SMM Morning Comments (May 24): Base Metals Closed Mostly with Losses amid Bearish Market Outlook

SHANGHAI, May 24 (SMM) – LME and SHFE base metals closed mostly with losses overnight amid bearish market outlook. On the macro front, the lack of progress in talks to raise the U.S. debt ceiling dampened the market's risk appetite and raised concerns. In addition, expectations of tighter supply in the gasoline market and a warning from the Saudi energy minister to the market raised the prospect of further OPEC+ production cuts.

Copper: LME copper closed at $8,080.5/mt in overnight trading, a drop of 0.76%. Trading volume was 20,000 lots and open interest stood at 255,000 lots. The most active SHFE 2307 copper contract finished at 64,320 yuan/mt, down 0.57%. Trading volume was 57,000 lots and open interest stood at 194,000 lots. On the macro front, the lack of progress in talks to raise the U.S. debt ceiling dampened the market's risk appetite and raised concerns. In addition, expectations of tighter supply in the gasoline market and a warning from the Saudi energy minister to the market raised the prospect of further OPEC+ production cuts. In terms of fundamentals, there were spot cargoes offered for sale under warrants, easing supply tightness. Import profit drove inflows of imported copper, but that did not impact the spot market. This week, the spot quotes fell but remained at a relatively high level, mainly due to sellers holding back cargoes. In terms of consumption, the current downstream demand is insufficient, and production and sales are unbalanced under full production. Most downstream companies are bearish about the market outlook. In terms of prices, the US debt negotiations have made little progress, and the market risk appetite has declined. The US index rose, weighing on copper futures prices. 

Aluminium: The most-traded SHFE 2306 aluminium contract opened at 18,125 yuan/mt overnight, with its low and high at 18,030 yuan/mt and 18,160 yuan/mt before closing at 18,115 yuan/mt, down 30 yuan/mt or 0.17%.

LME aluminium opened at $2,266/mt on Tuesday, with its low and high at $2,216/mt and $2,270/mt respectively before closing at $2,220/mt, a drop of $43.5/mt or 1.92%.

On the macro level, the debt ceiling negotiations have failed to reach an agreement for now, adding to macro uncertainty. The US Fed swings on whether to raise interest rate or not. Consumption recovery is weaker than expected. Falling prebaked anode and coal prices weakened cost support to aluminium prices. SHFE aluminium may hover around 18,000 yuan/mt in the short term.

Lead: Overnight, LME lead opened at $2,087.5/mt and closed at $2,079 yuan/mt, down 0.67%.

The most-traded SHFE 2306 lead contract opened at 15,315 yuan/mt and declined to close at 15,270 yuan/mt, down 30 yuan/mt or 0.2%.

Zinc: LME zinc opened at $2,422.5/mt on Tuesday and went down before closing at $2,354/mt, down $71.5/mt or 2.95%. Trading volume added 1,265 lots to 9,278 lots, and open interest rose 2,652 lots to 186,000 lots. LME zinc inventory decreased by 500 mt to 45,775 mt, a drop of 1.08%. The US Federal Reserve said it may raise interest rates further to curb inflation. The US debt crisis is looming large, thus the market sentiment was bearish, sending LME zinc prices down.

The most-traded SHFE 2307 zinc contract opened at 19,660 yuan/mt overnight and closed at 1,963 yuan/mt, down 435 yuan/mt or 2.17%. Trading volume fell 60,636 lots to 78,236 lots, and open interest rose 349 lots to 138,000 lots. The social inventory of zinc ingots continues to fall, but the fundamentals are about to weaken. Smelters maintain high operating rates. Inflows of imported zinc ingots will have an impact on the domestic market. Downstream consumption is in the off-season. As such, SHFE zinc prices may go down soon.

Tin: SHFE 2306 tin contract prices closed at 195,350 yuan/mt, down 0.38%.

In the spot market transactions, small brands sold tin ingot of at discounts of 500-200 yuan/mt and deliverable brands sold at discounts of 100-500 yuan/mt. The transactions improved slightly than the day before, but the transactions of goods with higher premiums were thin.

Nickel: Nickel inventories declined after transactions picked up, supporting nickel prices recently. The quotations of NPI plants are still firm, and most of them have stopped quotations and took a wait-and-see stance. However, offers of Indonesian NPI fell due to abundant goods in hands of traders.

300-series stainless steel prices in the spot market saw only slight declines due to cost support and limited arrivals. Nickel supply is a little tight, but supply under long-term contract will flow into the market in early June.