SMM Evening Comments (May 12): Shanghai Nonferrous Metals Closed with Losses as Worries about Economic Recession Haunted the Market

SHANGHAI, May 12 (SMM) - Shanghai nonferrous metals closed with losses in day trading. The market's worries about overseas economic recession, the possible US debt default and the overall poor domestic economic data all weighed on metals prices. In addition, the US dollar index rose overnight, further dragging down the metals prices.

SHFE copper fell 2.61%, aluminium lost 1.60%, lead closed down 0.42%, zinc dipped 2.39%, tin slipped 4.51%, and nickel fell 1.85%.

Copper: SHFE 2306 copper fell 1,730 yuan/mt or 2.61% to 64,610 yuan/mt. The open interest rose 1,030 lots to 200,643 lots.

The backwardation structure of the spread between the front-month and next-month contracts widened, encouraging some traders to ship their cargo. SMM survey showed that profits of spot copper imports stood at around 200 yuan/mt, arousing worries about the market supply in the near future. However, the decline in copper futures has boosted downstream consumption to a certain extent, which further pushed up spot premiums. It is expected that the spot premiums will rise slightly after the delivery of the SHFE 2305 copper.

Aluminium: SHFE 2306 aluminium lost 290 yuan/mt or 1.60% to 17,870 yuan/mt. The open interest dipped 693 lots to 200,960 lots.

On Friday, the overall macro sentiment suddenly turned bearish again. Expectations of US interest rate hikes, the banking crisis, and debt ceiling negotiations all sent out negative signals, exacerbating the panic in the aluminium market. Domestic demand recovery still requires strong policy support. Aluminium ingot inventory continued to fall, but the overall performance of the downstream operating rates was mediocre, causing aluminium billet inventory to grow. The domestic aluminium output maintained a slight growth trend. The cost of the aluminium industry has dropped significantly. The output and operating rate of aluminium smelters increased in April. Driven by production resumption, the domestic operating aluminium capacity and output are expected to increase further in May. An increasing share of molten aluminium has been made into billets and other intermediate products. If the end demand is still weaker than expected, smelters may raise their share of ingot output. 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: SHFE 2306 lead closed down 65 yuan/mt or 0.42% at 15,230 yuan/mt, with open interest declining 3,241 lots to 59,924 lots.

SHFE lead dropped today. Some holders were less willing to ship spots and raised their quotes amid the upcoming delivery of the SHFE 2305 lead. The prices of secondary lead dropped. However, the downstream companies restocked on demand, leading to average refined lead trades. The most-traded SHFE lead contract will move rangebound with occasional declines in the short term on a stable macro front.

Zinc: SHFE 2306 zinc dipped 505 yuan/mt or 2.39% to 20,650 yuan/mt. The open interest grew 2,514 lots to 108,301 lots.

Zinc prices slumped today, and spot prices also lost momentum because of the bearish downstream companies. Spot trading once improved when the zinc prices stabilised, but the overall transactions still fell short of expectations.

Tin: SHFE 2306 tin slipped 9,300 yuan/mt or 4.51% to 197,130 yuan/mt. The open interest decreased 5,231 lots to 54,997 lots.

The drop in SHFE tin prices boosted the downstream sentiment and greatly stimulated the spot transactions. Some traders and companies indicated that their shipments grew palpably.

Nickel: SHFE 2306 nickel fell 3,180 yuan/mt or 1.85% to 168,910 yuan/mt. The open interest decreased 4,532 lots to 75,734 lots.

On May 12, premiums of Jinchuan nickel were 11,000-11,500 yuan/mt. The average premium stood at 11,250 yuan/mt, up 2,350 yuan/mt from the previous trading day. NORNICKEL nickel was quoted with premiums of 6,100-6,500 yuan/mt, with an average of 6,300 yuan/mt, up 200 yuan/mt on a daily basis. Jinchuan nickel premiums surged today on supply tightness, but the spot trading was average since the futures prices stood low. Nickel briquette prices were 172,200-172,800 yuan/mt, down 2,600 yuan/mt from the previous trading day. The nickel briquette transactions were slack as it was still traded at premiums over nickel sulphate.

[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.]