SMM Morning Comments (May 20): SHFE base metals rose broadly as oil resumed its rally; tin jumped more than 3%

SHANGHAI, May 20 (SMM) – SHFE nonferrous metals rose across the board on Wednesday morning as oil prices continued to move higher following data showing a decline in US crude inventories last week.

The six nonferrous metals on the SHFE were all in positive territory as of 9:54 a.m. Beijing time, following mixed performance overnight, and tin was more than 3% higher on the day. In overnight trading, tin surged 1.5%, nickel rose 1.2%, lead gained 0.2% and copper edged up 0.1%, while zinc dipped 0.06% and aluminium fell 0.4%.

Meanwhile on the LME, tin, aluminium and copper strengthened, while zinc and lead weakened. Nickel was little changed. On Tuesday, LME nonferrous metals, except for aluminium, rose for a second straight day, with nickel advancing 1.8% to be the best performer. Tin jumped 1.2%, lead rose 1.1%, zinc climbed 0.5%, copper inched up 0.1%, while aluminium retreated 0.8%.

The American Petroleum Institute (API) reported late Tuesday that US crude supplies fell by 4.8 million barrels for the week ended May 15, reinforcing signs that producers are cutting output as promised and demand is recovering on the back of the easing of coronavirus lockdown restrictions.

China’s 1-year loan prime rate (LPR) was left unchanged at 3.85%, while the 5-year LPR stood pat at 4.65%. That was largely in line with expectations.

Investors are also looking ahead to the “Two Sessions,” China’s most important annual political events, which will kick off on Thursday. There are widespread expectations of further positive signals and policies from the meetings, but the risk may be increasing that these messages struggle to meet expectations.

Copper: Three-month LME copper crept up to its highest since March 16 at $5,377.5/mt in the morning of Asian trading hours on Tuesday, before easing to close just 0.1% higher at $5,353/mt.

The most active SHFE July contract rose after touching session-low of 43,490 yuan/mt in overnight trading and ended up 0.11% at 43,670 yuan/mt.

Aluminium: Three-month LME aluminium shed 0.77% to end at $1,488.5/mt on Tuesday, giving back some of Monday’s gains. It needs clear signs of consumption recovery ex-China to stage a substantial rally and is expected to move to $1,470-1,510/mt today.

The most active SHFE July contract fell to a session-low of 12,785 yuan/mt in early trade overnight, before it recovered some ground to close 0.35% lower at 12,830 yuan/mt. Healthy end-market consumption, tight availability and falling inventories in China will remain supportive of SHFE aluminium and the July contract is expected to continue to move at 12,700-13,000 yuan/mt today.

Zinc: Three-month LME zinc reversed earlier losses to its highest in more than two months at $2,038/mt on Tuesday, shortly before closing up 0.5% at $2,029/mt. Data showed that zinc stocks at LME-approved warehouses extended their decline, dipping 250 mt to 98,375 mt as of May 19. The contract is expected to remain firm at $2,000-2,050/mt today.

The most-liquid SHFE July contract fluctuated to close a tad weaker at 16,810 yuan/mt in overnight trading. Optimism around the “Two Sessions” and new infrastructure projects will offer support to SHFE zinc. The July contract is likely to continue to test the upper Bollinger band and move at 16,500-17,000 yuan/mt today, while spot premiums for domestic 0# Shuangyan are likely to steady at 140-160 yuan/mt over the SHFE June contract.

Nickel: Three-month LME nickel surged 1.79% to end at a one-week peak of $12,480/mt on Tuesday, convincingly standing above 5-60 moving averages. Whether it could shrug off resistance at 12,500 will come under scrutiny.

The most-traded SHFE July contract hit a new one-week high of 103,040 yuan/mt in overnight trading, before erasing some gains to close up 1.18% at 102,610 yuan/mt.

Lead: Three-month LME lead climbed to a one-month high of $1,687/mt on Tuesday, shortly before it closed up 1.11% at $1,681/mt. It is likely to break through 1,690, but the rally may be short-lived given the absence of signs of a substantial recovery in fundamentals outside China.    

Tracking gains in LME lead, the most-liquid SHFE June contract rose after slipping to a session-low of 13,995 yuan/mt in overnight trading, and ended up 0.18% at 14,125 yuan/mt, on track for a fourth straight day of gains. Whether it could break above 14,150 and move out of its recent range will come under scrutiny.

Tin: Three-month LME tin erased earlier losses to end at a one-week high of $15,420/mt on Tuesday. Resistance is seen at previous highs at 15,600-15,700.

The most-traded SHFE July contract rose to its highest since March 12 at 132,830 yuan/mt in overnight trading, before closing up 1.54% at 132,780 yuan/mt. Resistance is seen at 134,000.