SMM Evening Comments (Aug 6)

SHANGHAI, Aug 6 (SMM) – Nonferrous metals edged up for the most part on Monday August 6. SHFE nickel led the gains and closed 0.73% higher, copper rose 0.18%, zinc increased 0.16%, and aluminium went up slightly. Tin dipped 0.15% and lead slumped 1.4%. 

The ferrous complex rose across the board with coke and iron ore leading the gains. Both rose over 4%. Coking coal jumped over 3%, rebar grew over 1%, and hot-rolled coil increased 0.9%.

Copper: The SHFE 1809 contract stood above the 20-day moving average and hovered in a narrow range around 49,300 yuan/mt during the day. This came after it surged last Friday night as China's offshore yuan rebounded after the central bank imposed a reserve requirement of 20% on the trading of foreign exchange forward contracts. Open interests fell 2,688 lots to 159,000 lots during the day, some 8,000 lots higher from the 1810 contract. The change of the dominant contract is expected to complete this week. Threat of a strike remains at BHP’s Escondida copper mine with current government intervention. Investors would take more guidance tonight from German factory orders data in June. 

Aluminium: The SHFE 1809 contract rallied twice to highs around 14,455 yuan/mt in the morning but fell sharply below the daily moving average in the afternoon as shorts entered. With support at the 10-day moving average, it rebounded to close at 14,395 yuan/mt, some 5 yuan/mt higher from last Friday. Trade conflict between China and the US saw no signs of easing as Beijing responded with tariffs on $60 billion worth of US goods, and warned of further measures. We expect the contract to trade weakly in the short run, and to test support at the 10-day moving average tonight. 

Zinc: The dominant contract moved from the SHFE 1809 to the 1810 contract today. The SHFE 1810 contract failed to stand above the daily moving average during the day and fell below the five-day moving average to a low of 21,230 yuan/mt. The Bollinger middle band provided some support. However, the contract is likely to break support at that level and test support below the ten-day moving average tonight, as the longer-term moving average of the MACD shortened. 

Nickel: As inventories across LME and SHFE warehouses stood at a low in two years, the SHFE 1809 contract rebounded above 110,000 yuan/mt after it fell a low of 109,330 yuan/mt amid trade war worries. SHFE nickel contracts saw a capital outflow of 177 million yuan during the day, topping the base metal contracts. As trade tension lingers, the 1809 contract is likely to hover around 109,800 yuan/mt tonight. 

Lead: As bearish sentiment strengthened, the SHFE 1809 contract tumbled past the psychologically-significant 18,000 yuan/mt, to a new low in a year at 17,810 yuan/mt. The contract then reversed some losses and closed at 17,840 yuan/mt today. As the market is highly likely to go short, we expect the contract to extend its decline tonight with a trading range of 17,700-17,900 yuan/mt.

Tin: The SHFE 1809 contract hovered within a narrow range for the most time of the day and hit highs of 145,530 yuan/mt and 146,500 yuan/mta. We expect it to continue to trade rangebound in the short term with resistance at 147,000 yuan/mt and support at 145,000 yuan/mt.