SMM Morning Comments (Jun 3): Base metals mostly lower despite oil jump

SHANGHAI, Jun 3 (SMM) – Nonferrous metals, except for tin, on the SHFE and LME drifted lower on Wednesday morning, even as oil prices extended their rally on a weekly decline in US crude supplies.

Oil prices surged in the morning of Asian hours on Wednesday in the wake of data from the industry group American Petroleum Institute (API) showing a decline in US crude supplies last week.

Stocks also rose, as optimism over economic reopening continued to outweigh concerns about US-China tensions and mass protests across the US.

Continued strong performance seen in oil prices and equities, together with the weaker US dollar supported the nonferrous complex on Tuesday. LME nonferrous metals, except for zinc, closed higher on Tuesday, with lead surging nearly 2.4% to lead the gains. Nickel jumped 2.2%, tin rose 1.7%, aluminium climbed 1.4% and copper advanced 0.6%.

SHFE nonferrous metals performed similarly in overnight trading. Nickel rose 1.4%, tin and copper advanced more than 1%, lead crept up 0.7% and aluminium inched up 0.3%, while zinc edged down 0.1%.

Optimism that the worst of the economic downturn from the spread of the coronavirus is behind and expectations that major producers will agree to extend output cuts during a video conference likely to be held this week, boosted oil prices on Tuesday.

Copper: Three-month LME copper rose 0.63% to $5,518.5/mt on Tuesday, its highest close since March 10. It is expected to move at $5,500-5,560/mt today.

The most active SHFE July contract opened higher and hovered to end up 1.01% at 45,000 yuan/mt in overnight trading. It is expected to trade between 44,800-45,200 yuan/mt today. Spot premiums are seen lower at 120-150 yuan/mt due to higher futures prices and greater availability of imported copper. Riots in the US and rising US-China tensions may hamper upside in copper prices.

Aluminium: Three-month LME aluminium climbed in Northern American trading hours on Tuesday, recovering from earlier losses to end at a 10-week peak of $1,559/mt, up 1.37% on the day.

The most active SHFE July contract erased earlier losses to end 0.27% firmer at a session-high of 13,120 yuan/mt in overnight trading.

Zinc: Three-month LME zinc weakened 0.64% to $2,011/mt to end a wild trading session on Tuesday. Data showed that zinc stocks at LME-approved warehouses extended their decline, falling 1.73% or 1,725 mt to 97,850 mt as of June 2. Falling inventories and optimism surrounding economic reopening will remain supportive, while civil unrest in the US will weigh. LME zinc is expected to move at $1,990-2,040/mt today.

Tracking losses in LME zinc, the most-liquid SHFE July contract eased off a two-week high of 16,795 yuan/mt in overnight trading, and closed a tad weaker at 16,570 yuan/mt. It is expected to trade at 16,300-16,800 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen slightly lower at 110-120 yuan/mt over the SHFE June contract as downstream consumers hold back on procurement on the back of the recent rally in zinc prices.

Nickel: Three-month LME nickel jumped 2.22% to $12,875/mt on Tuesday, within striking distance of the more than two-month peak of $12,910/mt notched on May 21. The oil rally was the biggest driver of the nickel ascent, and nickel prices are likely to follow oil lower if oil prices pull back.

The most-traded SHFE August contract strengthened 1.41% to 104,150 yuan/mt in volatile trading overnight. It remains above the five-60 day moving averages and whether it will test pressure at 105,000.

Lead: Three-month LME lead surged 2.35% to $1,717.5/mt on Tuesday, after scaling a seven-week peak of $1,725/mt. It has broken above the upper Bollinger band and five-60 day moving averages, and now faces pressure at 1,730-1,750.

The most-liquid SHFE July jumped to a new three-month high of 14,645 yuan/mt in early trade overnight, before it fluctuated to end up 0.72% at 14,625 yuan/mt.

Tin: Three-month LME tin saw the second straight day of sharp gains on Tuesday, hitting its highest since March 13 at $16,085/mt before closing up 1.67% at $15,950/mt. It will test the 16,000 mark, with next resistance at 16,500.

The most-traded SHFE August contract strengthened 1.03% to 136,150 yuan/mt after notching a three-month peak of 136,280 yuan/mt in overnight trading. It is supported by the five-day moving average, while resistance is seen at a previous high of 137,500 yuan/mt.