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SMM Evening Comments (May 13): Shanghai Nonferrous Metals Closed Mostly with Losses amid Expected Tightening Monetary Policies
May 13, 2022 19:00CST
Shanghai nonferrous metals closed mostly with losses as further tightening monetary policies are expected on current high inflation in the US.

SHANGHAI, May 13 (SMM) – Shanghai nonferrous metals closed mostly with losses as further tightening monetary policies are expected on current high inflation in the US.  

Shanghai copper lost 0.48%, aluminium added 0.32%, lead slid 0.76%, zinc declined 0.89%, tin decreased 0.93%, and nickel shed 0.21%.

Copper: The most-traded SHFE 2206 copper closed down 0.48% or 340 yuan/mt at 71,060 yuan/mt, with open interest down 699 lots to 155,842 lots.

On the macro front, the US PPI rose 11% year-on-year in April and the US CPI in April was 8.3%, exceeding market expectations. US inflationary pressures remain strong and Biden said curbing inflation is still the first priority, so the market expects more aggressive rate hikes from the Fed. As such, the dollar index hit a new 20-year high of 104.93. Powell, who was nominated for re-election as Fed chairman, reiterated that a 50 basis point hike in each of the next 2 meetings was reasonable and that more measures would be taken if the situation got worse. Market sentiment continued to be cautious and the fall in US stocks weighed on market sentiment, with copper prices falling.

In the spot market, there are only two trading days left before the delivery of SHFE 2206, and the backwardation between front-month and next-month contracted narrowed to 300 yuan/mt. The premiums, on the other hand, rallied to 150-200 yuan/mt amid low social inventory and active restocking. The smelters in east China started to carry out maintenance, and the production efficiency was low with the absence of supplement from imports.

Aluminium: The most-traded SHFE 2206 aluminium closed up 0.32% or 65 yuan/mt to 20,305 yuan/mt, with open interest down 8,719 lots to 175,103 lots.

The social aluminium inventory kept falling, and shipments across the country have been smooth. The traders were active. Meanwhile, more manufacturers resumed work and production with the ease of pandemic, and downstream consumption was also boosted in the short term. Aluminium prices are likely to remain rangebound with active market transactions.

Lead: The most-traded SHFE 2206 lead closed down 0.76% or 115 yuan/mt at 14,925 yuan/mt, with open interest down 5,265 lots to 51,079 lots.

The operating rates of refined lead were relatively stable, while that of secondary lead kept rising. Downstream lead-acid battery sector was still restricted by the seasonal low. The transportation and logistics restrictions from spreading COVID in China eased to some extent, but were still severe in some places.

Zinc: The most-traded SHFE 2206 zinc closed down 0.89% or 230 yuan/mt at 25,525 yuan/mt, with open interest up 687 lots to 101,857 lots.

Natural gas prices rose on the gas cut issue in Ukraine, but it did not have significant impact on zinc prices as the Europe is in the off season in terms of energy consumption. On the fundamentals, TCs of imported zinc concentrate kept rising, indicating rising supply overseas. In China, downstream consumption was still sluggish, and short term demand could hardly rally as the central government requires to stabilise supply and commodity prices.

Tin: The most-traded SHFE 2206 tin closed down 0.93% or 2,670 yuan/mt at 285,540 yuan/mt, with open interest up 443 lots to 35,437 lots.

In the spot market, the upstream players generally lowered their offers by 5,000 yuan/mt from a day ago, with an average of 300,500 yuan/mt. However, according to market response, the shipments in the morning were relatively thin, and the downstream was cautious and purchased on demand. The prices of non-deliverable brands have dropped to a low of 296,000 yuan/mt. SHFE warrants added 264 mt to 2,120 mt, marking an increase of 641 mt in the past week. SHFE tin inventory rose 767 mt to 2,507 mt. The average operating rate of smelters stood at 63.27%, up 0.33 percentage point from a week ago.

Nickel: The most-traded SHFE 2206 nickel closed down 0.21% or 430 yuan/mt at 203,600 yuan/mt, with open interest up 1,677 lots to 63,220 lots.

On the fundamentals, supply of NORNICKEL nickel was tight amid long-lasting import losses. Though domestic pure nickel production improved compared with April, domestic pure nickel relies heavily on imports. Hence the supply remains tight.

For NPI, downstream demand was muted, and short-term prices moved rangebound. The expected production cuts among steel mills and accelerate commissioning of projects in Indonesia will gradually result in oversupply, and NPI prices are likely to fall. On the demand side, spot prices were firm with high cost, and spot transactions were thin further impacted by the pandemic.

In terms of alloy, the orders of alloy companies were postponed due to extreme market for LME nickel in March and April, and the production is recovering to normal after SHFE nickel prices correct.

In the short term, market supply and demand are recovering, and rigid downstream demand offers support to nickel prices. However, nickel prices still deviate from the fundamentals, and long-term negative response from the downstream will pull nickel prices back to normal.

[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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