SMM Evening Comments (Jun 10): SHFE base metals closed mostly higher as China industrial deflation deepened

SHANGHAI, Jun 10 (SMM) – SHFE nonferrous metals, except for zinc and nickel, rose on Wednesday, as optimism over economic recovery from the Covid-19 pandemic continued to dominate the market, outweighing downbeat Chinese inflation data and a pause to the oil rally.

Copper jumped 1.5% on the day to lead the gains, aluminium rose 0.9%, tin climbed 0.6% and lead advanced 0.4%. Copper and tin notched their highest since January 23, the last trading day before the Chinese New Year holiday, on track for clawing back losses caused by the pandemic.

Zinc fell for a third straight day, shedding 1.1%, while nickel retreated from more than two-week highs and lost nearly 1.6%. The two metals spent the entire session trading in negative territory.

On the LME, nonferrous metals were mixed at 18:09 Beijing time on Wednesday. Aluminium advanced more than 1.5%, refreshing 11-week highs, while lead sank 1%, on track for the third straight day of declines.

China's factory-gate prices fell deeper into deflation in May amid weakening demand, while consumer inflation eased further due to softening food prices, according to data from the country’s National Bureau of Statistics released Wednesday morning.

The producer price index dropped 3.7% in May from a year earlier, extending a 3.1% decline in April. The decline in PPI was the steepest drop in more than four years, as prices of commodities and other industrial products softened amid the coronavirus pandemic.

The consumer price index rose 2.4% from a year earlier, compared with a 3.3% increase in April. The increase in CPI was the slowest in 14 months.

Data released by the People's Bank of China (PBOC) late Wednesday showed that China’s new bank lending fell more than expected in May from the previous month but broader credit growth quickened as the central bank continues to ease policy.

Banks extended 1.48 trillion yuan ($209.47 billion) in new yuan loans in May, down from 1.7 trillion yuan in April and falling short of analyst expectations of 1.50 trillion yuan. But new loans were higher than 1.18 trillion yuan in the same month last year.

Broad M2 money supply in May grew 11.1% from a year earlier, below the forecasts of 11.3%. It rose 11.1% in April.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 12.5% in May from a year earlier and from 12% in April. In May, TSF rose to 3.19 trillion yuan from 3.09 trillion yuan in April.

Global markets are focused on the US Federal Reserve’s latest policy meeting and economic forecasts.

The central bank’s two-day meeting concludes Wednesday with the release of a policy statement and the quarterly summary of economic projections, then Chairman Jerome Powell’s news conference at 2:30 pm EST.

Copper: The most-traded SHFE contract rose 1.52% on the day to end at 46,830 yuan/mt, after hitting the highest since January 23 at 46,980 yuan/mt on the aggressive buying by longs earlier in early morning trade. The contract has risen for four consecutive trading days, and will test the 47,000 mark.

Open interest for the August, September and October contract expanded by a combined volume of over 7,000 lots on the day, while that for the June contract, which will expire in less than a week, shrank nearly 7,000 lots. There was a gap of 41,435 mt for existing warrants to meet the delivery of the June contract as of June 10.

Aluminium: The most-liquid SHFE contract extended its gains on Wednesday, ending up 0.92% at 13,670 yuan/mt after scaling its highest since February 19 at 13,730 yuan/mt in early morning trade. Funds are leaving the market as falling inventories dent sentiment among shorts while spot discounts prompt longs to take profits.

Zinc: The most-active SHFE contract lost 1.08% to end at 16,420 yuan/mt, after plumbing an intraday low of 16,350 yuan/mt earlier in the session as longs trimmed their positions. Three consecutive days of losses have sent the contract below the five-20 day moving averages. The absence of a strong driver of consumption and sluggish spot trades weigh on zinc prices, while the slow recovery of mines limits the downside. SHFE zinc is expected to move above the 40-day moving average tonight.

Nickel: The most-traded SHFE contract oscillated in a wide range during the daytime trading session, extending overnight losses and falling below the five-day moving average to end down 1.55% at 103,180 yuan/mt. SHFE nickel pulled back, and sees little support from fundamentals as spot trades remain muted.

Lead: The most-active SHFE contract fell on the influx of shorts in afternoon trade, erasing overnight gains to close 0.38% firmer at 14,420 yuan/mt. It is likely to test support at the 20-day moving average tonight if its LME counterpart extends its losses.

Tin: As longs piled into the market, the most-active SHFE contract hit its highest since January 23 at 138,590 yuan/mt, before it closed up 0.59% at 138,260 yuan/mt. It will test resistance at 140,000.