SMM Morning Comments (Jun 12): Base Metals Closed Mostly With Gains Before The Federal Reserve's Interest Rate Meeting

SHANGHAI, Jun 12 (SMM) – LME and SHFE base metals Closed Mostly with Gains overnight

Copper: LME copper prices closed at $8,339/mt last Friday evening, down 0.39%. Trading volume was 17,000 lots and open interest stood at 253,000 lots. The most active SHFE 2307 copper contract finished at 67,240 yuan/mt overnight, up 0.54%. Trading volume was 50,000 lots, and open interest stood at 184,000 lots. On the macro front, the US labour market has cooled, and the market expectations for the Fed to suspend interest rate hikes strengthened. However, it is necessary to pay attention to the inflation data to be released this week which will guide the Fed's final decision. On the fundamentals, as of Friday June 9, SMM copper inventories in major Chinese markets added 2,500 mt from last Monday to 109,400 mt , down 1,700 mt from two Fridays ago. Inventories have fallen for five consecutive weeks. The increase in inventory in east China is mainly due to more customs clearance of imported copper, while the increase in inventory in south China is due to the large inflows of imported copper and poor consumption. On the demand side, as copper prices continue to rise and the price spread between copper cathode and copper scrap widens, copper cathode consumption will fall. In terms of prices, the domestic stimulus policies have spurred market optimism, and the expectations of Fed’s suspension of interest rate hike also weakened the pressure on copper prices. Recently, copper prices have been strong thanks to the guidance from macro front.

Aluminium: The most-traded SHFE 2307 aluminium contract opened at 18,425 yuan/mt at last Friday’s night session and rose to 18,535 yuan/mt before closing at 18,425 yuan/mt, up 15 yuan/mt or 0.08%.

LME aluminium opened at $2,261/mt last Friday, with its low and high at $2249/mt and $2,284.5/mt respectively before closing at $2,262/mt, a drop of $1.5/mt or 0.07%.

Sharply increasing US initial jobless claims led to growing expectations for the Fed to pause interest rate hike in June. China’s export data was lower than expected, and economic activities are at risk of cooling, but market is expecting stimulus policy. The domestic auto market recovered. The Ministry of Commerce and other government departments have taken measures to boost auto sales. The social inventory of aluminium ingots will continue to fall amid high proportion of molten aluminium output at smelters. Oversupply pressure will not be monitored until the third quarter.

Aluminium prices are expected to fluctuate upwards in the short term, but will face downside risks in the medium and long run due to growing supply and weakening consumption. The most-traded SHFE aluminium contract and LME aluminium are expected to move between 18,000-18,700 yuan/mt and $2,190-2,350/mt respectively this week.

Lead: Last Friday, LME lead opened at $2,042/mt, and trended higher to $2,059.5/mt, but then dipping to $2,040/mt, and finally closed up $2,059/mt, or 0.51%, to $2,059/mt, marking a six-straight-day rise. 

Last Friday’s night session, SHFE 2307 lead contract opened at 15,150 yuan/mt, and kept rising to 15,275 yuan/mt, but closed up 0.56% at 15,250 yuan/mt. Open interest dropped by 1,383 lots to 46,196 lots.

On the macro front, non-ferrous metals improved before the Federal Reserve's interest rate meeting. Rising LME lead gave a boost to SHFE lead. Piling-up of lead ingot before the upcoming 2306 contract delivery will weaken lead price in a short term.

Lead supply will diminish in June due to smelter maintenance. Expected lead ingot inventory build-up amid current muted demand will probably limit upward momentum of SHFE lead.

Zinc: Last Friday, LME zinc trended lower. The Federal Reserve and the European Central Bank didn’t announced major policy decisions. The bulls stayed on the side-lines.

Last Friday, SHFE zinc closed with losses. There was zinc ingot supply overhang on a slack seasonal demand.

Nickel: On the evening of June 8, the US Department of Labor announced that the number of initial jobless claims for the week was 261,000, higher than the expected value of 235,000 and the previous reading of 233,000, suggesting a weak US job market. US bond interest rates and the US dollar index fell that day. But the previously released ADP and non-farm payrolls indicated that the US labor market was optimistic, so the market still highly expected the US Fed to hike the rate in July. On the supply side, nickel prices moved range-bound last week. Spot premiums once stabilized, and the transactions were slack. NPI plants held their quotes firm amid the improvement in macro sentiment and the firm nickel and stainless steel futures prices. On the demand side, according to SMM research, stainless steel futures prices hovered at highs last week amid the favorable macro front. The spot trades were sluggish, which restricted the premium moves. SMM expects that the spot stainless steel prices will be stable in the short term, while nickel prices may trend lower on weak fundamental support.

[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.]