SMM Evening Comments (Jun 6): Shanghai Nonferrous Metals Closed Mixed after Resuming Market from the Holiday

SHANGHAI, Jun 6 (SMM) – Shanghai nonferrous metals closed mixed on the first trading day after the Dragon Boat Festival. The market was relatively bullish as the demand side in China continues to pick up amid policy support. Meanwhile, on May 31 local time, Biden and Powell met and supported a 50bp rate hike at the June and July meetings, easing the worries over a potential 75bp rate hike.

Shanghai copper rose 0.93%, aluminium added 2.62%, lead fell 0.76%, zinc gained 1.46%, tin shed 4.01%, and nickel jumped 1.14%.

Copper: The most-traded SHFE 2207 copper closed up 0.93% or 670 yuan/mt at 72,680 yuan/mt, with open interest up 6,556 lots to 148,193 lots.

On the macro front, on May 31 local time, Biden and Powell met and supported a 50bp rate hike at the June and July meetings, easing the worries over a potential 75bp rate hike. The 27 EU member states formally approved the sixth round of sanctions against Russia. The EU sanctions package includes an immediate ban on insuring new contracts for ships transporting Russian oil, and existing insurance contracts for Russian oil vessels will be phased out over a six-month period. Russian Foreign Ministry spokeswoman Zakharova said on June 3 that Russia may be forced to expand the settlement of its exports in rubles as the West continues to abuse its position in the international financial system. Crude oil inventories in the US continued to decline and the prices of Brent were back to the $120/barrel level.

In China, domestic policies repeatedly emphasised stable economic growth, and the world has raised their expectations on China’s resumption of work and production, boosting copper prices. As such, COMEX, LME and SHFE copper all rose significantly.

In the spot market, market participants were relatively cautious with the recent issue of multiple pledges of the same batch of aluminium stocks, and most of them sold off. Intraday spot premiums fell from high. The downstream, however, only restocked on rigid demand in light of high copper prices. In addition, after Xiangguang Fangyuan started to yield output, domestic supply picks up, and the spot premiums are likely to fall further.

Aluminium: The most-traded SHFE 2207 aluminium closed up 2.62% or 535 yuan/mt to 20,955 yuan/mt, with open interest up 6,681 lots to 180,054 lots.

On the whole, the shorts could not exert power in light of high energy prices and unresolved aluminium stock issue. The longs, on the other hand, successfully broke the resistance at 21,000 yuan/mt, and market players shall watch if the contract would march toward the 21,500 yuan/mt mark tonight. Overnight SHFE 2207 aluminium is expected to move between 20,600-21,300 yuan/mt.

Lead: The most-traded SHFE 2207 lead closed down 0.76% or 115 yuan/mt at 14,945 yuan/mt, with open interest up 4,844 lots to 55,141 lots.

Intraday LME lead was supported by falling US dollar index, and SHFE lead was also boosted by the bullish sentiment and rising cost of secondary lead. The market players shall watch if SHFE 2207 lead could touch 15,100 yuan/mt overnight.

Zinc: The most-traded SHFE 2207 zinc closed up 1.46% or 385 yuan/mt at 26,690 yuan/mt, with open interest up 5,415 lots to 112,059 lots.

The consumption market was poor with sluggish transactions. In the spot market, SMM zinc ingot social inventory across seven major markets dropped 14,000 mt from a week ago as of June 6, boosting market sentiment to some extent.

Tin: The most-traded SHFE 2207 tin closed down 4.01% or 10,810 yuan/mt at 258,980 yuan/mt, with open interest up 2,197 lots to 34,733 lots.

And the main reason for the sharp decline in prices is that the operating rates of smelters last week did not change much. Coupled with the reduction in orders from downstream enterprises, the social inventory rose significantly. According to SMM statistics, the social inventory added 1,267 mt to 4,072 mt. Recent research shows downstream enterprises orders have been falling, down about 20%-30% YoY, which is a result of the weak domestic electronics consumption. For example, from January to April this year, the shipment of domestic mobile phones dropped 17.69%, 31.69%, 40.54%, 34.22% YoY respectively, and the cumulative shipments in the first four months stood at 87.425 million units, the cumulative year-on-year decline of 43.5%. With the lift of lockdown in Shanghai as well as the recent introduction of a series of policies to stimulate residential consumption, it is expected that the subsequent domestic consumption of electronic will gradually pick up.

In the spot market, upstream sellers mostly quoted at 262,000 yuan/mt, down 9,000 yuan/mt from the last trading day. Non deliverable brands were mostly in discounts of 1,000-0 yuan/mt over SHFE 2207. The falling prices also encouraged some downstream players to purchase, evidenced by a more active market today. However, most of the purchases were still made on rigid demand. SHFE warrants added 476 mt to 2,856 mt, and LME tin inventory dropped 80 mt to 2,935 mt as of June 1.

Nickel: The most-traded SHFE 2207 nickel closed up 1.14% or 2,460 yuan/mt at 218,240 yuan/mt, with open interest down 758 lots to 58,539 lots.

On the supply side, pure nickel imports remained profitable. According to SMM research, NORNICKEL nickel that declared the customs last week has entered domestic market, easing pure nickel supply tightness to some extent. Overseas, domestic-produced pure nickel piled up slightly as the prices were quite firm before. The spot transactions picked up with falling premiums and continuous production resumption across the downstream. In terms of nickel briquette, the cost efficiency remained poor, with few transactions. For nickel sulphate, the prices kept falling and were pressured by the difference in the cost of salt factories. On the demand side, stainless steel output in May is unlikely to recover in light of high stocks held by the mills, mid-year maintenance as well as poor terminal demand. To sum up, low inventory will underpin nickel prices amid slightly easing nickel supply tightness and improving demand.

[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.]