SMM Morning Comments (Jul 29): Shanghai base metals held onto overnight gains ahead of Fed rate decision

SHANGHAI, Jul 29 (SMM) – Nonferrous metals on the SHFE steadied on Wednesday morning, reversing losses at the opening bell and holding onto overnight gains, as investors await the US Federal Reserve’s interest rate decision.

Those metals cruised higher across the board in overnight trading. Zinc surged 1.7%, aluminium climbed 1.4%, lead advanced 0.7%, copper gained 0.3% and tin edged up 0.2%, while nickel failed to fully recover from opening losses and was down 0.3%.

Their counterparts on the LME were mixed and changes were less than 1% as of 9:56 Beijing time.

On Tuesday, LME nonferrous metals, except for nickel and tin, rose, extending the rally from the previous session. Zinc jumped 1.4% to lead the way up, aluminium climbed 0.9%, copper advanced 0.6% and lead inched up 0.3%.

The US dollar index, which measures the greenback against a basket of its peers, were little changed in the morning of Asian trading hours on Tuesday, still residing around two-year lows.

Meanwhile, oil prices edged lower, even as data from the American Petroleum Institute (API) showed a decline in US crude supplies for last week.

The Fed will conclude its two-day policy meeting Wednesday. The central bank is expected to keep interest rate unchanged at near zero to support the economy still struggling with the coronavirus pandemic. On Tuesday, the Fed announced it would extend its emergency lending programs through the remainder of 2020.

Copper: Three-month LME copper firmed 0.61% to $6,469/mt in choppy trading on Tuesday. It is expected to trade between $6,400-6,470/mt today.

The most-active SHFE September contract recovered from open losses to end 0.25% higher at 51,830 yuan/mt in overnight trading. It is likely to move at 51,500-51,900 yuan/mt today. Spot premiums are seen stable at 30-100 yuan/mt as sellers and buyers are locked in a stalemate.

Copper prices are likely consolidating as investors weigh rising coronavirus cases globally against stimulus hopes. Continued tightness in supply will also offer support.

Aluminium: Three-month LME aluminium strengthened 0.91% to end at $1,725.5/mt on Tuesday, after hitting its highest in nearly five months at 1,728 earlier in the session. It is likely to move at $1,700-1,740/mt today.

The SHFE September contract rose 1.43% to end at 14,500 yuan/mt in overnight trading. Ample liquidity and continued robustness in consumption buoy SHFE aluminium prices. The contract is expected to trade at 14,300-14,700 yuan/mt today.

Zinc: Three-month LME zinc boomeranged on Tuesday, coming off a more than two-week high of $2,271/mt to an intraday low of 2,212 before rebounding to finish the day 1.43% higher at 2,267. The back-to-back gains in LME zinc prices came despite continued increases in inventories. Data showed that zinc stocks across LME warehouses increased sharply on Tuesday, jumping 8.92%, or 14,175 mt to 173,000 mt. LME zinc is expected to trade between $2,230-2,280/mt today.

The most-active SHFE September contract jumped 1.65% to 18,460 yuan/mt in overnight trading, near the upper Bollinger band. Continued optimism over consumption underpinned SHFE zinc prices, as infrastructure supports galvanising and recovery overseas bolsters die-casting. Expectations of reconstruction after floods also boost optimism over zinc consumption. Increases in supply, however, weigh on prices. The September contract is expected to move between 18,100-18,600 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen stable at 80-90 yuan/mt over the August contract.

Nickel: Three-month LME nickel followed its SHFE counterpart higher to a new five-month peak of $13,995/mt in early Asian trading hours on Tuesday. It later turned around to slip to an intraday low of 13,510 before recouping some losses to finish the day 0.72% lower at 13,700. It is expected to continue to consolidate today, waiting for a direction, with a support confluence of the 10- and 20-day moving averages and resistance at 14,000.

The most-active SHFE October contract climbed in overnight trading, clawing back some losses from a lower open to close 0.27% lower at 109,790 yuan/mt. Whether it shrug off resistance at the 110,000 mark will come under scrutiny today.

Lead: Three-month LME lead reversed earlier losses to a two-week peak of $1,870/mt before erasing some gains to end just 0.3% firmer at $1,861/mt on Tuesday.

The most-active SHFE September contract reversed an earlier slip to end 0.72% higher at 15,480 yuan/mt in overnight trading. Positive fundamentals are likely to help SHFE lead shrug off immediate resistance in the short term.

Tin: Three-month LME tin came off from a new one-year peak of $18,250/mt on Tuesday, and closed 0.14% weaker at 18,025/mt. Pressure is seen at 18,200, while support is at 17,900.

The SHFE October contract recovered from earlier losses to end 0.18% higher at 149,200 yuan/mt in overnight trading, as bullish institutional investors piled into the market. It now faces pressure at 152,000.