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SMM Morning Comments (May 10): Base Metals Closed Mostly with Losses on Market Pessimism
May 10, 2022 10:00CST
Source:SMM
Shanghai and LME base metals closed mostly with losses as the market was pessimistic as a whole. Overnight, U.S. stocks fell again, the S&P lost the 4000-point mark. As such, commodity prices plunged, and oil prices fell 6% intraday, but U.S. bonds turned up.

SHANGHAI, May 10 (SMM) - Shanghai and LME base metals closed mostly with losses as the market was pessimistic as a whole. Overnight, U.S. stocks fell again, the S&P lost the 4000-point mark. As such, commodity prices plunged, and oil prices fell 6% intraday, but U.S. bonds turned up.

LME copper dropped 1.26%, aluminium fell 0.25%, lead declined 3.43%, zinc slid 4.64%.

SHFE copper lost 0.25%, aluminium fell 0.08%, lead shed 1.98%, zinc slid 2.59%.

Copper: LME copper opened at $9,184.5/mt yesterday and rose to the highest price of $9,333/mt after falling to $9,139/mt. At last, the prices closed at $9,270/mt, down 1.26%. Trading volume was 21,000 lots, and open interest stood at 253,000 lots.

SHFE 2206 copper contract opened at 70,920 yuan/mt in overnight trading, and once reached the highest and lowest price of 71,660 yuan/mt and 70,870 yuan/mt. At last, the prices closed at 71,500 yuan/mt, down 0.25%. Trading volume was 55,000 lots, and open interest stood at 152,000 lots.

On the macro front, on Monday, the US dollar continued to rise, hitting a new high in the past 20 years. However, the rising momentum was slowed down as the market discussed heatedly whether the US Fed should raise interest rates more aggressively. Therefore, the US dollar index fell at night, and the copper prices bottomed out and then rose. Besides, under the influence of the multiple bearish factors, such as the EU’s shelving the plan to ban the imports of Russian crude oil, the global financial market’s worrying about the interest rate hike and economic recession, and the spread of the pandemic, oil prices plummeted on Monday. As a result, copper prices were dragged down by the rising US dollar, US stocks and the dropping crude oil prices.

The spot market has gradually entered the delivery cycle of May, and the spread between the front-month and next-month contracts once rose to 600 yuan/mt in the backwardation structure, forcing the traders to dump their goods for cash. At present, the open interest of the 2205 contract stands at 17,655 lots, but the warrants of SHFE are only 17,724 mt, putting huge pressure on the position of the 2205 contract. Although the backwardation structure was expanding, quotes still stood at 100 yuan/mt yesterday. If the market continues the trend of yesterday, the premiums may gradually become flat.

LME copper will trade between $9,200-9,300/mt today; SHFE copper prices are expected to move between 71,300-71,900 yuan/mt. Spot premiums are likely to trade between 30-120 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 19,580 yuan/mt overnight and rose to 19,850 yuan/mt before closing at 19,760 yuan/mt, down 15 yuan/mt or 0.08%.

LME aluminium opened at $2,748/mt on Monday and closed at $2,742/mt, down $7/mt or 0.25%.

The domestic aluminium ingot social inventory fell on Monday, but the decline slowed significantly, which caused market concerns. Despite rising costs in May, a lack of support from fundamentals will still pressure aluminium prices. Aluminum smelters continued to resume production, while it takes time for consumption to recover. Therefore, it is expected that SHFE aluminium will continue to be under pressure in the short term.

Lead: LME lead ended 3.43% lower at $2,153.5/mt in the overnight trading when the US dollar index rose sharply and hit a new high within 20 years, dragging down the prices of non-ferrous metal, including nickel, tin and lead. 

The most-traded SHFE lead 2206 contract opened at 15,350 yuan/mt affected by LME lead then fell to a low of 15,260 yuan/mt within two months under the impact of increasing inventory of lead ingot and the adding of the short funds, and finally ended 1.98% lower at 15,320 yuan/mt in the overnight trading. The open interest decreased by 371 lots from the previous day to 47,242 lots.

Zinc: LME zinc closed at $3,615/mt Monday, down $176/mt or 4.64%. The open interest added 89 lots to 221,000 lots. LME zinc is expected to move between $3,550-3,600/mt today. Overnight LME inventory fell 1,800 mt to 92,575 mt. On the fundamentals, LME metals were pressured by pessimistic sentiment, pulling down LME zinc.

The most traded SHFE 2206 zinc contract closed at 25,525 yuan/mt, down 680 yuan/mt or 2.59% overnight. The open interest rose 820 lots to 113,000 lots. SHFE zinc is expected to move between 25,200-25,700 yuan/mt, and domestic 0# zinc would fell 950 yuan/mt. On the fundamentals, SMM zinc ingot social inventory across seven major markets in China stood at 276,000 mt as of May 9, down 1,100 mt from April 29. Export expectation, however, weakened amid rising SHFE/LME price ratio. And the consumption side is also being depressed by the COVID.

Overnight, U.S. stocks fell again, the S&P lost the 4000-point mark. As such, commodity prices plunged, and oil prices fell 6% intraday, but U.S. bonds turned up. China's central bank quarterly monetary policy implementation report: economic stability is still the guiding concept, and it is key to response proactively, boost confidence, and maintain reasonable liquidity; analysis believes that the policy tone of this report is more positive. CBRC: to encourage commercial pension funds to invest in areas in line with national strategies and industrial policies; provide support for the capital market and technological innovation; support the development of the real economy by all means; and help enterprises in order to stabilise the macroeconomic market.

Tin: Overnight, SHFE tin went down after a lower opening with the exit of longs. Spot premiums turned into discounts and sales in the spot market were poor, leading to a sharp increase in tin inventory under SHFE warrants. Overseas inventory remained stable. Imported tin still maintained a price advantage over domestic brands. The inflows of imported tin into the domestic market and poor market demand led to a sharp drop in SHFE tin prices. SHFE tin is expected to fall under expectations for growing supply.

Nickel: SHFE nickel opened at 201,890 yuan/mt in overnight trading. At last, the prices closed at 200,220 yuan/mt, 9,490 yuan/mt lower than the previous trading day, down 4.53%. Trading volume was 72,000 lots, and open interest decreased by 3,269 lots to 56,100 lots. Following the LME nickel prices, SHFE nickel was continuously dropping and fell below the 60-day moving average. 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, and non-ferrous metals prices generally fell. 

On the fundamentals, LME nickel prices fell rapidly to $28,000/mt. 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 import window has not yet been opened, which still causes raw material problems for the downstream stainless steel. The supply is gradually increasing but the demand is weak due to the macro factors. Therefore, SMM believes that SHFE nickel prices will 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.]


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