SMM Evening Comments (May 6): Shanghai base metals closed mostly higher on hopes over economy reopening

SHANGHAI, May 6 (SMM) – SHFE base metals, except for copper, closed higher on the first trading day after the five-day Labour Day holiday, as optimism about lifting Covid-19 lockdowns improved market sentiment.

Aluminium added 1.4% to be the biggest gainer, tin rose 1.3%, lead climbed 1.2%, nickel advanced 0.7% and zinc increased 0.6%, while copper shed 0.3%. The SHFE will resume its night trading tonight.

Base metals on the LME, except for aluminium and lead, were higher as of 18:14 Beijing time.

The US dollar index, which measures the greenback against a basket of rivals, hit a one-week high of 100.176 on Wednesday, while oil prices held onto gains from Tuesday’s surge.

Data published Wednesday showed that retail sales in the eurozone suffered their largest decline on record in March, while orders for German industrial goods slid to record low in the same month.

US nonfarm payroll data for April from ADP and weekly crude inventory data from the Energy Information Administration (EIA) are due out tonight.

Copper: The most-traded SHFE June contract climbed during the day, recouping losses from a lower open to close the day 0.26% weaker at 42,720 yuan/mt. Robust consumption and tight supply in China offered support to SHFE copper. The contract is likely to test the 43,000 mark tonight. Premiums for the May contract, which expires next Friday, over the June contract is expected to widen further as shorts are rolling to later-dated contracts given the gap between open interest for the May contract and on-warrant inventories in SHFE-approved warehouses.

SMM data showed that copper inventories across Shanghai, Jiangsu and Guangdong extended their decline over the holiday, falling 3,400 mt from April 30 to 305,500 mt as of May 6.

Aluminium: The most-liquid SHFE June contract scaled a seven-week peak of 12,760 yuan/mt twice during the day, once in morning trade and the other in the final minutes of trading. It finished the day 1.43% higher at 12,740 yuan/mt. Recent gains bolstered by short-covering have sent the contract above the 60-day moving average. SMM data showed a 32,000 mt decline in social inventories of primary aluminium ingots in China over the holiday, pointing to positive fundamentals that will keep futures prices firm.

Zinc: Aggressive buying pulled the most traded SHFE July contract to its highest since March at 16,515 yuan/mt in afternoon trade, before the contract erased some gains to end the day 0.55% higher at 16,385 yuan/mt. Foreign demand is likely to recover following economic restarts, while production at mines will also recover, which will hamper upside potential in futures.

SMM data showed that social inventories of zinc ingots in China increased over the holiday, gaining 9,300 mt from April 30 to 236,200 mt as of May 6.

Nickel: The most-traded SHFE July contract slipped to a nearly two-week trough of 97,800 yuan/mt in early morning trade, before it clawed back all those losses to close the day 0.72% higher at 101,350 yuan/mt. Strong performance in stainless steel encouraged investors to add long positions in nickel, sending the SHFE nickel July contract back above the 100,000 mark.

Lead: The most-active SHFE June contract saw its gains accelerate in the final hour of trading and surged 1.21% on the day to end at 13,835 yuan/mt. A smaller-than-expected gain in inventories of finished goods at primary lead smelters underpinned SHFE lead, while the imminent commissioning of new secondary lead projects would limit upside in prices.

Tin: The buildup of long positions lifted the most-liquid SHFE July contract to an intraday high of 129,700 yuan/mt, before the entry of shorts forced the contract to erase some gains to close the day 1.33% higher at 128,680 yuan/mt. Immediate resistance is seen at 130,000 yuan/mt, with next resistance at 132,000 yuan/mt.