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SMM Morning Comments (Jun 5): Base Metals Closed Mostly With Gains On Expectations For A Pause In US Interest Rate Hike

iconJun 5, 2023 10:09
SHANGHAI, Jun 5 (SMM) – LME and SHFE base metals closed mostly with an uptick overnight.

SHANGHAI, Jun 5 (SMM) – LME and SHFE base metals closed mostly with an uptick last Friday.

Copper: LME copper prices closed at $8,247.5/mt last Friday evening, up 0.19%. Trading volume was 21,000 lots and open interest stood at 253,000 lots. SHFE 2307 copper contract finished at 66,130 yuan/mt last Friday evening, up 0.33%. Trading volume was 47,000 lots, and open interest stood at 183,000 lots. On the macro front, the US data released last Friday showed a surge in non-farm employment in May. The market expected the Fed to continue to raise interest rates in July. The focus will turn to the CPI data in May which will determine the path of interest rate hikes in June. On fundamentals, as of June 2, SMM copper inventories in major Chinese markets fell 7,200 mt to 111,100 mt from last Monday, down 7,300 mt from two Fridays ago. Inventories have fallen for four consecutive weeks, but were still 700 mt higher than the same period last year. Due to the inflow of imported copper in east China, and the reduction in downstream replenishment, inventory declines were insignificant. Inventories in south China declined sharply due to limited arriving shipments of imported copper and domestic copper. Downstream demand is expected to be better this week on ample cash flows at the beginning of the month. Copper prices have fluctuated rangebound recently due to the expectations of US interest rate hikes. The market expects that the Fed will pause interest rate hike in June. Copper prices rebounded, but it is expected that the further upside room will be limited.

Aluminium: The most-traded SHFE 2307 aluminium contract opened at 18,480 yuan/mt at last Friday’s night session, with its low and high at 18,370 yuan/mt and 18,520 yuan/mt before closing at 18,385 yuan/mt, down 95 yuan/mt, or 0.51%. LME aluminium opened at $2,275/mt last Friday, with its low and high at $2,256/mt and $2,314.5/mt respectively before closing at $2,267.5/mt, a drop of $2.5/mt or 0.11%.

The United States passed the debt ceiling bill, thus the market risk sentiment has improved, but overseas economic recession concerns still remain. The growth of domestic operating aluminium production capacity has slowed down. Smelters in Yunnan are unlikely to resume production on a large scale in the near term. Demand weakened, but social inventories of aluminium ingots continued to fall as smelters kept low share of ingot output. Low inventories will boost aluminium prices, but the upward room will be capped by poor demand.

Lead: LME lead opened at $2,100.5/mt last Friday, and rebounded above $2,030/mt as the US dollar softened amid expectations that the US would pause interest rate hike. LME lead closed up 1.44% at $2,036/mt. The most-traded SHFE 2307 lead contract opened at 15,070 yuan/mt at last Friday’s night session. Growing lead ingot stocks at delivery warehouses curbed gains of lead prices. The contract closed up 0.3% at 15,095 yuan/mt. Open interest fell 1,357 lots to 58,212 lots.

Zinc: LME zinc opened at $2,281.5/mt last Friday, and hit a high of $2,341.5/mt before closing at $2,301.5/mt, up $24.5/mt or 1.08%. Trading volume rose to 11,335 lots, and open interest increased by 4,058 lots to 200,000 lots. LME zinc inventories were flat at 87,450 mt last Friday. The passage of the US debt bill last Friday led to an improvement in macro sentiment. However, inflationary pressure in the US and fears of oversupply will cap gains of LME zinc prices. 

At last Friday’s night session, the most-traded SHFE 2307 zinc contract opened at 19,380 yuan/mt, and dipped to 19,265 yuan/mt before closing at 19,305 yuan/mt, up 70 yuan/mt or 0.36%. Smelters maintained high production, while consumption barely improved. SHFE zinc prices will face downside risks.

Tin: SHFE 2307 tin contract hovered sideways at last Friday’s night session, and closed up 0.42% at 208,690 yuan/mt.

Nickel: US ADP employment for May was 278,000, much higher than the predicted value of 170,000 but lower than the previous reading of 296,000, suggesting a robust US market. The market shall keep a close eye on the US non-farm payrolls released on the evening of June 2. The Fed might pause rate hikes if it saw a poor US labour market. Traders began to quote pure nickel over the SHFE 2307 nickel contract last Thursday, and the premiums stood low. NPI traders intended to quote high prices as the nickel futures prices rebounded after Indonesia delayed the export tariff policy. On the demand side, the spot prices of stainless steel in the Wuxi and Foshan markets rose slightly amid the rising stainless steel futures prices and growing downstream purchases. The pick-up of spot trades may support the nickel prices in the near term, but in the long run, the high arrival of spot pure nickel in June will drag down the prices.

[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.]

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