SMM Morning Comments (Jul 27): Base metals rose as China’s industrial profits growth quickened

SHANGHAI, Jul 27 (SMM) – LME nonferrous metals rose across the board on Monday morning, recovering from pullbacks on Friday caused by a flare-up in US-China tensions, as data showed an acceleration in China’s industrial profits growth in June.

Meanwhile, nonferrous metals on the SHFE, except for copper, were higher, extending gains from Friday night.

Nonferrous metals on the LME pulled back across the board on Friday. Copper plunged 1.6% to lead the losses, tin dropped 1.3%, zinc tumbled 1.2%, lead fell 1%, aluminium slipped 0.6% and nickel shed 0.4%.

Their counterparts on the SHFE traded mixed on Friday night. Tin rose 1.1%, nickel climbed 0.7%, lead inched 0.1% and zinc edged 0.03% higher, while aluminium dipped 0.03% and copper lost 0.4%.

Profits at China's industrial firms rose 11.5% year-on-year in June, faster than a 6% increase in May, according to a statement from the country’s national bureau of statistics released on Monday.

For the first six months of the year, China's industrial profits dropped 12.8% year-on-year, compared to a 19.3% decline registered in the January-to-May period.

The US dollar index, which measures the greenback against a basket of its peers, touched a fresh 22-month trough of 93.985 in the morning of Asian trading hours on Monday, while oil prices edged lower.

Copper: Three-month LME copper shed 1.63% to $6,400/mt on Friday, after plumbing a one-week low of 6,366 earlier in the session. It dipped 0.57% on the week, snapping a nine-week winning streak. It is expected to trade between $6,350-6,420/mt today.

The most-active SHFE September contract reversed earlier gains to end 0.41% lower at 51,590 yuan/mt on Friday night. It is likely to move at 51,800-52,200 yuan/mt today. Spot premiums are seen stable at 20-90 yuan/mt, as traders scale back purchases following the fulfillment of long-term contracts and in a slack season.

Hopes for another US stimulus package and firm fundamentals are set to limit losses in copper prices.

Aluminium: Three-month LME aluminium fluctuated to close 0.61% lower at $1,697/mt on Friday, posting a weekly gain of 2.04%. It is likely to continue to move at $1,680-1,720/mt today.

The most-active SHFE August contract ended a tad weaker at 14,415 yuan/mt on Friday night in choppy trading. Low inventories, robust demand and firm spot premiums will remain supportive of SHFE aluminium prices. The SHFE August contract is expected to trade at 14,300-14,700 yuan/mt today.

Zinc: Three-month LME zinc fell 1.18% to end at $2,211.5/mt on Friday, but was up 1.38% on the week. Data showed that zinc stocks across LME warehouses extended their gains on Friday, increasing 2.97%, or 4,450 mt to 154,500 mt. LME zinc is expected to trade between $2,200-2,250/mt today.

The most-active SHFE 2009 zinc contract trimmed earlier gains to close a touch firmer at 18,065 yuan/mt on Friday night. SHFE zinc is expected to remain supported by strong fundamentals as SMM data showed that zinc inventories in China continue to fall in anticipation of a high season. The September contract is expected to move between 17,900-18,400 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen stable at 60-70 yuan/mt over the August contract.

Nickel: Three-month LME nickel reversed an earlier slip to a new six-month peak of $13,790/mt on Friday, before easing to finish the day 0.37% lower at 13,635. It was up 3.96% for the week thanks to Thursday’s sharp gains. Whether it could shrug off pressure at 13,800 will come under scrutiny today.

A more than 10,000-lot buildup of long positions bolstered the most-active SHFE October contract to its highest in nearly two weeks at 110,160 yuan/mt on Friday night, before the contract erased some gains to close 0.67% higher at 108,660. Pressure is seen at the 110,000 mark and the upper Bollinger band, while support is at a confluence of the five- and 20-day moving averages at 107,200.

Lead: Three-month LME lead weakened 0.98% to end at $1,810.5/mt on Friday, below the 20-day moving average. It was down 0.17% on the week, marking its first back-to-back weekly losses since May.

The most-active SHFE September contract climbed to a session-high of 15,125 yuan/mt on Friday night, before giving back most of those gains to close just 0.1% firmer at 14,945. It is expected to remain rangebound in the short term.

Tin: Three-month LME tin plummeted after hitting a fresh six-month high of $17,870/mton Friday, and finished the day 1.29% lower at 17,620. It gained 2.06% for the week. The contract still resides above the five-60 day moving averages, and support is seen at 17,450.

The most-liquid SHFE September contract notched a two-week peak of 144,160 yuan/mt before ending 1.13% higher at 144,100 yuan/mt on Friday night. Pressure is seen at a previous high of 144,600.