SMM Morning Comments (May 19): Base Metals Closed with Losses on Rising Risk Aversion

SHANGHAI, May 19 (SMM) - Shanghai and LME base metals all closed with losses when overnight risk aversion sentiment rose as market players were still worried about economy prospect in light of the recent speech from US Fed Chair Powell.

LME copper slipped 1.67%, aluminium lost 1.98%, lead slid 2.24%, zinc fell 1.78%.

SHFE copper slipped 0.79%, aluminium lost 0.54%, lead slid 0.27%, zinc fell 1.3%.

Copper: LME copper opened at $9,317/mt yesterday, and once fell to the lowest of $9,171/mt. At last, the prices closed at $9,180.5/mt, down 1.67%. Trading volume was 11,000 lots, and open interest stood at 244,000 lots.

SHFE 2206 copper contract opened at 71,400 yuan/mt in overnight trading and hovered around the daily moving average. The prices once dropped to 71,000 yuan/mt. At last, the prices closed at 71,160 yuan/mt, down 0.79%. Trading volume was 28,000 lots, and open interest stood at 132,000 lots.

On the macro front, disturbed by the hawkish remarks of the US Fed Chairman Powell, the market is still uneasy about the Fed's policy prospects. Due to the risk aversion sentiment, the U.S. dollar index rose again yesterday, and copper prices fell under pressure at night. In addition, after a number of retailers announced disappointing financial reports, US stocks bore pressure, and the three major indexes plunged, with the Nasdaq closing down by 4.73%. The Dow and S&P recorded the biggest one-day drop in the past two years, which was also bearish for copper prices.

In the spot market, on the second trading day after the delivery of 2205, after the spread between the front-month and next-month contracts expanded to 300 yuan/mt in the backwardation structure, the premiums dropped. The inflow of imported copper mainly affected hydro-copper trading. If the spread between the front-month and next-month contracts continues to expand, the premiums will be further lowered.

LME copper will trade between $9,150-9,250/mt today; SHFE copper prices are expected to move between 71,000-71,600 yuan/mt. Spot premiums are likely to trade between 300-400yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,335 yuan/mt overnight and rose to 20,355 yuan/mt before closing at 20,295 yuan/mt, down 110 yuan/mt or 0.54%.

LME aluminium opened at $2,881/mt on Wednesday and closed at $2,825/mt, down $57/mt or 1.98%.

Yesterday, the most-traded SHFE 2206 aluminium contract continued to fluctuate within a narrow range of 20,200-20,400 yuan/mt. The impact of accident-induced production cuts on aluminium prices has weakened, and the market is now worrying about future new capacity and resumption of closed capacity. In the short term, improving pandemic will have limited support to the aluminium market. If aluminium inventory does not fall sharply this week, aluminium prices will come under pressure again. Slow downstream purchases caused spot discounts to expand. The most-traded SHFE 2206 aluminium contract is expected to move between 20,000-20,500 yuan/mt on Thursday.

Lead: LME lead ended 2.24% lower at $2,048.5/mt in the overnight trading after opening at $2,112/mt and fell to $2,047/mt amid the fall of non-ferrous metal. Open interest decreased by 719 lots to 98,494 lots.

The most-traded SHFE lead 2206 contract ended 0.27% lower at 14,765 yuan/mt in the overnight trading. The open interest decreased by 7,514 lots from the previous day to 47,269 lots.

Zinc: LME zinc closed at $3,587/mt on Wednesday, down $65/mt or 1.78%. The open interest fell 4,055 lots to 221,000 lots. LME zinc is expected to move between $3,580-3,630/mt today. Overnight LME inventory rose 975 mt to 87,100 mt, an increase of 1.13%. Zinc prices were pressured by rising US dollar index overnight.

The most traded SHFE 2206 zinc contract closed at 25,435 yuan/mt, down 335 yuan/mt or 1.3% overnight. The open interest fell 852 lots to 85,179 lots. SHFE zinc is expected to move between 25,300-25,800 yuan/mt, and domestic Shuangyan zinc will be in premiums of 80-90 yuan/mt over SHFE 2206. On the supply side, the import window on the mine side opened when SHFE/LME price ratio rose, though it cannot ease the ore shortage, most smelters have already restocked for the third quarter. Hence it is expected that zinc ingot output is likely to rise slowly in the second half of the year. On the whole, zinc prices are likely to move rangebound.

Tin: Overnight, the most-traded SHFE tin contract traded rangebound after opening slightly higher, with large amounts of capital flowing out of the market. Investors began to roll their positions onto the 2207 contract. Domestic tin inventory under SHFE warrants has shown a significant decrease, while overseas LME tin inventory has remained stable. The import profit window has narrowed, and the premium of imported products has been slightly lowered. Given the sluggish spot market, SHFE tin is expected to face downward pressure in the short term.

Nickel: On the supply side, LME and SHFE nickel prices fell slightly yesterday. The SHFE/LME price ratio dropped from 7.7 the previous day to around 7.6 yesterday, and the import profits narrowed.

In terms of NPI, steel mills with narrow profit margin cut their production, putting pressure on the raw materials.  In the long run, the Indonesian NPI project will increase NPI output, and the prices will go down. In terms of nickel sulphate, the prices of nickel salt fell with the cost, so the salt plants were not active in production, which further led to the limited supply in the market.

On the demand side, in terms of stainless steel, the dropping of Delong prices pushed up the transactions in the Wuxi market somewhat, and the warrants were falling. In the spot market, traders got few goods in their hands, and most of the goods are piled up in the in-plant warehouses. At present, the impact of the pandemic on the spot market is gradually easing. The market mainly holds a bearish outlook, and the spread between the futures prices and the spots prices continues to widen. In terms of alloys, companies in Shanghai have not completely resumed work. Besides, the demand was weak as the alloy plants in Jiangsu finished their purchase. To sum up, the pandemic and the high nickel prices dragged down the demand. The market should pay attention to the import of pure nickel in the future.

[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.]