SMM Morning Comments (Jun 2): SHFE base metals mostly lower on lingering concerns over US-China tensions

SHANGHAI, Jun 2 (SMM) – SHFE nonferrous metals, except for tin, ticked lower on Tuesday morning, as tensions between the US and China remained in the spotlight.

On the LME, copper and zinc cruised lower in the morning of Asian hours on Tuesday, while aluminium rallied somewhat. Nickel and lead were little changed in wild trading.

It was reported that China has told state-owned firms to halt purchases of soybeans and pork from the US, raising concerns that the trade deal between the two powerhouses could be in jeopardy. The move comes after US President Donald Trump said on Friday he was directing his administration to begin the process of eliminating special treatment for Hong Kong, in response to China’s plans to impose new security legislation in the territory.

A rally in oil prices, continued decline in the US dollar and gains in equities gave a boost to the nonferrous complex on Monday. LME nonferrous metals, except for aluminium, closed higher on the day. Copper and zinc surged 1.9%, tin jumped 1.8%, nickel rose 1.7% and lead climbed 1%.

SHFE nonferrous metals performed similarly in overnight trading. Lead rose 1.5%, copper climbed 1.1%, nickel advanced 1%, zinc crept up 0.9% and tin gained 0.3%, while aluminium edged down nearly 0.1%.

Copper: Three-month LME copper reversed an earlier slip in Northern American trading hours on Monday, notching its highest in more than two months at $5,488/mt before closing up 1.93% at $5,484/mt. It is expected to move at $5,450-5,510/mt today.

The most active SHFE July contract hit its highest since March 11 at 44,800 yuan/mt in overnight trading, before ending up 1.06% at 44,720 yuan/mt. It is expected to trade between 44,500-44,900 yuan/mt today. Spot premiums are seen steady at 150-170 yuan/mt despite higher futures prices, as inventories remain at low levels.

Aluminium: Three-month LME aluminium pulled back from two-month highs on Monday, easing 0.58% to $1,538/mt.

The most active SHFE July contract fluctuated to close a tad weaker at 13,155 yuan/mt in overnight trading. A slowdown in the depletion of social inventories of primary aluminium ingots in China weighed on sentiment.

Zinc: Three-month LME zinc climbed to its highest in more than a week at $2,026.5/mt on Monday, before it ended up 1.89% at $2,024/mt. Three consecutive days of gains sent the contract convincingly above the five-day moving average, as falling LME inventories and rising ratio of cancelled warrants boosted optimism around the progress of economic reopening ex-China. LME zinc is expected to move at $1,980-2,030/mt today.

The most-liquid SHFE July contract advanced 0.94% to end at its highest since May 21 at 16,680 yuan/mt in overnight trading. It is expected to trade at 16,500-17,000 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen steady at 120-130 yuan/mt over the SHFE June contract. The pace of inventory decline should be closely watched to assess the progress of consumption recovery and its support to prices.

Nickel: Three-month LME nickel hit its highest since May 21 at $12,680/mt in late Asian trading hours on Monday, before it finished the day 1.65% higher at $12,595/mt. It now faces resistance at the upper Bollinger band and the 12,600 level.

The most-traded SHFE August contract reversed an earlier slip in overnight trading as longs added their positions, and closed 0.97% higher at 102,820 yuan/mt. It has risen above the five-60 day moving averages and whether it will test pressure at 104,000 in the near term.

Lead: Three-month LME lead strengthened 0.99% to $1,678/mt to end a wild session on Monday. LME remains rangebound as it is still news flow driven.  

The most-liquid SHFE July advanced 1.46% to end at a three-month peak of 14,620 yuan/mt in overnight trading. The possibility that lead inventories in China will begin an uptrend soon is growing as spot trades are thin of late and some producers plan to send their cargoes to warehouses for delivery.

Tin: Three-month LME rebounded sharply on Monday, hitting its highest since May 21 at $15,725/mt before closing up 1.75% at $15,685/mt. Support is seen at the 20-day moving average at 15,200.

The most-traded SHFE August contract erased gains from a higher open in overnight trading to close 0.3% higher at 134,630 yuan/mt. Support is also seen at the 20-day moving average at 131,000.