SMM Morning Comments (May 16): Base Metals Closed Mixed as Traders Awaited Debt Ceiling Negotiations

SHANGHAI, May 16 (SMM) – LME and SHFE base metals closed mixed last night. On the macro front, the US dollar retreated from a five-week high on Monday as markets awaited news from Washington on how to resolve the debt ceiling issue, which could force the US government to default, raising concerns. The huge shocks in the financial market are transmitted to the real economy.

Copper: LME copper prices closed at $8,275/mt last evening, up 0.39%. Trading volume was 14,000 lots and open interest stood at 256,000 lots. The most active SHFE 2306 copper contract finished at 65,060 yuan/mt overnight, up 0.35%. Trading volume was 34,000 lots and open interest stood at 184,000 lots.

In terms of fundamentals, the import window has recently opened, and the inflow of imported copper has increased. This led to ample copper cathode supply. Since entering the second quarter, downstream purchases were relatively active when copper prices fell, but soon fell back due to the lack of domestic demand. It is expected that consumer demand is unlikely to be optimistic in the near future. Due to concerns about the economic recession, the market is more concerned about the US debt default. It is expected that copper prices will remain relatively low in the short term.

Aluminium: The most-traded SHFE 2306 aluminium contract opened at 18,185 yuan/mt overnight, with its low and high at 18,100 yuan/mt and 18,245 yuan/mt before closing at 18,155 yuan/mt, up 40 yuan/mt or 0.22%. LME aluminium opened at $2,243/mt on Monday, with its low and high at $2,221.5/mt and $2,280/mt respectively before closing at $2,269/mt, an increase of $26/mt or 1.16%.

On the macro front, the US debt crisis is fermenting, and market panic still exists. Aluminium output continued to grow. The cost side has no support to aluminium prices. Despite falling aluminium ingot social inventory, market players are pessimistic over future demand. Spot market performed poorly. SMM expects the short-term aluminium prices to remain under downward pressure. 

Lead: Overnight, LME lead prices opened at $2,073.5/mt and rebounded under the falling US dollar index, but failed to hit the high point at $2,100/mt, and finally closed at $2,076/mt, up 0.12%.

The most-traded SHFE 2306 lead contract opened at 15,200 yuan/mt. As the delivery of SHFE 2305 lead contract ended, SHFE lead prices rose quickly to 15,240 yuan/mt, but the momentum was limited. SHFE lead prices hovered at 15,180-15,210 yuan/mt and finally closed at 15,195 yuan/mt, down 0.03%. The open interest fell 4,093 lots from the previous trading session to 55,126 lots.

Zinc: LME zinc opened at $2,557.5/mt in overnight trading and finished at $2,534/mt, down $20.5/mt or 0.8%. Trading volume was 5,830 lots, and the open interest added 1,958 lots to 186,000 lots. When four Fed officials claimed that the interest rate would remain high to tackle the slow decline in inflation, the bearish sentiment filled the market and LME zinc prices thus weakened.

The most active SHFE zinc 2306 contract opened at 20,935 yuan/mt overnight and closed at 20,859 yuan/mt, down 70 yuan/mt or 0.33%. Trading volume was 550,000 lots, and the open interest rose by 1,089 lots to 100,000 lots. As of May 15, zinc ingots across seven markets in China recorded 122,400 mt, down 1,700 mt from last Friday, which offered some support for SHFE zinc price. Since SHFE zinc continues to outperform LME zinc, market players are warned against the possible supply surplus caused by the inflows of imported zinc.

Tin: Overnight, SHFE 2306 tin contract prices fell to the lowest point at 198,060 yuan/mt after opened at a high level, then gradually rebounded and closed at 199,050 yuan/mt, down 0.19%.

In the spot market, although the overall SHFE tin prices fell, the premiums of tin ingot changed little, with small brands selling at discounts of 500 yuan/mt against SHFE 2306 tin contract and imported brands selling at discounts of 1,100-1,000 yuan/mt. As some traders shipped actively last Friday, the remaining tin ingot inventory was relatively low. However, most traders that shipped normally reported that due to the intensive procurement of downstream enterprise last Friday, their shipments yesterday were less than last Friday. But there are a few enterprises reported significant increase in transactions. In general, yesterday's spot market transactions were worse than that of last Friday.

Nickel: Jinchuan nickel premiums surged on low supply yesterday, and the prices may fall somewhat with the ease of supply tightness in the middle of the week. Spot trades improved yesterday on low futures prices. In terms of NPI, the recent drop in nickel prices has boosted the downstream purchases to a certain extent. The NPI suppliers intended to quote high on limited market supply, but the stainless steel mills pushed for lower NPI prices, resulting in a stalemate between buyers and sellers. On the demand side, a stainless steel mill in east China further reduced the hot-rolled coil shipments to the market this week, failing to stimulate the market. The spot prices remained stable yesterday, but the transactions were still slack. Short-term stainless steel spot prices will be stable with occasional falls. In summary, the pick-up in spot transactions affected by the previous decline in nickel prices will play a certain role in supporting nickel prices in the short term.

[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.]