SMM Morning Comments (Jun 8): Base Metals Closed Mostly with Gains Amid Expectations For US Interest Hike Grow After Unexpected Rate Hike By The Bank Of Canada.

SHANGHAI, Jun 8 (SMM) – LME and SHFE base metals Closed Mostly with Gains overnight

Copper: LME copper prices closed at $8,293/mt overnight, a decline of 0.38%. Trading volume was 21,000 lots and open interest stood at 252,000 lots. The most active SHFE 2307 copper contract finished at 66,690 yuan/mt overnight, up 0.23%. Trading volume was 48,000 lots and open interest stood at 187,000 lots. On the macro front, after the Bank of Canada unexpectedly raised interest rates by 25 basis points, the U.S. dollar index fell. At the same time, the market was concerned about the suspension of US interest rate hikes in June. Markets were awaiting next week's inflation data which will gauge the path ahead of the Fed's rate hike meeting. In terms of fundamentals, import losses continued to expand. It is expected that the inflow of imported goods in the market will be limited, and smelters will conduct concentrated maintenance in June. Tight spot supply will unlikely alleviate in the short term. In addition, entering June, copper prices continued to rise, the demand of downstream enterprises was not strong. And the enthusiasm for purchasing was also lower than before. Inventory in south China fell again, mainly due to the lack of arrivals. With the rebound of copper prices, the price gap between copper cathode and copper scrap widened, strengthening the substitution of copper cathode by copper scrap. Copper cathode consumption weakened. Copper prices are expected to remain rangebound before the announcement of the Fed’s rate decision.

Aluminium: The most-traded SHFE 2307 aluminium contract opened at 18,130 yuan/mt overnight, with its low and high at 18,080 yuan/mt and 18,190 yuan/mt before closing at 18,175 yuan/mt, up 70 yuan/mt or 0.39%. LME aluminium opened at $2,208/mt on Wednesday, with its high and low at $2,233/mt and $2,208/mt respectively before closing at $2,213/mt, up $7.5/mt or 0.34%.   

On the macro front, the Bank of Canada unexpectedly raised interest rates by 25 basis points last night, raising market expectations for the US Fed’s rate hike in June. The market is waiting for next week’s U.S. May inflation data and the Fed’s interest rate decision. On fundamentals, 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. In addition, 200,000 mt of aluminium capacity will be resumed in Guizhou and Sichuan. 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 Wednesday, LME lead opened at $2,039/mt, and closed up 0.05% at $2,044/mt for the fourth straight days, boosted by rising SHFE lead, after constantly failing to hike over $2,050/mt.

Overnight, SHFE 2307 lead contract opened at 15,165 yuan/mt, and hovered around 15,190 yuan/mt on muted demand after rising to nearly 15,200 yuan/mt amid expected supply decrease, and finally closed up 0.33% at 15,185 yuan/mt. Open interest dropped by 664 lots to 53,761 lots.

In terms of fundamentals, primary and secondary lead supply is expected to shrink in June under the sway of ore and battery waste supply crunch, high cost, and excessive sulfuric acid stocks, which eased the pressure on accumulation of lead ingots. Therefore, lead prices remained picking up. At the same time, SHFE 2306 lead contract will be delivered next week, and pressure on the accumulation of lead ingot social inventory will linger before the delivery. Therefore, lead market will swing on a strong note in a short term.

Zinc: LME zinc hiked yesterday amid supports from the 5-day moving average.  LME zinc inventories decreased by 650 mt, or 0.74%, to 86,625 mt. LME zinc prices rebounded on weak US dollar and improved macro sentiment.

SHFE zinc closed with gains overnight for three straight days.

Zinc supply pressure in China remains due to the arrival of imported zinc and muted consumption. However, considering that zinc prices fell to nearly the cost line earlier, SHFE zinc rebounded.

Nickel: Pure nickel output is on the rise, but the overall inventory remains low. Nickel prices moved rangebound amid mixed bullish and bearish factors. Spot premiums remained stable, and the transactions were average, In terms of NPI, because of the low downstream demand, stainless steel mills pushed for lower NPI prices even though stainless steel futures prices remained firm. On the demand side, stainless steel futures prices rose rapidly yesterday, and the social inventory was at a low-to-medium level. Therefore, the spot holders raised their quotes. SMM expects that the spot stainless steel prices will be stable in the short term. SMM believes that the nickel prices will still move rangebound.

[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.]