SMM Morning Comments (May 9): Base Metals Closed Mostly with Losses on Constantly Rising US Dollar Index

SHANGHAI, May 9 (SMM) - Shanghai and LME base metals closed mostly with losses as the US Fed’s rate hiking strategy remained unchanged, and the constantly rising US dollar index pressured metals prices.

LME copper dropped 0.76%, aluminium fell 3.44%, lead declined 1.87%, zinc slid 2.39%.

SHFE copper lost 0.36%, aluminium fell 1.78%, lead shed 0.03%, zinc slid 1.88%.

Copper: LME copper contract opened at $9,473/mt last Friday, and once fell to the lowest price of $9,380/mt. At last, the prices closed at $9,388/mt, down 0.76%. Trading volume was 15,000 lots, and open interest stood at 254,000 lots.

SHFE 2206 copper contract opened at 71,900 yuan/mt in overnight trading and hovered around the daily moving average. Within the range, the prices rebounded to 72,040 yuan/mt after falling to 71,520 yuan/mt. At last, the prices closed at 71,910 yuan/mt, down 0.36%. Trading volume was 37,000 lots, and open interest stood at 153,000 lots.

On the macro front, the latest data from the US Bureau of Labour Statistics on Friday showed that the number of non-farm payrolls in the US increased by 428,000 in April, better than the expectation of 380,000. However, the hourly wage increase was less than expected, and the labour participation rate dropped to 62.2%, which failed to change the expectation of the Fed's interest rate hike. Besides, the long-term US bond yield resumed rising. On Friday night, the US dollar index continued to rise, which put downward pressure on copper prices. In addition, the continued decline of US stocks aggravated the market's worries about economic recovery, which also provided a bearish outlook for copper prices.

In the spot market, last Friday, the spread between the front-month and next-month contracts expanded to 500-550 yuan/mt, and traders dumped their goods for cash, hence the premiums could hardly maintain firm. The falling futures prices boosted the downstream purchasing, so the market transactions were active. Next week, the domestic market will gradually enter the delivery cycle. The low inventory in China will probably expand the spread between the front-month and next-month contracts, and the premiums may further drop.

LME copper will trade between $9,300-9,400/mt today; SHFE copper prices are expected to move between 71,400-72,000 yuan/mt. Spot premiums are likely to trade between 120-260/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 19,880 yuan/mt at last Friday’s night session and rose to 19,955 yuan/mt before closing at 19,905 yuan/mt, down 360 yuan/mt or 1.78%.

LME aluminium opened at $2,936/mt last Friday and closed at $2,835/mt, down $101/mt or 3.44%.

The Fed's interest rate hike, weaker-than-expected US economic data, as well as reports of balance sheet scaling back by the US Fed and economic sanctions triggered market concerns about economic recession, weighing on LME base metals. The pandemic situation in China is still severe. Fast aluminium supply growth and inhibited consumption under the impact of the pandemic will pressure short-term SHFE aluminium prices. 

Lead: LME lead ended 1.87% lower at $2,230/mt on May 6. The open interest decreased by 1,776 lots from the previous day to 11,100 lots.

The most-traded SHFE 2206 lead overnight contract fell 0.03% to end at 15,650 yuan/mt on May 6, after opening at 15,700 yuan/mt and rising to 15,825 yuan/mt. The open interest increased by 297 lots from the previous day to 53,409 lots.

Zinc: LME zinc closed at $3,791/mt last Friday, down $93/mt or 2.39%. The open interest added 575 lots to 221,000 lots. LME zinc is expected to move between $3,740-3,790/mt today. Overnight LME inventory rose 1,200 mt to 94,375 mt. On the fundamentals, rising LME inventory pulled down spot premiums in Europe. And the market started to worry about demand in Europe under less-than-expected economic readings in the US and Europe, pressuring zinc prices.

The most traded SHFE 2206 zinc contract closed at 26,355 yuan/mt, down 505 yuan/mt or 1.88% overnight. The open interest lost 3,160 lots to 114,000 lots. SHFE zinc is expected to move between 26,100-26,600 yuan/mt, and Shuangyan zinc has no quotes recently. On the fundamentals, SMM refined zinc output in April stood at 495,500 mt, down slightly MoM and were less than expected. The demand side, however, was also impacted by the pandemic prevention and control measures, which resulted in low downstream operating rates.

Last Friday, the National Development and Reform Commission held a special meeting to study the coal price regulation and supervision; Chen Yulu, deputy governor of the Central Bank suggested that monetary policy shall be fully used to stabilise economic development, and will go all out to help market players; Li Keqiang made important instructions to stablise employment market, to strive to create more jobs to ensure the completion of the annual employment target..

Tin: At last Friday’s night session, SHFE tin fell rapidly after the opening due to bearish market sentiment, but remained above 320,000 yuan/mt. Capital continued to flow out of SHFE tin market. In terms of fundamentals, the overall performance of the spot market in the two trading days after the Labour Day holiday was weak. Domestic social inventory of tin ingots accumulated sharply due to inflows of imported products, while overseas inventory changes were relatively small. Imported tin will continue to bring certain shock to the domestic spot market. Supply and demand in the tin industry chain will face uncertainties amid the pandemic. As such, market participants will remain cautious and SHFE tin is likely to move sideways.

Nickel: Nickel futures opened at 212,580 yuan/mt in overnight trading and then fluctuated upward. At last, the prices closed at 214,200 yuan/mt, 1,400 yuan/mt lower than the previous trading day, down 0.65%. Trading volume was 54,600 lots, and open interest decreased by 2,388 lots to 54,600 mt lots. Supported by the 60-day moving average, the nickel futures were continuously pulled back. Affected by the US Fed's interest rate hike, the US dollar index hit a new high. LME nickel fluctuated weakly for many days.

In China, commodity trading was sluggish, non-ferrous metals prices generally fell, and so did SHFE nickel. On fundamentals, with the gradual stabilisation and continuous downward trend of LME nickel prices, some refined nickel manufacturers that rely on imports of raw materials have resumed normal production at the end of April, and the slight increase in output in April was basically in line with expectations. However, the supply of pure nickel remains tight as the import window is still closed. On the demand side, the pandemic in China has had a great impact on the manufacturing industry, which further cut the demand for pure nickel. When the pandemic situation further improves, the demand may become better. SMM believes that SHFE nickel is going to be weak in the future market.

[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.]