SMM Morning Comments (Jul 7): Shanghai base metals mostly retreated following solid gains overnight

SHANGHAI, Jul 7 (SMM) – Shanghai nonferrous metals, except for copper and lead, traded slightly lower on Tuesday morning, as caution returned to markets following strong performance overnight amid a broad-based bullish sentiment.

The six metals on the SHFE opened broadly higher in overnight trading. Nickel added 1.6% to the best performer, tin rose 1.1%, copper climbed 0.9%, zinc and aluminium crept up about 0.6%, while lead reversed earlier gains to close flat.

Their counterparts on the LME climbed across the board on Monday. Nickel surged 3.3% to lead the gains across the nonferrous complex, copper jumped 2.1%, aluminium advanced 1.4%, tin rose 1.2%, zinc increased by 0.8% and lead gained 0.6%.

The US dollar index, which tracks the greenback against a basket of its peers, weakened slightly in the morning of Asian trading hours on Tuesday after touching a two-week trough of 96.500 in the previous session. Oil prices, meanwhile, reversed earlier gains to move lower.

Copper: Three-month LME copper hit its highest since January 22 at $6,143/mt on Monday, before finishing the day 2.08% higher at $6,140/mt. It is expected to trade between $6,150-6,210/mt today.

The most-active SHFE August contract gained 0.88% to 49,320 yuan/mt in overnight trading, and is likely to move between 49,300-49,800 yuan/mt today. Spot premiums are seen slightly higher at 20-40 yuan/mt as buying interest has recovered somewhat.

Aluminium: Three-month LME aluminium advanced 1.43% to four-week highs of $1,635/mt on Monday. It is likely to move between $1,620-1,660/mt today.

The most-liquid SHFE August contract notched its highest since January 21 at 14,205 yuan/mt in overnight trading, before ending up 0.64% at 14,165 yuan/mt. SMM data showed that social inventories of primary aluminium ingots in China continued to trend lower over the weekend, while the July-August price spreads remain in a backwardation structure. The August contract is expected to move between 14,000-14,300 yuan/mt today.

Zinc: Three-month LME zinc strengthened 0.84% to end at $2,052.5/mt on Monday, after hitting a session-high of $2,064.5/mt earlier in the session. Zinc inventories across LME warehouses extended their decline on Monday, falling 0.2%, or 250 mt to 122,275 mt. The contract is expected to trade between $2,020-2,070/mt today. 

The most-active SHFE August contract fluctuated to end up 0.57% at 16,815 yuan/mt in overnight trading. The strong rally in equities offers support, but weak fundamentals will limit upside in SHFE zinc, which is likely to see the August contract trading at 16,400-16,900 yuan/mt today. Spot premiums for 0# domestic Shuangyan are seen stable at 80-90 yuan/mt over the July contract.

Nickel: Three-month LME nickel surged 3.28% to end at its highest since January 23 at $13,400/mt on Monday, registering a seven-day winning streak and breaking above the upper Bollinger band. Whether it could remain above the 13,400 mark will come under scrutiny today. 

The most-active SHFE October contract also hit its highest since January 23 at 107,810 yuan/mt in overnight trading, before ending up 1.56% at 107,530 yuan/mt. It has also shrug off resistance at the upper Bollinger band and is on track to test pressure at the 108,000 mark.

Lead: Three-month LME lead gained 0.56% to end at $1,795/mt in choppy trading on Monday. Whether it could break above the 1,800 mark will come under scrutiny in the short term.

The most-traded SHFE contract bucked the uptrend to stay flat at 14,625 yuan/mt in overnight trading due to its weak fundamentals.

Tin: Three-month LME tin rose 1.18% to end at its highest since June 12 at $17,100/mt on Monday. The sharp gain sent the contract above the five-60 day moving averages and the contract now faces pressure at previous highs around 17,240.

The most-active SHFE September contract opened at a 10-month peak of 142,800 yuan/mt in overnight trading, and hovered in a tight range to end 1.07% firmer at 142,270 yuan/mt. Immediate support is seen at the five-day moving average at 140,500.