SMM Morning Comments (Jun 7): Base Metals Diverged, Market Eyeing US Inflation Data before Upcoming Fed June Meeting

SHANGHAI, Jun 7 (SMM) – LME and SHFE base metals showed mixed performance overnight.

Copper: LME copper prices closed at $8,325/mt overnight, a drop of 0.04%. Trading volumes were 16,000 lots and open interest stood at 250,000 lots. The most active SHFE 2307 copper contract finished at 66,780 yuan/mt overnight, up 0.42%. Trading volume was 28,000 lots and open interest stood at 186,000 lots. On the macro front, the Australian dollar jumped after the Reserve Bank of Australia unexpectedly raised interest rates, while the US dollar index fell after rising. The market is focusing on inflation data before the Fed meeting. In terms of fundamentals, the tight supply of goods in east China has not been completely alleviated. Sellers were unwilling to adjust prices. Downstream buying interest weakened significantly and the overall trading was quiet. Spot quotes will remain high ahead of delivery. In south China, spot quotes fell due to higher SHFE copper prices and weaker consumption.  It is expected that copper prices will fluctuate at the current level in the near term.

Aluminium: Overnight, the most-traded SHFE 2307 aluminium contract opened at 18,050 yuan/mt, with its low and high at 18,015 yuan/mt and 18,105 yuan/mt before closing at 18,070 yuan/mt, down 40 yuan/mt or 0.22%. LME aluminium opened at $2,238/mt on Tuesday, with its low and high at $2,205.5/mt and $2,246/mt respectively before closing at $2,205.5/mt, a drop of $34.5/mt or 1.54%.   

On the macro front, the current market generally believes that the Fed may suspend interest rate hike in June to assess the impact of higher interest rates on the economy. I is necessary to pay attention to the inflation data to be released before next week's meeting. Hydropower generation in Yunnan has gradually improved recently. SMM predicts that a small amount of aluminium capacity may be resumed in the province in late June. The overall growth of domestic operating aluminium capacity has been slow. On the demand side, downstream consumption has gradually entered the off-season. However, due to the high proportion of molten aluminium output at smelters, aluminium ingot social inventories continue to drop. Inventory decline may slow down as more cargoes arrive. Short-term aluminium prices are expected to remain rangebound.

Lead: On Tuesday, LME lead opened at $2,030/mt, and closed up 0.49% at $2,043/mt, with the highest price at $2,049/mt after an uptick for three straight days on the volatile US dollar.

Overnight, SHFE 2307 lead contract opened at 15,095 yuan/mt, and then bounced back, but closed up 0.46% at 15,130 yuan/mt. Open interest dropped by 225 lots to 59,233 lots.

Tight raw material supply put cost pressure on smelters, especially secondary lead smelters, who have cut output, thus slowing down lead ingot inventory accumulation. However, poor demand will limit upside room of lead prices. 

Zinc: LME zinc hiked yesterday amid supports from the 10-day moving average.  LME zinc inventories decreased by 175 mt, or 0.2%, to 87,275 mt. LME zinc market stayed range-bound after impact from the U.S. debt issue has faded.

SHFE zinc closed with gains overnight.

SMM data showed the output of refined zinc in China was 564,500 mt in May, slightly exceeding expectations, and is expected to be 535,900 mt in June amid maintenance in Guangxi, Henan, Gansu, Shaanxi, Inner Mongolia. It is expected that there is still room for decline in the output of Inner Mongolia and other places in July. On the whole, zinc prices rebounded in the short term under policy support, but the fundamentals suppressed the gain.

Tin: SHFE 2307 tin contract hit a low of 207,810 yuan/mt overnight, but then quickly bounced back, closing up 0.26% at 209,170 yuan/mt.

Nickel: Recently, volatile nickel price were monitored, and the spot transaction was modest. In terms of NPI, stainless steel and nickel futures prices firmed up yesterday, but spot trades remained muted. On the demand side, according to SMM research, the stainless steel market fluctuated upward within the trading session, but spots transactions remained luck-warm. Warrants were less popular after nickel futures prices rose, slowing down the decline in warrant inventory. To sum up, pure nickel supply and demand patterns are stable, but nickel price is expected to move sideways amid the changing macro front.

[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.]