SMM Morning Comments (Jul 12): Shanghai base metals rose across the board as investors watched regional Covid situation

SHANGHAI, Jul 12 (SMM) — Shanghai base metals advanced across the board on Monday morning as investors continued to monitor the Covid situation regionally. Meanwhile, their counterparts on the LME also rose for the most part.

Shanghai base metals all closed higher in overnight trading. Copper rose 1.57%, zinc increased 1.03%, aluminium added 1.28%, nickel jumped 1.58%, lead advanced 1.24% and tin went up 1.09%.

The LME complex performed similarly on Friday. Copper added 1.77%, aluminium rose 1.8%, tin increased 2.04%, lead went up 1.35%, zinc advanced 1.29% and nickel strengthened 2.04%.

Copper: Three-month LME copper rose 1.77% to end at $9,493/mt on last Friday, and is likely to trade between $9,460-9,540/mt today.

The most-active SHFE 2108 copper contract went up 1.57% to close at 69,710 yuan/mt in overnight trading, and it is expected to move between 69,300-69,900 yuan/mt today, while spot premiums will be seen at 130–230 yuan/mt.

The Fed's semi-annual monetary policy report promises to maintain "strong" monetary policy support until the economy fully recovers. The People's Bank of China decided to cut the deposit reserve ratio of financial institutions by 0.5 percentage point on July 15, 2021. This RRR cut is a comprehensive RRR cut. The full release of liquidity in China will stimulate market bulls in the short term, and the focus of copper futures will rise at night. On the spot side, stocks fell 15,000 mt in Shanghai last week. Under the tight market supply, the goods-holders were reluctant to sell the goods, and the premium rose rapidly. Downstream consumers and traders kept purchasing at low prices, and cargo holders controlled the right to speak on prices. It is expected that the premium will increase this week.

Aluminium: Three-month LME aluminium rose 1.78% to close at $2,494/mt on Friday, and is likely to trade between 18,800-19,200 yuan/mt today.

The most-liquid SHFE 2108 aluminium contract rose 1.28% to settle at 19,040 yuan/mt on Friday night, and is likely to trade between $2,500-2,580/mt today.

Last Friday, the European Central Bank said that it would continue to maintain a loose monetary policy in the future, and the People's Bank of China decided to cut the deposit reserve ratio of financial institutions by 0.5 percentage point on July 15, 2021, thus maintaining ample liquidity worldwide. On fundamentals, social inventories of aluminum ingots continued to decrease, but the consumption of profiles in construction and other sectors weakened, and the aluminium billet stocks continued to pile up. The overall domestic aluminum spot gave limited boost to the aluminium contracts. Domestic aluminium output rose slowly in July, and the overall fundamentals showed a decline in aluminium price support. The inflection point of the increase of stocks and the change of long position and short position sentiment will continue to be monitored.

Zinc: Three-month LME zinc rose 1.29% to close at $2,978/mt on last Friday. Zinc stocks at LME-listed warehouses fell 100 mt to 251,200 mt. Last Friday, the weak US dollar provided basic support for LME zinc. The People's Bank of China announced a 0.5-percentage-point RRR cut, releasing trillions of funds, and the liquidity was loose, which supported LME zinc. The contract will test pressure from $3,000/mt in the near term. The contract is likely to trade between $2,930-2,980/mt today.

The most-liquid SHFE 2108 zinc contract rose 1.03% to end at 22,520 yuan/mt in overnight trading. SMM refined zinc output continued to increase month on month in June, and social inventories continued to pile up in the off-season of consumption, which is expected to limit the upside space of zinc prices. The SHFE zinc contract is expected to move between 22,000-22,500 yuan/mt today, while spot premiums for domestic 0# Shuangyan will be seen higher at 200-210 yuan/mt.

Lead: Three-month LME lead settled 1.35% higher at $2,329/mt on last Friday. Whether the contract could keep fluctuating at high and stand firm above $2,300/mt will be monitored today.

The most-active SHFE 2108 lead contract went up 1.3% to close at 15,930 yuan/mt on Friday night. Last Friday night, SHFE lead bulls increased their positions again, boosting SHFE lead to stop falling and rising. However, domestic lead spot trading was tepid, and the pressure of accumulation was on the high side, so it was slightly more difficult to trade at high prices. Whether the contract could keep fluctuating at a high level and stand firm at 15,900 yuan/mt will be monitored today.

Tin: Three-month LME tin closed up 0.08% at $31,750/mt on last Friday.

The most-liquid SHFE 2108 tin contract rose 1.09% at 219,510 yuan/mt on Friday night. Pressure above will be seen from 220,000 yuan/mt today. Support below will be seen from 218,000 yuan/mt today.