SMM Morning Comments (May 5): LME Base Metals Closed Mostly with Gains on Falling US Dollar Index after Paying Off

SHANGHAI, May 5 (SMM) - LME base metals closed mostly with gains as the US Fed Chair Powell suggested that a 75 basis point rate hike is not an “active choice” in the future, which pulled down the US Dollar index which had paid off in previous sessions.

LME copper jumped 0.59%, aluminium added 1.95%, lead rose 1.53%, zinc gained 1.82%.

Copper: SHFE copper trading was closed during the Labour Day holiday.

LME copper opened at $9,507/mt yesterday and reached the highest price of $9,554/mt after falling to $9,375/mt. At last, the prices closed at $9,510/mt, up 0.59%. Trading volume was 12,000 lots, and open interest stood at 255,000 lots.

On the macro front, after the US Fed announced the plan of raising the interest rate by 50 basis points and gradually shrinking the balance sheet in the early morning, Chairman Powell said that an increase of 75 basis points was not a positive consideration. As a result, the US stocks rose. In addition, the US dollar index plunged rapidly after the recent paid-off bullish outlooks, and the copper prices rebounded and closed up with slight gains.

In the spot market, according to the weekly stock report of SHFE, the inventory dropped by more than 21,000 mt last week. It suggests that the signs of consumption recovery are gradually strengthening, especially in May when the pandemic will be further improved and the comprehensive resumption of work can be expected. After the holiday, with the support of the expected improvement in demand and the low inventory, the premiums will likely rise. However, there are only 8 trading days left before the delivery of 2205 in May after the holiday. The reduction of positions before the delivery may again expand the spread between the front-month and next-month contracts to nearly 600 yuan/mt that appeared in April. By then, the spot premiums will gradually drop under pressure.

LME copper will trade between $9,700-9,800/mt today; SHFE copper prices are expected to move between 73,000-73,600 yuan/mt. Spot premiums are likely to trade between 300-400yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,790 yuan/mt on April 29 and closed at 20,890 yuan/mt, up 105 yuan/mt or 0.51%. LME aluminium opened at $2,924/mt on May 4 and closed at $2,985/mt, an increase of $57/mt or 1.95%.

From the supply side, the pandemic did not affect the overall pace of production resumption by aluminium smelters, but severely hindered shipments of warehouses. Concentrated arrivals of cargoes during the Labour Day holiday will intensify inventory pressure. On the demand side, the pandemic has eased slightly, allowing the downstream operating rates to pick up. In the short term, aluminium prices will remain under pressure due to negative fundamentals and US interest rate hike, even as the US dollar index fell back.

Lead: LME lead opened at $2,267/mt and rushed to $2,324/mt after LME announced to stop the lead warrants in Russia. LME lead ended 1.53% higher at $2,290/mt in the overnight trading. The open interest increased by 387 lots to 113,000 lots from the previous day.

SHFE lead was still closed for the May Day holiday.

Zinc: LME zinc closed at $3,970/mt Wednesday, up $71/mt or 1.82%. The open interest fell 1,206 lots to 221,000 lots. LME zinc is expected to move between $3,950-4,000/mt today. Overnight LME inventory dropped 1,275 mt to 94,075 mt. US Fed interest rate hike in May was finalised, and Fed Chair Powell ruled out the possibility of rising rate by 75 basis points, subsiding the sentiment of shorts.

SHFE was still closed yesterday for the Labour Day holiday. Generally speaking, pre-holiday restocking activities were less than expected, and the market shall watch if the inventory could fall on recovering consumption after the holiday, as well as zinc ingot exports in May. SHFE zinc is expected to move between 27000-27500 yuan/mt, and Shuangyan zinc in premiums of 20 yuan/mt over SHFE 2205.

Overnight, the Fed raised rates and announced shrinking the balance sheet, but ruled out a 75 basis point rate hike in the future; the EU proposed an embargo on Russian oil and Ukraine said Russia stepped up its offensive in the east; and US private job growth in April was the lowest in two years, with service sector employment contracting for the second time this year.

Tin: LME tin did not fluctuate much during the Labour Day holiday. LME tin rallied slightly, and remained above $40,000/mt, and the price volatility fell. Overseas tin inventories did not change much, and LME tin still outperformed SHFE tin. Imported tin continued to enter the domestic market amid an open import profit window. The quotations of imported products in the domestic market had obvious price advantages over domestic brands. Domestic fundamentals are largely stable, but some areas are still at risks of being disturbed by the pandemic. SHFE tin is expected to hover sideways at highs in the short term.

Nickel: LME nickel prices were dragged down by the macro factors and the demand. Nickel stocks across LME-listed warehouses fell 384 mt from the previous day to 72,384 mt as of May 4. SHFE nickel remained rangebound at high levels. At the beginning of last week, although nickel prices were pulled back due to macro factors such as the Fed's interest rate hike and the shrinking of the balance sheet, the shortage of supply still provided strong support to the nickel prices. In addition, the shortage of nickel tightened the supply of nickel sulphate. If the output of high-grade nickel matte can increase substantially, the supply tightness of new energy products and nickel briquette will be alleviated. However, the production of high-grade nickel matte could not meet expectations last week. To sum up, nickel prices bore huge pressure from the poor demand, while the tight supply gave strong support to the prices. SHFE nickel prices are expected to remain rangebound at high levels in the short term.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]