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SMM Morning Comments (May 13): Base Metals Closed Mostly with Losses on Persistent High Inflation
May 13, 2022 10:00CST
Shanghai and LME base metals closed mostly in the negative zone as the inflationary pressure was still high in the US, and the possibility of more aggressive monetary policies when things get worse has made investors cautious.

SHANGHAI, May 13 (SMM) - Shanghai and LME base metals closed mostly in the negative zone as the inflationary pressure was still high in the US, and the possibility of more aggressive monetary policies when things get worse has made investors cautious.

LME copper lost 2.59%, aluminium added 0.16%, lead declined 1.7%, zinc fell 3.48%.

SHFE copper inched up 0.95%, aluminium lost 0.72%, lead shed 0.1%, zinc fell 0.9%.

Copper: LME copper opened at $9,027/mt yesterday and rose to the highest price of $9,100/mt after falling to $8,959.5/mt. At last, the prices closed at $9,041/mt, down 2.59%. Trading volume was 21,000 lots, and open interest stood at 248,000 lots.

SHFE copper 2206 contract opened at 70,300 yuan/mt in overnight trading and rose to the highest of 70,850 yuan/mt after dropping to 70,060 yuan/mt. At last, the prices closed at 70,720 yuan/mt, up 0.95%. Trading volume was 26,000 lots, and open interest stood at 155,000 lots.

On the macro front, the US PPI in April announced yesterday rose by 11% year-on-year, and the inflationary pressure in the US remained strong, stimulating the market's expectation of the US Fed's aggressive interest rate hike. Overnight, the US dollar hit a new high of 104.93 for nearly 20 years. Powell, who was nominated for re-election as chairman of the Fed on Thursday, reiterated that it is reasonable to raise interest rates by 50 basis points at each of the next two meetings.  The market continued to be cautious about the trading, and copper prices were weak and volatile.

In the spot market, there are only two trading days left before the delivery, and the futures prices narrowed slightly again to 300 yuan/mt in the backwardation structure. Buyers were active in purchasing when the market inventory was low, and the premiums returned to about 150-200 yuan/mt. Smelters in east China have begun the overhaul. When the import window is narrowed again, the inventory in China will continue to run at a low level, and the premiums on the last trading day are expected to remain firm.

LME copper will trade between $9,060-9,160/mt today; SHFE copper prices are expected to move between 70,600-71,200 yuan/mt. Spot premiums are likely to trade between 120-220 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 19,945 yuan/mt overnight and rose to 20,235 yuan/mt before closing at 20,095 yuan/mt, down 145 yuan/mt or 0.72%.

LME aluminium opened at $2,778/mt on Thursday and closed at $2,786/mt, an increase of $4.5/mt or 0.16%.

The social inventory of aluminium ingots across mainstream markets in China remains in the state of destocking, the shipments are smooth in various regions. Traders are actively selling and buying. With the improvement of the pandemic situation, more enterprises have resumed operations. Gradual recovery of consumption should provide support to aluminium prices in the short term.

Lead: LME lead ended 1.7% lower at $2,082/mt in the overnight trading after hitting a new low of $2,069/mt since September 30, 2021 due to the high US dollar index.

The most-traded SHFE lead 2206 contract opened at 14,950 yuan/mt then hit a new low of 14,925 yuan/mt within three months under the impact of the fall of LME lead, and finally ended 0.1% lower at 15,025 yuan/mt in the overnight trading. The open interest decreased by 4,449 lots from the previous day to 51,895 lots.

Zinc: LME zinc closed at $3,527/mt on Thursday, down $127/mt or 3.48%. The open interest rose 2,146 lots to 225,000 lots. LME zinc is expected to move between $3,520-3,570/mt today. Overnight LME inventory fell 2,100 mt to 86,375 mt. On the fundamentals, European LME inventory was low, while overnight natural gas prices surged again, indicating tight overseas supply. However, gloomy macro sentiment dragged down zinc prices.  

The most traded SHFE 2206 zinc contract closed at 25,315 yuan/mt, down 230 yuan/mt or 0.9% overnight. The open interest rose 1,951 lots to 103,000 lots. SHFE zinc is expected to move between 25,200-25,700 yuan/mt, and domestic Shuangyan zinc will be in premiums of 230 yuan/mt over SHFE 2206. On the demand side, the macro front in China was moving toward the bullish side, resulting in diverged movements of SHFE and LME metals. In the spot market, goods holders were less willing to hold firm to the prices and lowered their premiums to clinch a deal when zinc prices rebounded, but the actual transactions were still sluggish.

Overnight, Sheng Laiyun, deputy director of the National Bureau of Statistics suggested to keep the economy running in a reasonable range. Chen Yulu, deputy governor of the Central Bank, said that they will put stabilising economic growth in a more prominent position and proactively planning incremental policy tools. Deputy director of the Central Finance Office expressed that it is urgently planning and launching incremental policy tools, and will strike when it's time to strike. The EU started considering postponing the implementation of oil sanctions against Russia.

Tin: Overnight, SHFE tin rallied after the several days of sharp drop, and then fluctuated rangebound. Both longs and shorts flowed out of the market. In terms of fundamentals, changes in domestic tin inventory under SHFE warrants and overseas LME tin inventory were both small. Buyers and sellers in the spot market were cautious, and market transactions were sluggish. Imported products maintained price advantage over domestic brands, and the quotations of some domestic brands were as low as 300,000 yuan/mt.  As the fundamentals are still weak, it is expected that there may be a slight rebound in SHFE tin in the near term, but the price rise will not sustain.

Nickel: SHFE nickel opened at 200,000 yuan/mt in overnight trading and rebounded to 200,000 yuan/mt after dropping to 194,360 yuan/mt. Although LME nickel prices are dropping, the import window remains closed. At last, the prices closed at 199,860 yuan/mt, 4,170 yuan/mt lower than the previous trading day, down 2.04%. Trading volume was 85,600 lots, and open interest decreased by 1,672 lots to 59,900 lots. SHFE nickel futures are gradually returning to the fundamentals. 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 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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