SMM Morning Comments (May 10): Base Metals Closed Mixed on Upcoming US Inflation Numbers

SHANGHAI, May 10 (SMM) – LME and SHFE base metals closed mixed last night. On the macro front, the U.S. dollar rose against most major currencies yesterday, as the market believes that there will be no immediate breakthrough in the U.S. debt ceiling negotiations. Investors seek a safe haven amid economic uncertainty while waiting for the release of U.S. inflation data for clues on the trajectory of interest rates.

Copper: LME copper prices closed at $8,604/mt last evening, up 0.41%. Trading volume was 13,000 lots and open interest stood at 250,000 lots. The most active SHFE 2306 copper contract prices finished at 67,200 yuan/mt last evening, down 0.3%. Trading volume was 21,000 lots, and open interest stood at 180,000 lots.

In terms of fundamentals, the market rebounded to around 67,500 yuan/mt yesterday, and the market still prefers low-priced supply. In the spot market, trading of standard-quality and high-quality copper was muted. Since the sharp drop in copper prices, downstream demand only increased sharply on the same day, and then fell back quickly. Some companies had restocked sufficient inventory when prices were low, and the overall market transaction was sluggish amid poor strong. In addition, according to customs data released on Tuesday, China's copper imports in April fell 12.5% from a year earlier, showing that domestic consumption was not as good as expected. In terms of prices, the Federal Reserve did not say that the rate hike is over, but the choppy stock market and bond market put pressure on the Fed. It is necessary to pay attention to the US CPI data released this week. It is expected that copper prices will still hover at relatively low levels in the near future.

Aluminium: Overnight, the most-traded SHFE 2306 aluminium contract opened at 18,325 yuan/mt, with the highest and lowest prices at 18,345 yuan/mt and 18,260 yuan/mt before closing at 18,300 yuan/mt, down 10 yuan/mt or 0.05%.

LME aluminium opened at $2,327/mt on Tuesday, with its high and low at $2,338.5/mt and $2,293/mt respectively before closing at $2,315/mt, a drop of $3.5/mt or 0.15%.

Overseas macro sentiment has picked up. The US interest rate hike expectations and the debt ceiling negotiations have all sent positive signals, thus the downward pressure on the aluminium market has eased slightly, but there are still many uncertainties in the future. The exports of aluminium semis declined month-on-month. The overall demand was lower than expected. The domestic aluminium supply maintained a slight growth trend. The cost of the aluminium industry has dropped significantly, and it is difficult to have strong support on aluminium prices. The output and operating rate of aluminium smelters increased in April, driven by production resumption.

In May, the domestic operating aluminium capacity and output are expected to increase further. An increasing amount of molten aluminium has been made into billets rather than ingots, pushing up billet inventory. If the end demand is still lower than expected in the future, smelters may produce more ingots instead of billets. As it takes time for weak consumption to be reflected in inventory, aluminium ingot inventory may remain low and continue to drop in May, thus giving some support to aluminium prices.

SMM expects the short-term aluminium prices to come under pressure, but the downside room may be limited under the support of low inventory. Factors to watch: macro front and supply in Yunnan.

Lead: Overnight, LME Lead opened at $2,116/mt and closed at $2,139/mt after hitting the lowest point at $2106/mt and the highest point at $2,140.5/mt, up 1.52%. The open interest decreased 61 lots to 109,000 lots compared with the previous trading day, and the trading volume decreased 116 lots to 3,894 lots.

The most-traded SHFE 2306 lead contract opened at a high of 15,245 yuan/mt and closed at 15,310 yuan/mt after touching a low of 15,240 yuan/mt and a high of 15,315 yuan/mt, up 0.33%. The open interest increased 3,075 lots to 64,315 lots compared with the previous trading day, and the trading volume decreased 16,878 lots to 21,633 lots.

Zinc: LME zinc opened at $2,686.5/mt in overnight trading, touching a high and a low at $2,695/mt and $2,657/mt respectively, and finished at $2,668.5/mt, down $12.5/mt or 0.47%. Trading volume was down to 6,115 lots, and the open interest added by 39 lots to 186,000 lots. LME zinc inventory shed by 775 mt or 1.49% to 51,225 mt.

The most active SHFE zinc 2306 contract opened at 21,430 yuan/mt overnight and closed down 40 yuan/mt or 0.19% at 21,415 yuan/mt. Trading volume was down to 41,867 lots, and the open interest narrowed by 1,617 lots to 106,000 lots

The domestic zinc supply remains ample, while the consumption is sluggish. The high-priced transactions are rare, providing weak support for zinc prices. Closely-watched U.S. inflation data due on Wednesday will offer greater insight into zinc price change.

Tin: SHFE 2306 tin contract prices rebounded after hitting the lowest points at 205,110 yuan/mt and closed at 206,530 yuan/mt, down 2.28%.

In the spot market, the discounts offered by small brands once stood at 1000 yuan/mt against the SHFE 2306 tin contract while the market discounts were 1500-1000 yuan/mt. However, due to slight increase in tin prices yesterday, SHFE tin prices rebounded slightly and downstream enterprises were unwilling to purchase. But some traders may have procurement demand recently.

Nickel: Nickel prices continued to fluctuate yesterday, and the spot transactions were average. On the supply side, some NPI factories have stopped quoting due to better orders, and traders generally raised their quotations. As a result, the occasional fall in nickel prices had little impact on market sentiment. On the demand side, the spot stainless steel transactions slightly cooled down during the day. And the spot quotes of actual trades might fall further. SMM believes that the SHFE nickel will remain 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.]