SMM Morning Comments (May 11): Base Metals Closed Mostly with Losses on Worries over Economic Recession

SHANGHAI, May 11 (SMM) - Shanghai and LME base metals closed mostly with losses as the market worried about economic recession as the constant high inflation in the US would force the Federal Reserve to take aggressive measures to contain the inflationary pressure.

LME copper dropped 0.05%, aluminium rose 0.76%, lead declined 0.69%, zinc slid 0.83%.

SHFE copper lost 0.85%, aluminium rose 0.46%, lead shed 1.5%, zinc slid 1.98%.

Copper: LME copper opened at $9,290/mt yesterday and fell to $9,151.5/mt after climbing to $9,379/mt. At last, the prices closed at $9,275/mt, down 0.05%. Trading volume was 16,000 lots, and open interest stood at 248,000 lots.

SHFE 2206 copper contract opened at 71,660 yuan/mt in overnight trading and fell to 70,810 yuan/mt after rising to 71,830 yuan/mt. At last, the prices closed at 71,110 yuan/mt, down 0.85%. Trading volume was 43,000 lots, and open interest stood at 156,000 lots.

On the macro front, oil prices fell for the second consecutive trading day, creating a new low in two weeks. The soaring inflation in the US has intensified people's fears that the US Fed will take radical action and cause the economy to fall into recession. As a result, the US dollar rose. Recently, non-ferrous metals prices dropped. The market shall pay attention to the consumer price index data to be released by the US on Wednesday.

In the spot market, with only four trading days left before the delivery of the 2205 contract, the spread between the front-month and next-month contracts and the premiums in Shanghai fluctuated widely. However, low inventory and insufficient warrants supported the premiums to stay around flat. In the future market, the premiums will remain flat on the last trading day as long as the spread between the front-month and next-month stops expanding.

LME copper will trade between $9,160-9,260/mt today; SHFE copper prices are expected to move between 70,800-71,400 yuan/mt. Spot premiums are likely to trade between -30-60/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 19,710 yuan/mt overnight and rose to 19,935 yuan/mt before closing at 19,840 yuan/mt, up 90 yuan/mt or 0.46%.

LME aluminium opened at $2,748/mt on Tuesday and closed at $2,770/mt, an increase of $21/mt or 0.76%.

The costs of aluminium smelters remained at 17,320 yuan/mt in April. Despite recent drop in aluminium prices, smelters still have profits at present. As such, smelters may maintain their output increase plans in the near future. On the demand side, downstream enthusiasm for purchases is not high under the impact of the pandemic. Therefore, SMM predicts that the short-term aluminium prices price will continue to fluctuate within the current range.

Lead: LME lead ended 0.69% lower at $2,139/mt in the overnight trading after it hitting a new low of $2,107.5/mt since October 5 in 2021 due to the high US dollar index. 

The most-traded SHFE lead 2206 contract opened at 15,170 yuan/mt affected by LME lead then fell to a low of 15,080 yuan/mt since March 17 under the impact of the adding of the short funds, and finally ended 1.5% lower at 15,085 yuan/mt in the overnight trading. The open interest decreased by 1,516 lots from the previous day to 48,960 lots.

Zinc: LME zinc closed at $3,564/mt on Tuesday, down $30/mt or 0.83%. The open interest stood at 223,000 lots. LME zinc is expected to move between $3,550-3,600/mt today. Overnight LME inventory fell 3,275 mt to 89,300 mt. On the fundamentals, LME metals performance was still disappointing as the pessimism has not been fully digested, hence LME zinc is still likely to fall.

The most traded SHFE 2206 zinc contract closed at 25,265 yuan/mt, down 510 yuan/mt or 1.98% overnight. The open interest rose 2,350 lots to 119,000 lots. SHFE zinc is expected to move between 25,000-25,500 yuan/mt, and domestic 0# zinc would fell 395 yuan/mt. On the supply side, domestic TCs kept falling as ore supply was still tight, and the capacity on the smelting side could not be fully deployed. On the demand side, downstream operating rates were suppressed by the COVID, and galvanizing plants suffered great losses. Downstream demand was sluggish as a whole. In the spot market, restocking rhythm slowed down as zinc prices have been falling quickly for several days, and transactions thinned.

Overnight, the Development and Reform Commission and other three departments: for the part of annual taxable income of small and micro enterprises from 1 million yuan to 3 million yuan part, the corporate income tax will be halved. China Passenger Car Association: In April, passenger car retail sales fell 35.5% year-on-year, 34% month-on-month, electric car sales fell 36.5% MoM. The Federal Reserve said it does not rule out the possibility of 75 basis point rate hike, the third in command expressed confidence in a soft landing.

Tin: Overnight, the most-traded SHFE tin contract went down after a lower opening, and fell below 300,000 yuan/mt. A small amount of capital flowed out of SHFE tin market after increasing for three consecutive trading days. In terms of fundamentals, the domestic tin inventory under SHFE warrants and LME tin inventory did not change much. Imported tin still maintained a price advantage over domestic brands. Trades in the spot market improved amid the continuous decline in tin prices. Expectations for growing supply and weak demand may will break the short-term supply and demand balance. SHFE tin may rebound after sharp drop, but will remain weak in the short term.

Nickel: SHFE nickel continued to fall and opened at 199,360 yuan/mt in overnight trading. At last, the prices closed at 200,220 yuan/mt, an increase of 480 yuan/mt, or 0.24%, from the previous trading day. Trading volume was 52,000 lots, and open interest decreased by 5,501 lots to 55,300 lots. SHFE 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, and non-ferrous metals prices generally fell.  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. To sum up, nickel prices bore huge pressure from the poor demand, while the tight supply gave strong support to the prices. In the short term, SHFE nickel prices are expected to remain rangebound at high levels.

[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.]