SMM Morning Comments (Jul 14): Base metals pulled back after Monday’s surge

SHANGHAI, Jul 14 (SMM) – Nonferrous metals fell across the board on Tuesday morning, taking a breather from their recent rally, as investors awaited the release of Chinese trade data for June, which could provide more clues on the pace of China’s economic recovery from the COVID-19 crisis.

The pull-back in the nonferrous complex followed strong performance in the previous session. On Monday, LME nonferrous metals moved broadly higher, with zinc surging 3% to lead the way higher. Copper jumped 1.8%, lead climbed 1.6%, nickel advanced 1.2%, tin rose 1.1%, and aluminium inched up less than 0.1%.

On the SHFE, nickel soared 2.1% to the biggest gainer in overnight trading, zinc jumped 1.7%, lead climbed 1.1%, copper rose 0.7%, aluminium advanced 0.6% and tin was up 0.5%.

The US dollar index, which tracks the greenback against a basket of its peers, was steady in the morning of Asian trading hours on Tuesday, while oil prices, weakened, extending losses from the previous session.

Copper: Three-month LME copper gained 1.81% to end at $6,545.5/mt Monday, after hitting a two-year peak of $6,633/mt earlier in the session. It is expected to trade between $6,480-6,530/mt today.

The most-active SHFE August contract climbed to a session-high of 53,100 yuan/mt before easing to end 0.74% firmer at 52,750 yuan/mt in overnight trading. It is likely to trade between 52,600-53,000 yuan/mt today. Spot prices are seen stable at premiums of 30-50 yuan/mt as downside is limited ahead of the expiry of the July contract.

Escalated worries about supply from top producer Chile gave a boost to copper prices. Supervisors at Antofagasta Minerals’ Centinela copper mine in Chile have reportedly voted in favor of strike action after rejecting a pay offer. That came days after workers at Antofagasta Minerals's Zaldivar copper mine in Chile voted in favour of strike action after rejecting a pay offer.

Aluminium: Three-month LME aluminium jumped to a fresh four-month high of $1,705/mt on Monday, before it relinquished most of those gains to close just 0.06% firmer at $1,690/mt. It is likely to move between $1,670-1,710/mt today.

The most-liquid SHFE August contract crept up 0.55% to close at 14,730 yuan/mt in overnight trading. SMM data showed that social inventories of primary aluminium ingots in China were little changed over the weekend and remained at low levels. That, together with low stockpiles under warrants ahead of the expiry of the SHFE July contract and ample liquidities, underpins aluminium prices. The SHFE August contract is expected to move between 14,500-14,900 yuan/mt today.

Zinc: Three-month LME zinc advanced 2.99% to $2,254.5/mt on Monday, after scaling its highest since January 28 at $2,272/mt earlier in the session, and registered a six-day winning streak. The contract is expected to rise to $2,220-2,270/mt today. 

The most-active SHFE August contract climbed a new nearly six-month high of 18,455 yuan/mt in overnight trading, before erasing some gains to end up 1.73% at 18,255 yuan/mt. The September contract will become the most actively traded zinc contract on the SHFE, which is expected to trade at 18,000-18,500 yuan/mt today. Spot premiums for 0# domestic Shuangyan are seen stable at 40-60 yuan/mt over the August contract.

Nickel: Three-month LME lead followed its SHFE counterpart sharply higher in North American trading hours on Monday, hitting a new nearly six-month high of at $13,730/mt before closing 1.22% higher at $13,725/mt.

The most-active SHFE October contract surged 2.06% to 110,000 yuan/mt overnight, after notching its highest since January 21 at 110,190 yuan/mt earlier in the session as longs aggressively loaded up positions. Whether it could break above the 111,000 mark will come under scrutiny today.

Lead: Three-month LME lead rose 1.59% to $1,884.5/mt ibn Monday, after hitting its highest in almost five months at $1,886/mt earlier in the session. It is likely to extend its bull run in the short term amid positive sentiment.

The most-traded SHFE August contract climbed to the highest in almost eight months at 15,635 yuan/mt in overnight trading, before erasing some gains to end 1.1% higher at 15,580 yuan/mt. The rally in SHFE lead seemingly has yet to run out of steam.

Tin: Three-month LME tin reversed an earlier slip to a session-high of $17,475/mt, within striking distance of a nearly six-month high of $17,480/mt notched last Thursday, before erasing some gains to end up 1.05% at $17,380/mt on Monday. Pressure is seen at 17,650, if the contract breaks above 17,500.

The most-active SHFE September contract fell swiftly shortly before closing bell in overnight trading, giving back much of earlier gains to end 0.48% higher at 142,820 yuan/mt. Support is seen at 141,000.