SMM Evening Comments (Jul 24): Shanghai base metals trimmed gains as US-China tensions rose

SHANGHAI, Jul 24 (SMM) – SHFE nonferrous metals, except for copper, closed higher on Friday July 24, reversing the decline from the previous day. But the base metals underwent steep declines in the afternoon, due to escalating tensions between the world’s two biggest economies after China ordered the US to close its consulate in Chengdu.

Copper fell for the second day with a drop of 1.01%. Aluminium edged up 0.28%, lead grew 0.74%, zinc climbed 0.34%, tin rose 0.29% and nickel advanced 2.2%.

The ferrous complex mostly fell on Friday, as iron ore lost 2.13%, rebar declined 1.06%, hot-rolled coil fell 1.13%, coke slipped 0.58%, while stainless steel grew 2.09%. 

Copper: The most-traded SHFE contract failed to track gains from overnight and from early trades today, as rising short positions sent it to an intraday low of 51,060 yuan/mt, before the contract finished the day 1.01% lower at 51,220 yuan/mt. Open interest shrank 4,458 lots to 113,000 lots as investors covered their longs. As the KDJ indicators expanded downward and pressure was seen from the five and 10- day moving averages, the contract may test support from 51,000 yuan/mt tonight. 

Stocks of copper in Shanghai bonded areas increased for the third consecutive week, rising 5,000 mt from a week ago to 217,500 mt as of July 24, showed SMM data.

Aluminium: The most-liquid SHFE contract bounced back after declined to an intraday low of 14,305 yuan/mt, as shorts positions took profits and left, before the contract ended at 14,405 yuan/mt, up 0.28% on the day. Open interest shrank 5,886 lots to 103,697 lots. Social inventories have not shown significantly buildup, suggesting healthy downstream demand. The spot market will remain supportive of aluminium prices in the near term. 

Zinc: The most-active SHFE September contract hit a session low of at 17,740 yuan/mt, ending at 17,910 yuan/mt, up 0.34% on the day. Open interest grew 414 lots to 94,872 lots. Due to the conflicts between China and the US over the closure of consulates, the market tends to be risk-averse. Macro uncertainties may keep the contract weak tonight. 

Zinc inventories in China continued to fall this week, primarily propelled by a sharp decline in Shanghai where inflows were affected by heavy rain and floods, showed SMM data. 

Nickel: The most-traded SHFE contract extended its overnight gains in early trades this morning, and pared some increase to finish at 107,620 yuan/mt, up 2.2% on the day. Open interest fell 15,032 lots to 118,735 lots. The contract followed its LME counterpart higher as Elon Musk, chief executive officer of Tesla, publicly called for more nickel mining. The 105,000 yuan/mt level, the Bollinger middle band and the highest level this year of around 110,000 yuan/mt will be monitored. 
SMM data showed that nickel ore inventories across all Chinese ports rose 250,000 wmt from July 17 to 8.08 million wmt as of July 24.

Lead: The most-active SHFE contract recovered losses after it slipped to a session low of 14,800 yuan/mt amid a broad decline in base metals. It closed the day 0.74% higher at 14,975 yuan/mt. Supply tightness in north China will likely support near-term lead prices. It remains to be seen whether the contract could climb above the five-day moving average tonight. 
Social inventories of lead ingots across Shanghai, Guangdong, Zhejiang, Jiangsu and Tianjin ended their ten weeks of increase, dipping over 5,600 mt from a week ago to 42,000 mt, showed SMM data.

Tin: The most-liquid SHFE contract came off after climbed to an intraday high of 143,500 yuan/mt, ending at 141,840 yuan/mt, 0.29% higher on the day. It is expected to trade with support from 140,700 yuan/mt, with pressure from 143,000 yuan/mt.