SMM Morning Comments (Jun 28): Base Metals Closed Mostly with Gains with Shorts Paying Off

SHANGHAI, Jun 28 (SMM) – SHFE and LME base metals closed mostly with gains as the shorts withdrew from the market after paying off. The market sentiment, on the other hand, has also stabilised as the US core durable goods orders grew by 0.5% in May, adding credibility to Fed Chairman Powell's assertion that the economy is strong enough to withstand interest rate hikes to curb the impact of inflation.

LME copper rose 0.42%, aluminium added 1.55%, lead gained 2.45%, and zinc jumped 0.51%.

SHFE copper rose 0.66%, aluminium added 0.7%, lead gained 1.23%, and zinc jumped 2.18%.

Copper: LME copper opened at $8,367.5/mt on Monday, and once fell to $8,330/mt before rebounding to $8,431.5/mt. At last, the contract closed at $8,357/mt, up $35/mt, or 0.42%. Trading volume was 11,400 lots, and open interest stood at 231,000 lots.

The most-traded SHFE 2208 copper contract opened at 63,760 yuan/mt on Monday, and once rose to 64,110 yuan/mt before dropping to 63,470 yuan/mt. At last, it closed at 63,860 yuan/mt, up 420 yuan/mt or 0.66%. The trading volume was 51,700 lots, and open interest stood at 143,000 lots.

On the macro front, despite the recent intensive concerns on an economic recession, data showed that US core durable goods orders grew by 0.5% in May, adding credibility to Fed Chairman Powell's assertion that the economy is strong enough to withstand interest rate hikes to curb the impact of inflation, which is at a multi-decade high, and will not fall into recession. As such, the market sentiment has picked up, giving support to the dollar, and copper prices are still recent subject to macro disruptions.

In the spot market, spore premiums rose slightly from last week in the last week of June, and the customs clearance volume increased amid steadily rising SHFE/LME price ratio, indicating more sources expected to circulate in the market in the future. The spot premiums will be subject to the futures market and the SHFE front-month and next-month spread. Some players could restock on dips if the shorts leave the market, but those with great financial pressure will have to go through a tough time around the mid-year.

LME copper will trade between $8,330-8,430/mt today; SHFE copper prices are expected to move between 63,700-64,200 yuan/mt. Spot premiums are likely to fluctuate between 90-140 yuan/mt.

Aluminium: The most-traded SHFE 2207 aluminium contract opened at 19,285 yuan/mt overnight, with its low and high at 19,215 yuan/mt and 19,350 yuan/mt before closing at 19,070 yuan/mt, up 245 yuan/mt or 0.7%.

LME aluminium opened at $2,455/mt on Monday and closed at $2,488/mt, up $38/mt or 1.55%.

The shorts withdrew from the market overnight after paying off, and SHFE aluminium was back to its five-day moving average with resistance at 19,800 yuan/mt. The contract rebounded slightly amid stimulus from the policy end as well as overly low price level. SHFE aluminium is expected to move between 18,900-19,800 yuan/mt.

Lead: LME lead ended 2.45% higher at $1,987/mt in the overnight trading after hitting a high of $2,009.5/mt as non-ferrous metals rose. The open interest increased by 21 lots to 91,384 lots.

The most-liquid SHFE 2208 lead contract rose 1.23% to close at 15,200 yuan/mt in the overnight trading after opening at 15,195/mt and hitting a low of 15,130 yuan/mt. The open interest decreased by 3,608 lots to 47,843 lots.

Zinc: LME zinc closed at $3,329/mt Monday, down $17/mt or 0.51%. The open interest fell 1,929 lots 199,000 lots. LME zinc is expected to move between $3,270-3,320/mt today. Overnight LME inventory added 2,550 mt to 81,725 mt, up 3.22%. LME cash-to-three-month premiums also rebounded to $125/mt. The market shall watch the performance of LME zinc.

The most traded SHFE 2208 zinc contract closed at 23,935 yuan/mt on Monday, up 510 yuan/mt or 2.18% overnight. The open interest fell 1,213 lots to 112,401 lots. SHFE zinc is expected to move between 23,800-24,300 yuan/mt, and domestic Shuangyan zinc in premiums of 60-80 yuan/mt over SHFE 2207 contract. SHFE zinc corrected slightly with short-term supply and demand remaining weak. Investors are advised to stay on the sidelines considering macro risks.

Overnight, deepening Sino-Russian ties raise international concerns, with NATO expected to view China as a "systemic challenge"; G-7 reportedly explores imposing price caps on Russian gas. Chinese central bank governor Yi Gang mentioned downward pressure on the economy and pledged that monetary policy would continue to support the recovery; senior US and Taiwan officials held their first talks on a roadmap for a trade deal; the yuan foreign exchange swap curve sank into negative territory, and the forward settlement balance may tilt in the direction of depreciation.

Tin: SHFE tin hovered sideways last night with large amount of funds of the most-traded SHFE tin contract leaving the market. On the fundamentals, the inventories of domestic warrants and LME tin were stable. The import window opened again as the imported products in the spot market were shipped in discounts, which had a price advantage compared with domestic brands. The most-traded SHFE tin opened at a high level last night, but then moved within a narrow range and hovered sideways.

The funds of the most-traded SHFE tin contract and forward-month contract left the market at the same time, leading to the significant decline in the total amount of funds. To sum up, both spot and futures prices of tin rebounded slightly, but the spot transactions were modest as the demand was less willing to accept the increase of prices. In this case, the funds left the market intensively amid the short-term speculative sentiment. It is expected that the SHFE tin are more likely to continue to hover sideways at a low level.

Nickel: On the supply side, imports of pure nickel spot suffered losses due to the fall of market prices on June 24. In terms of NPI, the prices of nickel ore declined slowly, and the cost of steel mills is unlikely to fall. The prices are now close to the cost. Meanwhile, the supply of NPI market was sufficient, which was bearish for product prices, and the support of NPI was weak. On the demand side, in terms of stainless steel, transactions were flat in Wuxi market. The decline rate of inventory improved compared with May, and the market believes that inventory of stainless steel has been depleted, encouraging traders to purchase. In terms of alloys, the rigid purchase volume of manufacturers increased affected by the falling market prices two weeks ago, and the spot transactions were flat due to the impact of the procurement cycle. To sum up, although the non-ferrous metals picked up yesterday, the supply will remain sufficient in the future, and it is expected that nickel prices may move rangebound.

[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.]