SMM Morning Comments (May 16): Base Metals Closed Mostly with Gains on Easing Worries on Economic Development

Published: May 16, 2022 10:00 (GMT+8)

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Shanghai and LME base metals closed mostly in the positive zone as US Fed Chairman Powell reiterated that he did not actively consider raising interest rates by 75 basis points, which eased the market's fear that tightening monetary policy would harm the US Economy. Meanwhile, China is steadily promoting production resumption in Shanghai, heightening market expectations for future consumption.

SHANGHAI, May 16 (SMM) - Shanghai and LME base metals closed mostly in the positive zone as US Fed Chairman Powell reiterated that he did not actively consider raising interest rates by 75 basis points, which eased the market's fear that tightening monetary policy would harm the US Economy. Meanwhile, China is steadily promoting production resumption in Shanghai, heightening market expectations for future consumption.

LME copper rose 1.9%, aluminium added 1.51%, lead declined 0.19%, zinc jumped 0.35%.

SHFE copper rose 1.2%, aluminium added 2.81%, lead shed 1.23%, zinc jumped 0.87%.

Copper: Last Friday, LME copper opened at $9,073/mt and reached $9,248/mt after falling to $8,988.5/mt. At last, the prices closed at $9,212.5/mt, up 1.9%. Trading volume was 15,000 lots, and open interest stood at 248,000 lots.

SHFE copper 2206 contract opened at 70,580 yuan/mt last Friday night, and once hit the highest price of 71,650 yuan/mt. At last, the prices closed at 71,450 yuan/mt, up 1.2%. Trading volume was 47,000 lots, and open interest stood at 153,000 lots.

On the macro front, last week, US Fed Chairman Powell reiterated that he did not actively consider raising interest rates by 75 basis points, which eased the market's fear that tightening monetary policy would harm the US Economy. Last Friday, the stock market rebounded sharply. The US dollar index fell from a high level at night, and copper futures bottomed out.

In the spot market, futures prices were stable last Friday. Spot premiums in the Shanghai market fell when the imported copper flowed into the market. On the last trading day today, the market will gradually start to offer quotes over the 2206 contract, hence the quotes of premiums are of utmost concern.

LME copper will trade between $9,180-9,280/mt today; SHFE copper prices are expected to move between 71,300-72,000 yuan/mt. Spot premiums are likely to trade between 60-160 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,365 yuan/mt at last Friday’s night session and rose to 20,750 yuan/mt before closing at 20,685 yuan/mt, up 565 yuan/mt or 2.81%.

LME aluminium opened at $2,785/mt last Friday and closed at $2,828/mt, an increase of $42/mt or 1.51%.

The domestic pandemic is gradually under control, and its negative impact on downstream consumption has weakened, allowing market sentiment to improve.An aluminium smelter in Yunnan reduced production due to an accident last Friday, which also boosted market sentiment. Aluminum prices are expected to rebound in the short term. However, in the long run, the upside room of SHFE aluminium will depend on consumption recovery. The most-traded SHFE 2206 aluminium contract is expected to meet resistance at 21,000 yuan/mt and find support at 19,600 yuan/mt.

Lead: LME lead ended 0.19% lower at $2,078/mt on May 13 after hitting a low of $2,056/mt amid the rising US dollar index.

The most-traded SHFE lead 2206 contract ended 1.23% lower at 14,810 yuan/mt on May 13. The open interest increased by 6,790 lots from the previous day to 57,869 lots.

The probability of the Fed raising interest rates by 50 basis points in June fell to 91.1%. If there is a small decline in the US index, LME lead may rise, so as SHFE lead. Lead prices are expected to rise slightly today.

Zinc: LME zinc closed at $3,539.5/mt last Friday, up $12.5/mt or 0.35%. The open interest rose 4,249 lots to 229,000 lots. LME zinc is expected to move between $3,540-3,590/mt today. Overnight LME inventory added 175 mt to 86,550 mt. LME inventory was still low, and overseas fundamentals could underpin zinc prices in the short term. Falling US dollar will also offer some opportunities for a potential rally.

The most traded SHFE 2206 zinc contract closed at 25,520 yuan/mt, up 220 yuan/mt or 0.87% overnight. The open interest fell 306 lots to 101,551 lots. SHFE zinc is expected to move between 25,500-26,000 yuan/mt, and domestic Shuangyan zinc will be in premiums of 50-60 yuan/mt over SHFE 2206. SMM zinc ingot social inventory across seven major markets in China dropped 9,100 mt as of last Friday compared with a week ago (May 9), which has been falling steadily. On the fundamentals, zinc prices were still supported, but market sentiment would contain the upside momentum.

Tin: The most-traded SHFE tin contract fell sharply after opening at last Friday’s night trading session, but then rebounded slightly, with open interest down significantly. Domestic tin ingot social inventories increased sharply last week mainly due to poor demand in the spot market. LME tin inventories did not change much. The fact that LME tin outperformed SHFE tin kept the import profit window open. Given weak fundamentals and upcoming delivery of SHFE front-month tin contract, SHFE tin prices may trade in a narrow range.

Nickel: Affected by the macro factors and the demand, LME and SHFE nickel prices dropped. On the supply side, the current overseas pure nickel is at a loss, and the long-term import loss leads to the shortage of NORNICKEL nickel spots. Although the production of domestic pure nickel is better than that in April, the supply remains tight. In the short term, the downstream demand will be weak, and the prices will keep fluctuating. In the future market, with steel mills' production cut and the increase in production of Indonesian NPI, the nickel supply will be gradually surplus, and the NPI prices will drop sharply. On the demand side, stainless steel got a high in-plant inventory. Due to the high costs, firm spot prices, and the pandemic, spot transactions remained slack. In terms of alloy, the extreme price moves in March and April delayed the orders of the alloy factory. The production gradually resumed as SHFE prices dropped in May. In the short term, the market supply and demand will pick up, and the downstream’s rigid demand will support the nickel prices.

[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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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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