SMM Morning Comments (May 29): Base Metals Closed Mostly with Gains as Macro Headwinds Ease

SHANGHAI, May 29 (SMM) – LME and SHFE base metals closed mostly with losses at last Friday’s night session. On the macro front, the simplified version of the US debt ceiling agreement was initially formed. In addition, the US GDP and employment data in the first quarter showed that the US economy was relatively resilient, thus macro sentiment improved.

Copper: LME copper prices closed at $8,139/mt last Friday evening, a rise of 1.86%. Trading volume was 17,000 lots and open interest stood at 259,000 lots. SHFE 2307 copper contract finished at 65,090 yuan/mt last Friday evening, up 1.86%. Trading volume was 62,000 lots, and open interest stood at 204,000 lots. On the macro front, the U.S. dollar index rose after the April PCE data was released. The core PCE price index in April increased by 4.7% year-on-year, exceeding market expectations. The market bets that the Fed will keep high interest rates for a longer period of time. On the fundamentals, as of May 26, SMM copper inventories in major Chinese markets fell 4,300 mt to 118,400 mt from last Monday, down 5,100 mt from two Fridays ago. Inventories have fallen for three consecutive weeks. There was an inflow of imported copper in east China, and the high spot premiums in east China attracted inflows of goods from various places. Therefore, the inventory decline was small. In south China, due to the small price difference between copper cathode and copper scrap, downstream manufacturers prefer to purchase copper cathode, leading to big inventory decline. In addition, it is expected that more imported copper will flow into the domestic market this week. The market has recently focused on the U.S. debt ceiling negotiations, and the good news will give some impetus to the rebound in copper prices.

Aluminium: The most-traded SHFE 2307 aluminium contract opened at 18,110 yuan/mt at last Friday’s night session, with its low and high at 18,060 yuan/mt and 18,180 yuan/mt before closing at 18,155 yuan/mt, up 295 yuan/mt or 1.65%.

LME aluminium opened at $2,219/mt last Friday, with its low and high at $2,209/mt and $2,265/mt respectively before closing at $2,243/mt, up $29/mt or 1.31%.

On the macro front, the simplified version of the US debt ceiling agreement was initially formed. In addition, the US GDP and employment data in the first quarter showed that the US economy was relatively resilient, thus macro sentiment improved. Low aluminium ingot inventory and little hope of smelters in Yunnan resuming production soon will support aluminium prices. However, poor consumption in the off-season will keep aluminium prices in check.

Lead: Last Friday, the LME lead opened at $2,060/mt and hit the lowest point at $2,057/mt during the Asian trading hours, but then went upward and hit the highest point at $2,089.5/mt due to the strong US dollar index, and finally close at $2,075.5/mt, up 0.63%. The open interest increased 1,154 lots to 115,000 lots compared with the previous trading day, and the trading volume decreased 2,913 lots to 3,833 lots.

The most-traded SHFE 2307 lead contract opened at 15,250 yuan/mt and closed at 15,240 yuan/mt after hitting the lowest point at 15,220 yuan/mt and the highest point at 15,260 yuan/mt, down 0.07%. The open interest decreased 642 lots to 54,446 lots compared with the previous trading day, and the trading volume decreased 23,522 lots to 20,140 lots.

Zinc: LME zinc opened at $2,253/mt last Friday, and rose to around $2,340/mt before closing at $2,338/mt, an increase of $80.5/mt or 3.57%. Trading volume fell to 9,852 lots, and open interest rose 1,803 lots to 193,000 lots. LME zinc inventory rose 11,100 mt to 74,550 mt.

During last Friday’s night session, the most-traded SHFE 2307 zinc contract moved up after opening at 19,300 yuan/mt, closing at 19,555 yuan/mt, up 585 yuan/mt or 3.08%. Trading volume fell to 127,000 lots, and open interest decreased by 4,118 lots to 138,000 lots. Although the Fed's hawkish remarks continued, the news that the debt ceiling agreement was basically reached eased the market jitters. The US core PCE price index recorded a higher-than-expected monthly rate of 0.3% in April, thus the market still needs to be wary of the pressure brought by possible interest rate hikes.

Tin: Last Friday night, SHFE 2307 tin contract prices dipped rapidly to 200,440 yuan/mt and rebounded, but then fell again and finally closed at 201,360 yuan/mt, down 0.79%.

Nickel: On May 19, G7 stated that it would continue to work hard to reduce Russia's income from metal trade, which, on the other hand, increased its imports from other countries and regions. Therefore, although the geopolitical issues remain unresolved, the pure nickel demand from various countries is still stable. If LME’s ban on Russian metals had not happened, the impact of the G7 sanctions on nickel prices would be relatively limited. However, the market’s bets on a 25-basis-point rate hike in June rose to over 50%, suppressing the prices. NORNICKEL nickel premiums rose further on shrinking market supply last week. And the supply tightness will not be eased until this week. Almost all NPI factories stopped quoting and took a wait-and-see approach. The stocks held by NPI traders kept growing owing to the arrival of imported spots. On the demand side, according to SMM research, some agents bought some spot stainless steel, but the end demand did not pick up significantly. Recently, as the futures prices continued to fall, prices of spot stainless steel delivered for warrants stood lower, which, coupled with the stainless steel mills’ reduction in shipments, drove down the social inventory. Nickel prices may bear some pressure from the inflow of imported goods.

[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.]