SMM Evening Comments (Jul 7): Shanghai base metals mostly rose amid macroeconomic optimism

SHANGHAI, Jul 7 (SMM) – SHFE nonferrous metals ended higher for the most part on Tuesday July 7, even as some retreated after a rally on Monday, as investors weighed growing expectations of an economic revival in China and a resurgent US services industry.

Expectations of a rebound in the global economy increased after data from the Institute for Supply Management (ISM) on Monday showed a surprise expansion in the US services sector.

Copper extended a rebound since April and closed up 0.96% on the day. Nickel led the gains with a rise of 1.12%, tin finished 0.26% higher, lead grew 0.31%, while aluminium shed 0.11% and zinc slipped 0.09%.

The ferrous complex also traded higher as iron ore advanced 2.68%, lifted by reduced shipments from Australia and Brazil. Rebar went up 0.53%, hot-rolled coil rose 0.81%, stainless steel increased 0.71%, and coke inched up 0.94%. 

China's environmental authorities on Monday issued the ninth batch of copper, aluminium and steel scrap import quotas for 2020, which was the largest since April.

Copper: The most-traded SHFE August contract rose on a buildup of longs and departing shorts, to a session high of 49,610 yuan/mt and closed 0.96% higher on the day at 49,360 yuan/mt. Open interest shrank 2,695 lots on Tuesday to 114,000 lots. Three-month LME copper also stayed at highs above the $6,100/mt threshold. With support from the five-day moving average and bullish signals from technical indicators, the SHFE contract may track its LME counterpart and test 49,500 yuan/mt tonight. 

Aluminium: The most-liquid SHFE August contract pulled back from highs as investors covered their bullish positions. It gave up overnight gains and slipped to an intraday low of 14,005 yuan/mt, closing the day at 14,055 yuan/mt, down 0.11% on the day. Low inventories will underpin the contract tonight. 

Zinc: The most-active SHFE August contract relinquished gains from last night and Monday as a rise in short positions sent the contract to a session low of 16,635 yuan/mt. It pared some losses and finished the day 15 yuan/mt lower at 16,705 yuan/mt. Open interest grew 2,864 lots to 88,998 lots. Weakness in fundamentals amid a slow season failed to support prices, but optimism around the macroeconomic development will cap their downsides. 

Nickel: The most-traded SHFE October contract jumped to a fresh high since the Chinese New Year holiday in February, at 108,100 yuan/mt, before it retreated to hover around 107,100 yuan/mt in the afternoon and finished the day 1.12% higher at 107,070 yuan/mt. Support from longs sustained the price rally since last Friday. Tonight, pressure above from 108,000 yuan/mt will be monitored. 

Lead: The most-active SHFE August contract bounced back from an intraday low of 14,585 yuan/mt, rising to a high of 14,710 yuan/mt, ending slightly higher on the day at 14,670 yuan/mt with pressure from the five-day moving average. With support from 14,650 yuan/mt, the contract may continue to hover between the five- and 10- day moving averages tonight. 
Open interest in the SHFE August contract declined 1,062 lots today while that in the SHFE September and October contracts added a combined 300 lots. 

Tin: The most-liquid SHFE September contract trimmed gains from the previous session as longs took profits and exited, sending the contract to an intraday low of 140400 yuan/mt before it closed 360 yuan/mt higher on the day at 141,130 yuan/mt. Open interest decreased 871 lots to 31,340 lots. Support below is seen from the five-day moving average, or 140,000 yuan/mt tonight.