SMM Morning Comments (May 18): Base Metals Closed with Gains on Optimism about US Debt Ceiling

SHANGHAI, May 18 (SMM) – LME and SHFE base metals closed with gains overnight. On the macro front, the US dollar index rose on optimism over a deal to extend the debt ceiling and avoid a US default. Also boosting the dollar was a round of solid economic data suggesting the Fed's rate cuts may be delayed rather than brought forward.

Copper: LME copper closed at $8,308/mt in overnight trading. Trading volume was 21,000 lots and open interest stood at 256,000 lots. SHFE 2306 copper contract finished at 65,750 yuan/mt last evening, up 2.19%. Trading volume was 61,000 lots, and open interest stood at 164,000 lots.

In terms of fundamentals, the spot supply was tight as there had not been cargoes under warrants offered for sales after delivery. Downstream procurement has increased due to lower SHFE copper prices. Spot quotes thus rose. In addition, there will be additional inflows of imported copper due to import profits. Copper prices rebounded as shorts took profits. The guidance for copper prices from fundamentals are still weak.

Aluminium: The most-traded SHFE 2306 aluminium contract opened at 18,480 yuan/mt overnight, with its low and high at 18,450 yuan/mt and 18,545 yuan/mt before closing at 18,470 yuan/mt, up 95 yuan/mt or 0.52%. LME aluminium opened at $2,261/mt on Wednesday, with its high and low at $2,308/mt and $2,258.5/mt respectively before closing at $2,300/mt, an increase of $35/mt or 1.55%.

The negotiations on the US debt ceiling are speeding up, and an agreement may be reached this week. Market is expecting an extension of US debt ceiling, but the US economic downside risk remains high. Fundamentals: The domestic operating aluminium capacity continued to increase in May. In terms of cost, the average price of SMM prebaked anodes plunged month-on-month in May, and the power cost of smelters with captive power plants also declined. Demand is lower than expected, and new orders at downstream enterprises are weak. Overseas demand for aluminium semis is not good. Consumption will hardly improve in May. However, with the rapid decline in global aluminium ingot inventories, the risk of overseas short squeeze has increased. Rising spot premiums in east China should support SHFE aluminium prices. 

Zinc: LME zinc opened at $2,500/mt in overnight trading and finished at $2,524/mt, up $25.5/mt or 1.02%. Trading volume was 7,242 lots, and the open interest lost 3,038 lots to 181,000 lots. The bears in the overseas market was stronger as central banks of many economies signaled at persistent rate hikes regardless of the economic recession.

The most active SHFE zinc 2306 contract opened at 20,920 yuan/mt overnight and closed at 20,890 yuan/mt, up 210 yuan/mt or 1.02%. Trading volume was 63,000 lots, and the open interest decreased by 2,362 lots to 91,000 lots. The downstream demand for zinc ingots remained sluggish as the traditional off-season of galvanizing zinc and die-casting zinc sectors kicked off. The poorer consumption will prevent SHFE zinc prices from rising.

Tin: Last night, SHFE 2306 tin contract prices fell rapidly after opening and rebounded slowly after hitting the lowest point at 198,120 yuan/mt and finally closed at 199,170 yuan/mt, up 1.14%.

In the spot market, traders offered stably. The SHFE tin prices fell more in the previous stage, and rebounded only slightly yesterday. Most traders reported an increase in their transactions compared with the previous two days, but the traders sold at higher premiums only saw sporadic transactions. Overall, as the SHFE tin prices gradually dipped, downstream enterprises were more willing to pick up goods and the spot transactions were better than before.

Nickel: The spot nickel premiums rose yesterday on low market supply. NPI plants held their quotes firm amid low in-plant inventory although nickel futures prices crashed. But some traders cut their quotations only slightly amid high costs and low spot stocks. On the demand side, according to SMM research, driven by the sharp drop in futures prices, the spot stainless steel prices fell further yesterday. Short-term stainless steel spot prices will decline amid the expected growth in supply. To sum up, nickel prices stood low as the trades were made amid the economic recession, but spot trading picked up. The spot supply will grow further with the inflow of spots for warrant delivery.

[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.]