SMM Evening Comments (Jun 1): Shanghai base metals rose on Monday as China’s May factory activity resumed growth

SHANGHAI, Jun 1 (SMM) – SHFE nonferrous metals increased across the board on Monday June 1, as market sentiment was lifted after a Caixin/Markit survey showed China's May factory activity unexpectedly returned to growth in May. 

Nickel was the best performer with a rise of 2.82%. Lead advanced 2.46%, copper grew 1.8%, aluminium added 0.04%, tin climbed 0.96%, and zinc rose 1.41%. 

Manufacturing activity in China expanded for the month of May, with the Caixin/Markit Purchasing Manager’s Index (PMI) standing at 50.7. This marked the highest reading since January as easing of lockdowns allowed factories to restart operations and clear outstanding orders.

SMM data suggested manufacturing activity across nickel downstream sectors in China expanded for the third consecutive month in May, albeit at a softer pace than it did in April.

The ferrous complex also traded higher as iron ore gained 3.22% with support from fundamentals. Rebar climbed 1.25%, hot-rolled coil rose 1.43%, stainless steel added 0.96% and coke went up 1.36%. 

Inventories of seaborne iron ore at Chinese ports continued to trend lower last week, as arrivals from Australia and Brazil declined while demand remained robust despite escalated production curbs aimed at controlling air quality during China’s “two sessions.”

Copper: The most-traded SHFE July contract climbed above 44,500 yuan/mt and hit a session high of 44,650 yuan/mt, before closing the day 1.8% higher at 44,600 yuan/mt. With support from the five- and 10- day moving averages and technical indicators, the contract may continue to test pressure above tonight. 

Aluminium: The most-liquid SHFE July contract ended its six consecutive days of gaining streak as longs took profits and exited. It fell to a session low of 13,090 yuan/mt and closed slightly higher on the day at 13,160 yuan/mt. Open interest shrank 3491 lots to 147,941 lots. The negative impact of decreasing overseas orders on overall consumption will likely intensify in June. 

According to SMM data, social inventories of primary aluminium ingots in China continued to fall over the weekend, but the decline was moderate as deliveries leaving the warehouses reduced.

Zinc: The most-active SHFE July contract trimmed gains after it rose to an intraday high of 16,665 yuan/mt in early trades. It closed up 1.41% on the day at 16,515 yuan/mt following a session low of 16,400 yuan/mt. Lingering supply woes on the mining front capped the upsides of zinc prices but weak fundamentals depressed any upward momentum. Tonight, the contract may hover weakly around the 20-day moving average. 
SMM data showed that zinc inventories in China rose over the weekend, as limited demand failed to offset the arrival of imported materials in Shanghai and deliveries from Guangdong to Tianjin.

Lead: The most-active SHFE contract jumped above all moving averages as longs loaded-up their positions, ending the day 2.46% higher at 14,550 yuan/mt. It may break up 14,600 yuan/mt tonight, but a weakened LME lead would cap its upward room.