SMM Morning Comments (May 11): Base Metals Closed Mostly with Losses as US Inflation Data was Cooler than Anticipated

SHANGHAI, May 11 (SMM) – LME and SHFE base metals closed mostly with losses last night. On the macro front, the US dollar was steady against a basket of currencies yesterday. Data showed that US inflation slowed slightly more than expected in April, but the market’s view on the outlook for US monetary policy is unclear.

Copper: LME copper prices closed at $8,484/mt last evening, down 1.52%. Trading volume was 20,000 lots and open interest stood at 253,000 lots. The most active SHFE 2306 copper contract finished at 66,550 yuan/mt overnight, down 1.03%. Trading volume was 66,000 lots, and open interest stood at 183,000 lots.

In terms of fundamentals, due to the decrease in arrivals and the increase in exports in Guangdong, inventory fell for the first time. Buyers increased, and spot quotes rebounded slightly. As the delivery approached, the spot cargoes in east China traded with a slight discount. Most of the sellers were unwilling to sell with a discount, and the overall transaction was limited. According to some smelters, the purchasing desire of downstream enterprises is not strong, which is mainly caused by poor demand. The US inflation data fell more than expected, but the volatile financial market still puts pressure on copper prices. It is expected that copper prices will unlikely rebound.

Aluminium: Overnight, the most-traded SHFE 2306 aluminium contract opened at 18,245 yuan/mt, with the highest and lowest prices at 18,280 yuan/mt and 18,115 yuan/mt respectively before closing at 18,160 yuan/mt, down 130 yuan/mt or 0.71%.

LME aluminium opened at $2,321/mt on Wednesday, with its high and low at $2,325/mt and $2,266/mt respectively before closing at $2,269.5/mt, a drop of $45.5/mt or 1.97%.

The US inflation has slowed down, accompanied with positive signals in relation to rate hikes and debt ceiling, which provided some support for aluminium prices. However, the uncertainties over the market still loom large, and it entails great impetus brought by favourable policies for domestic demand to fully recover.

Fundamentally, domestic alumina output is expected to grow, and the aluminium supply has maintained an upward trend with falling cost, which suggests that aluminium prices lack strong cost support. The output and operating rate of aluminium smelters increased in April, driven by production resumption. In May, the domestic operating aluminium capacity and output are expected to increase further. An increasing amount of molten aluminium has been made into billets rather than ingots, pushing up billet inventory. If the end demand is still lower than expected in the future, smelters may produce more ingots instead of billets. As it takes time for weak consumption to be reflected in inventory, aluminium ingot inventory may remain low and continue to drop in May, thus giving some support to aluminium prices.

SMM expects the short-term aluminium prices to come under pressure, but the downside room may be limited under the support of low inventory. Factors to watch: macro front and supply in Yunnan.

Lead: Overnight, LME lead prices opened at $2,137/mt and closed at $2,126.5/mt after hitting the lowest and highest point at $2,122.5/mt and $2,145/mt, down 0.58%. The open interest increased 2,518 lots to 111,000 lots compared with the previous trading day, and the trading volume increased 547 lots to 4,441 lots.

The most-traded SHFE 2306 lead contract opened at 15,305 yuan/mt and closed at 15,300 yuan/mt after hitting the highest point at 15,320 yuan/mt, up 0.1%. The open interest decreased 729 lots to 62,606 lots compared with the previous trading day, and the trading volume decreased 25,713 lots to 12,945 lots.

Zinc: LME zinc opened at $2,677/mt in overnight trading, touching a low at $2,608/mt, and finished at $2,617/mt, down $51.5/mt or1.93%. Trading volume was up to 7,697 lots, and the open interest lost 1,268 lots to 185,000 lots. LME zinc inventory shed by 825 mt or 1.61% to 50,400 mt. The non-ferrous metal prices fell across the board amid persisting debt crisis regardless of the lower-than-expected US inflation reading in April.

The most active SHFE zinc 2306 contract opened at 21,320 yuan/mt overnight and closed at 21,155 yuan/mt under the pressure of falling LME zinc prices, down 260 yuan/mt or 1.21%. Trading volume was down to 83,571 lots, and the open interest narrowed by 1,518 lots to 104,000 lots

SHFE zinc prices posted a three-day losing streak amid the slump in ferrous product prices. The TCs of domestic zinc concentrates seemed to have rebounded, and poor downstream demand led to thin trades. Zinc prices trended lower as a result.  

Tin: SHFE 2306 tin contract prices fluctuated sharply and closed at 207,890 yuan/mt after hitting the lowest point at 204,720 yuan/mt, up 0.31%.

In the spot market, small brands still sold at discounts of 1000 yuan/mt over the SHFE 2306 contract. The market transactions increased last night due to the decline in SHFE tin prices in the early stage. But the price rebound yesterday weighed on the downstream demand. Overall, the drop in SHFE tin prices stimulated downstream demand and the market transactions improved slightly.

Nickel: Nickel prices moved with some declines yesterday. The NORNICKEL nickel premiums were on a downward trend since some spots were cleared, but the trading was still sluggish. On the supply side, the decline in nickel prices had little impact on the sentiment of NPI market players yesterday. The stainless steel mills raised their NPI purchase prices, while NPI holders who gain certain profits were not in a hurry to ship their goods on the low market supply. On the demand side, the spot stainless steel transactions were slack, and the buyers remained cautious since they believed the prices would drop further. SMM believes that the SHFE nickel will remain rangebound today with weaker demand support.

[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.]