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SMM Morning Comments (May 12): Base Metals Closed Mostly with Gains on Bullish Macro Front
May 12, 2022 10:00CST
Source:SMM
Shanghai and LME base metals closed mostly with gains as both US and China CPI readings were disclosed. Though the US CPI was still close to the 40-year high, it is unlikely to lead to more aggressive monetary policies. The China government continued to highlight the priority of stabilising economic development.

SHANGHAI, May 12 (SMM) - Shanghai and LME base metals closed mostly with gains as both US and China CPI readings were disclosed. Though the US CPI was still close to the 40-year high, it is unlikely to lead to more aggressive monetary policies. The China government continued to highlight the priority of stabilising economic development.

LME copper jumped 0.07%, aluminium rose 0.42%, lead declined 0.98%, zinc added 1.67%.

SHFE copper inched up 0.03%, aluminium rose 1.75%, lead shed 0.07%, zinc added 0.7%.

Copper: LME copper opened at $9,370/mt yesterday, and once hit the lowest and highest of $9,239.5/mt and $9,390/mt. At last, the prices closed at $9,281.5/mt, up 0.07%. Trading volume was 14,000 lots, and open interest stood at 250,000 lots.

SHFE 2206 copper contract opened at 71,470 yuan/mt in overnight trading and fell after reaching the highest of 71,940 yuan/mt. At last, the prices closed at 71,600 yuan/mt, up 0.03%. Trading volume was 29,500 lots, and open interest stood at 151,000 lots.

On the macro front, the US CPI data released yesterday showed that inflation is still high, but it is unlikely that the US Fed will introduce a more aggressive monetary policy. Bullard said that inflation increased rapidly in April, but it was not far from expectations. The Fed is prepared to raise interest rates by 50 basis points in future meetings. Overnight, the US dollar index fluctuated sharply, and LME copper dropped again after bottoming out.

In the spot market, the basis price dropped from 600 yuan/mt in the backwardation structure to around 350-370 yuan/mt yesterday, and the market quotation also stopped falling and stabilised. The premiums rose as buyers actively bought goods. On the last trading day, the market shall still pay attention to the impact of the change of basis price on the premiums.

LME copper will trade between $9,280-9,380/mt today; SHFE copper prices are expected to move between 71,600-72,200 yuan/mt. Spot premiums are likely to trade between 30-120 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,150 yuan/mt overnight and rose to 20,405 yuan/mt before closing at 20,370 yuan/mt, up 350 yuan/mt or 1.75%.

LME aluminium opened at $2,758/mt on Wednesday and closed at $2,781.5/mt, an increase of $11.5/mt or 0.42%.

Aluminum smelters still maintained production resumption. With the continuous improvement of the pandemic situation, more downstream enterprises have resumed production, and the market confidence as improved. As such, bulls began to enter the market. Aluminum prices may find support in the short term amid improved downstream purchasing enthusiasm.

Lead: LME lead ended 0.98% lower at $2,118/mt in the overnight trading after hitting a new low of $2,103.5/mt since October 1, 2021 due to the high US dollar index.

The most-traded SHFE lead 2206 contract opened at 15,100 yuan/mt then hit a new low of 15,005 yuan/mt since March 15 under the impact of the adding of the short funds, and finally ended 0.07% lower at 15,120 yuan/mt in the overnight trading. The open interest decreased by 1,635 lots from the previous day to 52,519 lots.

Zinc: LME zinc closed at $3,654/mt on Wednesday, up $60/mt or 1.67%. The open interest rose 93 lots to 223,000 lots. LME zinc is expected to move between $3,650-3,700/mt today. Overnight LME inventory fell 825 mt to 88,475 mt. On the fundamentals, overseas macro sentiment recovered to some extent, correcting zinc prices.

The most traded SHFE 2206 zinc contract closed at 25,870 yuan/mt, up 180 yuan/mt or 0.7% overnight. The open interest fell 63 lots to 105,000 lots. SHFE zinc is expected to move between 25,700-26,200 yuan/mt, and domestic Shuangyan zinc will be in premiums of 230 yuan/mt over SHFE 2206. On the fundamentals, market panic was comforted with more bullish news from the macro front, and the future consumption can be expected. In the spot market, the traditional seasonal high was less active than expected, and most players stood wait-and-see, resulting in modest transactions.

Overnight, the U.S. CPI rose 8.3% year-on-year in April, higher than expected and still near a 40-year high; core CPI grew 0.6% MoM, expanding from last month's 0.3% increase. China's CPI rose 2.1% YoY in April and PPI fell back to 8%. State Council: fiscal and monetary policy is oriented towards employment to stabilise the economy in general.

Tin: Overnight, the most-traded SHFE tin contract traded rangebound after a mild rally, with large amounts of capital flowing out of the market. Domestic tin inventory under SHFE warrants and LME tin inventory did not change much. The spot market performed poorly. Imported products maintained price advantage over domestic brands. Although the import window remains open, import profits are expected to decline.  In light of weak short-term fundamentals, SHFE tin may remain volatile and weak.

Nickel: SHFE nickel opened at 203,000 yuan/mt in overnight trading and then hovered around 207,000 yuan/mt. While LME nickel prices are dropping, hence the import window is opened. At last, the prices closed at 206,760 yuan/mt, an increase of 4,420 yuan/mt, or 2.18%, from the previous trading day. Trading volume was 53,300 lots, and open interest decreased by 6,085 lots to 53,700 lots. On the fundamentals, the supply of pure nickel is still tight. Due to the influence of the soaring LME nickel prices and the large output of Indonesia that exceeded expectations, NPI prices in China fell slightly. On the demand side, although the cost of stainless steel slightly dropped, the steel mills still cut the production in May because of the shortage of nickel-based raw materials and transportation restrictions in the early stage. 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.]


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