SMM Morning Comments (Jun 20)

SHANGHAI, Jun 20 (SMM) –

Copper: LME copper plummeted to the $6,800/mt level overnight while the SHFE 1808 contract slowed its decline. Support is seen at the $6,800/mt level for LME copper and we believe the SHFE 1808 contract is likely to stabilise at the 51,500 yuan/mt level. In the physical market, downstream consumers were keen to stockpile as futures prices fell. Such purchasing enthusiasm, however, would be limited given the declining market and cash flow woes towards the end of the month. Spot discounts are seen at 160-100 yuan/mt today.

Aluminium: LME aluminium fell and broke the $2,200/mt level overnight as US housing starts surged to the highest level since July 2007 in May and as the US dollar index registered a fresh high in 11 months. Without support from fundamentals and as the US dollar and trade tension grow, we see further downward room for LME aluminium. It is likely to trade at $2,160-2,195/mt today. As shorts took profit and left, the SHFE 1808 contract rebounded to a high of 14,175 yuan/mt overnight. It then hovered around the daily moving average within a narrow range as longs and shorts were keen to close out their positions and took a watch-and-wait stance. As bearish sentiment lingered, we expect the contract to trade weakly and test the 14,000 yuan/mt level today. It is likely to trade at 14,000-14,200 yuan/mt with spot discounts at 60-20 yuan/mt.

Zinc: LME zinc fell for four consecutive trading days with its trading level falling further overnight and breaking the $3,000/mt level. We see limited upward momentum today given the simmering trade war, falling yuan as well as rising LME zinc inventory. It is likely to consolidate at $2,990-3,040/mt today. As shorts and longs diverged, the SHFE 1808 contract hovered around the 23,440 yuan/mt level overnight with a narrowed trading range. The trading level of the contract edged further down and away from all moving averages. We see limited upward room for the contract today as inventories across Shanghai, Tianjin and Guangdong continued to grow and as consumption remains weak in the low season. It is likely to consolidate at 23,250-23,750 yuan/mt today.

Nickel: LME and SHFE nickel prices continued to retreat overnight. But the prices are likely to gain some support from shrinking inventories in China and abroad as well as the closed import arbitrage window. We expect LME nickel to extend its decline today with the SHFE 1809 contract at 111,500-113,300 yuan/mt. Spot prices are seen at 112,500-114,500 yuan/mt.

Lead: LME lead fell to a low of $2,400.5/mt as the US dollar gained. It closed at $2,417.5/mt with open interests down 2,831 lots to 120,630 lots. We see it testing support at $2,400/mt today with possible trading range at $2,395-2,430/mt. The SHFE 1807 contract diverged from the five-, 10-, and 20-day moving averages with open interests dipping below 60,000 lots to 59,946 lots. The contract is likely to trade at 19,900-20,050 yuan/mt and test support at 19,900 yuan/mt in the short term. Spot offers are expected at 20,150-20,400 yuan/mt in Shanghai.

Tin: LME tin traded weakly and dipped to a low of $20,300/mt last night amid a rising US dollar on robust US economic data and interest rate hikes. The SHFE 1809 contract also hovered at lows and closed at 145,490 yuan/mt. With a weak LME tin and the threat of a US-Sino trade war, the contract is likely to weaken in the short term. Support will be seen at 144,000 yuan/mt.