SMM Morning Comments (May 25): Base Metals Closed Mostly with Losses on Demand Concerns

SHANGHAI, May 25 (SMM) - Shanghai and LME base metals mostly closed with losses as US new single-family home sales fell to a two-year low in April, suggesting that the housing market demand is cooling, and the market worried about the weakening economic momentum.

LME copper lost 0.49%, aluminium fell 2.64%, lead slid 0.96%, and zinc fell 0.17%.

SHFE copper lost 0.49%, aluminium fell 0.37%, lead slid 0.66%, and zinc edged up 0.24%.

Copper: LME copper opened at $9,444/mt yesterday, and once dropped to $9,379/mt. At last, the prices closed at $9,484/mt, down 0.49%. Trading volume was 11,000 lots, and open interest stood at 242,000 lots.

SHFE 2207 copper contract opened at 71,310 yuan/mt in overnight trading, and once reached the highest price of 71,520 yuan/mt. At last, the prices closed at 71,410 yuan/mt, down 0.49%. Trading volume was 22,000 lots, and open interest stood at 119,000 lots.

On the macro front, ECB President Lagarde said eurozone interest rates could reach positive level by the end of the third quarter, which gave the euro a boost, while the dollar then extended its decline to a new one-month low of 101.64. In addition, yesterday's release of U.S. new home sales in April fell to a two-year low, while home prices rose sharply by nearly 20% year-on-year to a record high. Home sales continued to be weak, suggesting that the housing market demand is cooling, and the market worried about the weakening economic momentum. As such, copper prices dropped on demand concerns.

In the spot market, spot premiums remained firm as there is only one trading day left before the close of May long-term orders, and because the SHFE front-month and next-month backwardation narrowed to around 250 yuan/mt. Nonetheless, the market has begun to quote with next-month invoices, and the spread between front-month and next-month invoices stood at around 40 yuan/mt. Spot premiums are likely to fall if futures prices rebound and with the approaching of the end of long-term orders for May.

LME copper will trade between $9,430-9,530/mt today; SHFE copper prices are expected to move between 71,300-71,900 yuan/mt. Spot premiums are likely to trade between 320-400 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 20,305 yuan/mt overnight and rose to 20,465 yuan/mt before closing at 20,390 yuan/mt, down 75 yuan/mt or 0.37%.

LME aluminium opened at $2,957/mt on Tuesday and closed at $2,877/mt, down $78/mt or 2.64%.

The domestic aluminium ingot social inventory has maintained a state of destocking, driven by low arrivals in some areas and downstream restocking in Wuxi, Gongyi and other areas. However, due to the recent surge in aluminium prices, there was a significant drop in downstream procurement. Spot prices maintained a small discount against the SHFE front-month contract. With the concentrated arrival of delayed shipments, the decline in domestic aluminium ingot social inventory may slow down. At present, the overall pessimism in industrial product market and the increase in the aluminium supply are still keeping longs cautious. It is expected that SHFE aluminium may continue to move rangebound in the short term. SMM will keep a close eye on recovery of downstream consumption and changes in end demand.

Lead: LME lead opened at $2,188.5/mt and finally ended 0.96% lower at $2,173.5/mt after ranging between $2,160-2,192/mt in the overnight trading. The open interest decreased by 1,512 lots from the previous day to 98,566 lots.

The most-liquid SHFE 2207 lead contract dropped 0.66% to end at 15,035 yuan/mt after opening at 15,100 yuan/mt and ranging between 14,975-15,135 yuan/mt in the overnight trading. The open interest increased by 627 lots from the previous day to 65,496 lots.

SHFE and LME lead slowed down the decline amid the fall of non-ferrous metals. The market shall see whether SHFE lead prices would be stable at 15,000 yuan/mt.

Zinc: LME zinc closed at $3,768.5/mt on Tuesday, down $6.5/mt or 0.17%. The open interest fell 1,449 lots to 217,000 lots. LME zinc is expected to move between $3,740-3,790/mt today. Overnight LME inventory fell 350 mt to 85,650 mt. LME inventory kept falling.

The most traded SHFE 2207 zinc contract closed at 25,565 yuan/mt, up 60 yuan/mt or 0.24% overnight. The open interest rose 2,649 lots to 5,000 lots. SHFE zinc is expected to move between 25,500-26,000 yuan/mt, and domestic 0# Shuangyan zinc in premiums of 50-60 yuan/mt over SHFE 2206. On the supply side, though SHFE/LME price ratio dropped to 6.8, the import window for ore is still open theoretically. Forward smelting cost is likely to drop. On the consumption side, market transactions turned thin again after the orders have been boosted by the recently falling zinc prices. In the spot market, high inventory pressure and sluggish demand suppressed the market, and spot premiums dropped.

Overnight, US new single-family home sales fell to a two-year low in April, potentially as rising mortgage rates and soaring prices pushed first-time buyers and those looking for entry-level properties out of the market. Oil prices closed steadily as concerns over tight supplies offset worries about a possible recession and China's measures to prevent and control COVID outbreak. The dollar index touched its lowest in nearly a month after the euro was given a boost by European Central Bank President Christine Lagarde, who said eurozone interest rates could reach positive levels by the end of the third quarter.

Tin: Domestic and overseas tin inventory did not change much. The import profit window remains open, but import profits declined. Trades in the spot market were poor, and imported tin was sold at a large discount. Overnight, the most-traded SHFE 2206 tin contract fell to a recent low of 270,000 yuan/mt, with investors rolling their positions onto the 2207 contract. Sluggish spot market has suppressed SHFE tin prices. However, the exit of shorts of may drive a brief rally of SHFE tin. 

Nickel: The most traded SHFE 2206 nickel contract went down slightly after opening last night. Nickel futures opened at 206,010 yuan/mt at night and went down to 203,000 yuan/mt as longs reduced positions, then rebounded slightly before fell again to the lowest of 202,910 yuan/mt. In the later period, nickel futures remained at 204,000 yuan/mt, and finally closed at 204,120 yuan/mt, down 1,900 yuan/mt or 0.92% from the previous trading day. The trading volume was 35,000 lots, and the open interest decreased by 6.583 lots to 38,750 lots. LME nickel went down yesterday, and once fell by more than 5%. Meanwhile, almost all of the metals fell overnight, including the SHFE nickel. In terms of fundamentals, as the NPI supply gradually eased, the NPI prices kept falling for a long time. The nickel sulphate prices declined, but the output was limited. As the output of precursors and stainless steel plants was not repaired yet, nickel prices were suppressed amid the cost decline of stainless steel. Nickel futures stocks were still low, and were expected to remain volatile in the short term. In the mid to long term, the stocks may fall amid the falling prices of alternative raw materials.

[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.]