SMM Evening Comments (May 5): Shanghai Nonferrous Metals Mostly Closed with Losses with Lead Being the Exception

SHANGHAI, May 5 (SMM) – Shanghai nonferrous metals closed with losses. The Fed announced a 50 basis point rate hike and progressive balance sheet reduction plans, in line with market expectations, and said that a single 75 basis point rate hike in the future was not an option to be "actively considered".

Shanghai copper fell 0.78%, aluminium lost 1.42%, lead added 1.25%, zinc dropped 1.17%, tin decreased 0.4%, and nickel contracted 2.09%.

Copper: The most-traded SHFE 2206 copper closed down 0.78% or 570 yuan/mt at 72,760 yuan/mt, with open interest up 770 lots to 150,524 lots.

On the macro front, the Fed announced a 50 basis point rate hike and progressive balance sheet reduction plans, in line with market expectations, and said that a single 75 basis point rate hike in the future was not an option to be "actively considered". With Powell ruling out the option of a more aggressive rate hike, the US stocks pulled up en masse, and the dollar index quickly dived after paying off.

In the spot market, the pre-holiday SHFE weekly inventory report suggested that the inventory dropped 21,000 mt on a weekly basis, indicating recovering consumption. After the pandemic gets under control in May, the consumption side could be further expected. Premiums are likely to remain high under optimistic demand outlook and low inventory.

Aluminium: The most-traded SHFE 2206 aluminium closed down 1.42% or 295 yuan/mt to 20,525 yuan/mt, with open interest up 9,927 lots to 203,508 lots.

Currently, the 20,000 yuan/mt mark has become the key for SHFE aluminium, where longs and shorts confronted fiercely.

Aluminium ingot social inventory stood at 1,033 million mt as of Thursday May 5, up 46,000 mt from a week ago, down 82,000 mt from the same period last year. The shipment of aluminium may face pressure amid frequent arrivals after the Labour Day holiday, and the downstream consumption is still cautious amid repeating COVID though the pandemic situation has eased and the downstream operating rates rebounded.

LME base metals rebounded despite resistance after US Fed announced to raise the rate by 50 basis points and disclosed balance sheet shrinking timetable.

Lead: The most-traded SHFE 2206 lead closed up 1.25% or 195 yuan/mt at 15,750 yuan/mt, with open interest up 5,078 lots to 53,126 lots.

SHFE lead rose strongly after the Labour Day holiday. Goods holders tended to ship to deliver warehouses amid wide spread between futures and spots, and the discounts of secondary lead expanded palpably, hence the downstream stood cautious.

Zinc: The most-traded SHFE 2206 zinc closed down 1.17% or 325 yuan/mt at 27,450 yuan/mt, with open interest down 5,031 lots to 116,920 lots.

On the fundamentals, the bearish sentiment was contained after US Fed Chair Powell denied a more aggressive rate hike, and the market is again directed by the fundamentals. Market transactions picked up slightly amid falling zinc prices and heightening downstream restocking on tighter circulation of goods in the market.

Tin: The most-traded SHFE 2206 tin closed down 0.4% or 1,330 yuan/mt at 327,080 yuan/mt, with open interest down 1,293 lots to 27,403 lots.

In the spot market, the offs mostly dropped 750 yuan/mt to 335,250 yuan/mt though the SHFE tin prices dropped more palpably from the last trading day in morning session, and some smelters and traders held firm to the prices. Imported tin, which has been relatively high in supply in the market, was sold at around 330,000 yuan/mt, a significant price advantage over domestic tin. SHFE warrants dropped 48 mt to 1,386 mt today.

Nickel: The most-traded SHFE 2206 nickel closed down 2.09% or 4,770 yuan/mt at 223,310 yuan/mt, with open interest down 4,796 lots to 49,349 lots.

SHFE nickel remained high as a whole last week. Though the contract dropped early last week amid multiple bearish factors such as US rate hike and balance sheet reduction, it gained strong support from tight suppl. Nickel sulphate supply was also relatively tight due to short supply of raw materials. The output of high-grade nickel matte, which has not met expectations yet, will be the key to affect the supply in the new energy sector and mitigate nickel briquette supply shortage.

Generally speaking, as pure nickel inventory keeps falling, while the demand side remains sluggish, SHFE nickel prices will fluctuate in a wide range recently.

[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.]