SMM Morning Comments (May 14): Base metals mostly lower as Powell’s warning weighed on investor sentiment

SHANGHAI, May 14 (SMM) – Nonferrous metals traded lower for the most part on Thursday morning as comments from Federal Reserve Chairman Jerome Powell and downbeat economic data out of the US and Europe weighed on investor sentiment.

On the LME, aluminium, zinc and nickel fell, while copper and lead were slightly higher in the morning of Asian trading hours. LME base metals fell across the board for a second straight trading day on Wednesday, with lead remaining the worst performer and shedding more than 2%. Tin dropped 1.2%, zinc slipped 1.1%, copper and nickel lost 0.3% and aluminium sank 0.2%.

Meanwhile, SHFE base metals, except for copper, eased. In overnight trading, lead was the biggest loser, shedding 1.4%. Zinc dropped 1.3%, copper fell 0.2%, while tin edged up 0.02%, nickel gained 0.2% and aluminium firmed 0.3%.

The US dollar index, which tracks the greenback against a basket of its peers, climbed to 100.287, while oil prices slipped.

Copper: Three-month LME copper reversed earlier gains to close 0.33% lower at $5,212/mt on Wednesday, and is expected to move between $5,190-5,250/mt today.

The most active SHFE June contract dipped 0.21% to end at a session-low of 42,890 yuan/mt in overnight trading, and is likely to trade at 42,800-43,200 yuan/mt today. Spot prices are seen at a discount of up to 10 yuan/mt to a premium of up to 20 yuan/mt, and trades are set to improve further following the decline in prices.

Aluminium: Three-month LME aluminium boomeranged on Wednesday, rebounding from a five-week low of $1,471/mt to an intraday high of $1,486/mt before easing to close down 0.24% at $1,476/mt. Lingering concerns over demand weighed on LME aluminium, which is expected to move to $1,460-1,500/mt today.

The most active SHFE July contract slipped in overnight trading, erasing gains from a higher open to end up 0.32% to 12,440 yuan/mt. The contract has been trading rangebound after returning from the Labour Day holiday, and has yet to stand above the 60-day moving average. It is expected to move at 12,300-12,600 yuan/mt today. Towards the expiration of the May contract, spot prices are converging with the May futures contract, and the premiums for the May contract over the June contract has narrowed to 150 yuan/mt.  

Zinc: Three-month LME zinc resumed its decline in North American trading hours on Wednesday, extending its pull-back from two-month highs to $1,967.5/mt, down 1.11% on the day. It remains above the 10- and 60-day moving averages and data showed that zinc stocks at LME-approved warehouses extended their decline, decreasing 375 mt to 99,100 mt as of May 13. Mines beyond China have yet to recover production from coronavirus restrictions, which will offer support to LME zinc prices. The contract is expected to move at $1,950-2,000/mt today.

The most-liquid SHFE July contract extended its decline in overnight trading, touching a one-week trough of 16,395 yuan/mt before closing down 1.29% at 16,415 yuan/mt. Tightening supply of imported ore is set to pull treatment charges further lower, which will hurt profits at smelters and subdue refined production, and that will lend support to zinc prices. The SHFE July zinc contract is expected to move between 16,300-16,800 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen at 110-130 yuan/mt over the SHFE June contract.

Nickel: Three-month LME nickel oscillated in a tight range around the daily moving average at $12,250/mt after trading wildly earlier in the session. It finished the day 0.28% weaker at $12,250/mt, and is expected to continue to hover between the five- and 20-day moving averages today.

The most-traded SHFE July contract also moved sideways in overnight trading and gained 0.2% to end at 101,170 yuan/mt. With little changes to fundamentals, it is expected to remain rangebound between 100,000-102,000 yuan/mt today.

Lead: Three-month LME lead resumed its pullback in North American trading hours on Wednesday, plumbing its lowest since the end of April at $1,595/mt before closing down 2.05% at $1,597/mt.

Tracking losses in LME lead, the most-liquid SHFE June contract slipped to a one-week low of 13,745 yuan/mt in overnight trading, and closed down 1.39% at 13,795 yuan/mt. Whether SHFE lead would fall out of its recent range will come under scrutiny as investors seem to have given up trying to pull prices higher.

Tin: Three-month LME tin weakened 1.24% to $15,080/mt on Wednesday, its lowest close since May. Support is still seen at $15,000/mt.

The most-traded SHFE July contract hovered around 130,000 yuan/mt, below the daily moving average, in overnight trading, and ended a tad higher at 130,170 yuan/mt. It remains above the 10-day moving average at 129,000 yuan/mt.