SMM Evening Comments (May 18): Shanghai base metals advanced after China sets date for 'two sessions'

SHANGHAI, May 18 (SMM) – SHFE nonferrous metals rose across the board on May 18, following they opened higher on Monday, as the news that China will hold the annual 'two sessions', its most important political events, on May 21-22 bolstered market sentiment. 

Convening of the meeting shows that the coronavirus epidemic in China is fully under control.

Aluminium was the best performer with a rise of 1.59%. Copper advanced 0.63%, lead climbed 0.87%, zinc added 1.13%, tin advanced 1.56%, and nickel went up 0.09%. 

The ferrous complex also traded higher as iron ore jumped 5.41% on bullish prospects for demand. Rebar gained 2.17%, hot-rolled coil increased 2.5%, stainless steel rose 0.64%, and coke climbed 2.11%. 

Oil futures increased by more than $1/barrel on Monday to their highest in more than a month, lifted by ongoing output cuts and signs of a gradual recovery in fuel demand as more economies ease restrictions imposed to stop the spread of the coronavirus pandemic. 

Crude oil production is decreasing as US energy firms cut the number of oil and natural gas rigs operating to an all-time low for a second consecutive week.

Copper: A rally in crude oil prices bolstered the most-traded SHFE June contract, which rose with loaded-up longs and hit an intraday high of 43,330 yuan/mt before ending up 0.63% on the day at 43,270 yuan/mt. The SHFE copper contracts remained in a backwardation structure, with the price spread between the June and July contracts at 140 yuan/mt. With support from the 20- and 60- day moving averages and bullish signals from technical indicators, the June contract is expected to follow its LME counterpart and continue to test pressure above tonight.

Aluminium: The most-liquid SHFE July contract hit its highest level in nearly two months, at 12,830 yuan/mt, before it finished the day 1.59% higher at 12,760 yuan/mt. The SHFE June contract was 315 yuan/mt higher than the July contract at closing, as compared with a price spread of 250 yuan/mt last Friday. Tonight, pressure above from 13,000 yuan/mt for the July contract will be monitored. 

Zinc: The most-active SHFE July contract advanced to test resistance from the five- and 10- day moving averages, ending higher for the second consecutive day with a rise of 1.13%, at 16,595 yuan/mt. While some overseas miners have restarted operations, it still requires time some for the resumption of supply to domestic smelters. SMM expects further upward potential in the contract tonight. 
Zinc inventories in China rose slightly over the weekend, primarily propelled by gains in the north amid concentrated arrivals and muted purchases by downstream consumers. But the stocks extended their slide as compared with last Monday. 

Nickel: The most-traded SHFE contract traded higher in the afternoon session on the back of a broad rally in base metals. It closed up 0.09% on the day at 99,860 yuan/mt, following four straight days of losses last week. Improved market sentiment may see the contract rising close to the 10-day moving average, if the contract is able to find support from the 60-day moving average. 

Lead: The most-active SHFE June contract climbed to as high as 14,005 yuan/mt but pressure from 14,000 yuan/mt settled it at 13,955 yuan/mt, up 0.87% on the day. Strong prices of battery scrap will keep lead prices underpinned. 

Tin: The most-liquid SHFE July contract regained declines from overnight, rising to a session high of 130,840 yuan/mt and ending the day 1.56% higher at 130,750 yuan/mt. Pressure above is expected from 132,000 yuan/mt.