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SMM Morning Comments (May 17): Base Metals Closed Mostly with Gains on Rallying Demand
May 17, 2022 10:00CST
Shanghai and LME base metals closed mostly with gains as the pandemic situation in China, especially Shanghai, eased to some extent, with expectations of rallying demand. While the US dollar index also dropped, supporting metals prices.

SHANGHAI, May 17 (SMM) - Shanghai and LME base metals closed mostly with gains as the pandemic situation in China, especially Shanghai, eased to some extent, with expectations of rallying demand. While the US dollar index also dropped, supporting metals prices.

LME copper rose 0.84%, aluminium added 0.25%, lead rose 1.73%, zinc jumped 1.71%.

SHFE copper rose 1.2%, aluminium fell 0.61%, lead rose 0.4%, zinc jumped 1.5%.

Copper: LME copper opened at $9,216/mt yesterday and hovered around the daily moving average. The prices once hit the lowest and highest price of $9,208.5/mt and $9,303.5/mt respectively. At last, the prices closed at $9,290/mt, up 0.84%. Trading volume was 10,000 lots, and open interest stood at 250,000 lots.

SHFE 2206 copper contract opened at 71,750 yuan/mt in overnight trading, and once reached over the daily moving average after dropping to 71,320 yuan/mt. At last, the prices closed at 71,610 yuan/mt, up 1.2%. Trading volume was 19,700 lots, and open interest stood at 148,000 lots.

On the macro front, the eased pandemic in Shanghai gradually weakened the risk aversion of the US dollar. After hitting a nearly 20-year high last week, the US dollar index fell for two consecutive days, and copper futures continued to fluctuate. The market should pay attention to the monthly data of the US core retail sales in April to be released today.

Affected by the pandemic situation in Shanghai, the overall customs declaration has not been restored yet. Most smelters will begin to overhaul in May, hence the domestic supply will continue to be weak in the short term. Recently, dropping copper prices picked up the buying interest in the spot market, and the premiums remained firm supported by the low inventory.

LME copper will trade between $9,280-9,380/mt today; SHFE copper prices are expected to move between 71,800-72,400 yuan/mt. Spot premiums are likely to trade between 180-280 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,600 yuan/mt overnight and rose to 20,690 yuan/mt before closing at 20,425 yuan/mt, down 125 yuan/mt or 0.61 %.

LME aluminium opened at $2,824.5/mt on Monday and closed at $2,835/mt, an increase of $7/mt or 0.25%.

Downstream buyers purchased on dips after aluminium prices fell back to 19,600 yuan/mt earlier, but demand weakened after aluminium prices returned to above 20,000 yuan/mt. Downstream production and purchases have not yet fully recovered, preventing aluminium prices from going up further. It remains to be seen how strong the demand recovery will be. The most-traded SHFE aluminium contract is expected to move between 20,000-26,000 yuan/mt in the short term.

Lead: LME lead ended 1.73% higher at $2,114/mt in the overnight trading after opening at $2,073/mt and moving in an upward trend due to the fall of US dollar index.

The most-traded SHFE lead 2206 contract ended 0.40% higher at 14,940 yuan/mt in the overnight trading. The open interest increased by 695 lots from the previous day to 56,410 lots.

LME lead outperformed SHFE lead. The fall of US dollar index boosted LME lead. SHFE lead is expected to rise.

Zinc: LME zinc closed at $3,600/mt on Monday, up $60.5/mt or 1.71%. The open interest rose 146 lots to 230,000 lots. LME zinc is expected to move between $3,600-3,650/mt today. Overnight LME inventory lost 325 mt to 86,225 mt, a decrease of 0.38%. Overseas supply issued remained unsolved amid high electricity prices and no smelters resuming the production.

The most traded SHFE 2206 zinc contract closed at 25,795 yuan/mt, up 380 yuan/mt or 1.5% overnight. The open interest fell 887 lots to 97,571 lots. SHFE zinc is expected to move between 25,500-26,000 yuan/mt, and domestic Shuangyan zinc will be in premiums of 30-40 yuan/mt over SHFE 2206. The consumption side revived to some extent after zinc ingot prices dropped, hence social inventory across seven major markets dropped to 261,100 mt. On the whole, zinc prices are likely to remain rangebound, and the market shall watch the resistance at 26,000 yuan/mt.

Overnight, Putin's language against Finland and Sweden joining NATO softened, but Turkey voiced opposition. Japan and China's holdings of US debt each fell to the lowest in more than two and three years respectively. WHO: North Korea has not yet started vaccination against COVID and the virus could spread rapidly. US stocks S&P 500 closed lower on Monday as Tesla and other growth stocks fell.

Tin: Overnight, SHFE tin fell slightly and still moved within a narrow range, with capital continuing to flow out of the market. In terms of fundamentals, delivery of the SHFE front-month tin contract and weak demand in the spot market resulted in a large accumulation of inventory under SHFE warrants, while LME tin inventory rose slightly. The spot market was sluggish, and the average transaction price stabilised.  Wait-and-see sentiment dominated the market. It is expected that SHFE tin will continue to fluctuate rangebound in the short term.

Nickel: On the supply side, LME nickel fell again yesterday, while SHFE nickel prices were stable and hovered around 200,000 yuan/mt, improving the SHFE/LME price ratio. At 9: 00 p.m. yesterday, the SHFE/LME price ratio stood at 7.5, and the spot imports could gain profits.

At present, the domestic market is short of pure nickel. If the goods in the bonded area are cleared successfully, the tight supply will be greatly improved. In terms of NPI, due to the production cut of steel mills and the falling NPI prices, steel mills purchased goods cautiously, resulting in a sluggish market. In terms of nickel sulphate, the prices of nickel salt fell with the cost, and the resumption of production in the salt plants was less than expected due to the poor spot profits. On the demand side, due to the falling LME nickel and SHFE nickel prices, NPI prices dropped slightly, and steel mills lowered their guidance price. At present, the market mainly holds a strong wait-and-see attitude. In terms of alloy, due to the extreme price moves of LME nickel, the order was postponed to May. However, at present, the ended rigid demand purchase weakens the manufacturer's purchase expectation. To sum up, pure nickel was weak in both supply and demand. The imports in the future market are of utmost concern.

[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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