1%, nickel, lead and tin dipped while zinc and aluminium inched up.

The ferrous complex rose across the board except for hot-rolled coil. Iron ore and coking coal rose over 0.7%, rebar and coke nudged up.

Copper: The 1809 contract became the most active SHFE copper contract during the day. As longs cut their positions and left and as shorts flooded the market, the contract broke the 49,000 yuan/mt level to a low of 48,640 yuan/mt before it regained some losses. It is likely to extend its decline if market sentiment worsens. Investors may take some cues from US nonfarm payrolls data for June.

Aluminium: With support from alumina production cuts in Shanxi and Henan provinces, the SHFE 1809 contract traded rangebound during the day. We expect the contract to hold steady or to see a smaller decline next week, with the alumina production cuts and buxite shortages n Shanxi and Henan. However, we see limited potential for a rebound as the US-China trade war continued to weigh on market sentiment. The contract is likely to struggle around the five- and 10-day moving averages next week with a trading range at 13,950-14,200 yuan/mt. 

Zinc: The 1809 contract was the most active SHFE zinc contract during the day. The 1808 contract rose to the 22,080 yuan/mt level after hovering around the daily moving average. The 1809 contract hovered around the 21,900 yuan/mt level within a narrow range after hitting the 22,000 yuan/mt level. Bearish sentimen is likely to ease tonight as zinc prices stemmed its recent tumble and closed higher and as inventories across Shanghai, Guangdong and Tianjin continued to shrink. We expect the contract to recover some early losses tonight.

Nickel: The SHFE 1809 contract slumped sharply to a low of 110,350 yuan/mt and hovered around 110,790 yuan/mt level in the morning as longs persisted. It inched up in the afternoon as shorts dipped, but met resistance at the daily moving average. The contract closed at 110,980 yuan/mt, down 520 yuan/mt from Thursday, with open interests falling 6,524 lots to 350,000 lots. As the KDJ indicator expanded downwards and MACD green line lengthened, it is likely to trade weakly around 110,000 yuan/mt tonight. Investors would take more guidance tonight from the US unemployment rate and its non-farm employment data in June.

Lead: After it tumbled to the 19,455 yuan/mt level, the SHFE 1808 contract rebounded above the daily moving average. Its open interest shrank 4,136 lots to 63,798 lots as shorts covered their positions and left the market, reflecting a weak bullish sentiment. We see the contract on a downward track in the near term given the bearish crossover between the five-, 10- and 20-day moving averages. We expect it to consolidate around the 40-day moving average tonight and test the support at the 19,500 yuan/mt level.

Tin: As investors purchased at low pricess and as many shorts took profits and left, the SHFE 1809 contract rebounded after it fell to a new low in over six months at 141,720 yuan/mt. We expect it to continue to test the support at the 142,500 yuan/mt level in the short term.