SMM Evening Comments (Jun 3): Shanghai base metals mostly rose as China's services sector returned to growth

SHANGHAI, Jun 3 (SMM) – SHFE nonferrous metals extended their increases for the most part on Wednesday, following a broad rally Tuesday, as strong recovery for China's services in May bolstered market sentiment.

Tin was the best performer with a rise of 1.39%, nickel gained 0.75%, copper added 0.63%, aluminium increased 0.5%, while lead shed 0.38% and zinc went flat. 

The ferrous complex traded on a mixed note, as iron ore continued to edge up by 0.4%, rebar went up 0.72%, coke climbed 1.38%, while hot-rolled coil eased 0.98% and stainless steel closed flat. 

China's services sector returned to growth in May for the first time since January as the economy recovers from coronavirus-related containment measures. 

The Caixin China services purchasing managers index (PMI) rose to 55 in May from 44.4 in April. The reading stood above the 50 mark that separates expansion from contraction, after it stayed below 50 for three straight months due to the pandemic impact.

SMM data showed that social inventories of long steel (including wire rods and rebar) in Guangzhou continued to trend lower this week, falling 4.19%, or 66,900 mt, from a week ago to 1.53 million mt as of Wednesday June 3.

Crude oil prices extended rises on Wednesday, with Brent crude futures rising above $40/barrel on expectations some of the world’s most powerful oil producers will reach a deal to extend supply cuts.

Copper: The most-traded SHFE July contract continued to finish higher on Wednesday even as it came off after hitting a session high of 45,090 yuan/mt, falling below the daily moving average and ended at 44,830 yuan/mt, 0.63% higher on the day. Increase in the red metal, however, remained capped on the backdrop of the global pandemic, US-China trade tensions and the US protests. The contract has nearly recovered the losses from two months earlier. Bullish technical indicators may see the contract testing support from 45,000 yuan/mt tonight. 

Aluminium: The most-liquid SHFE July contract rebounded after two consecutive days of decline as it bounced back from an intraday low of 13,040 yuan/mt and ended the day 0.5% higher at 13,150 yuan/mt. Domestic social inventories of primary aluminium continued their downtrend despite at a slower pace. Nonetheless, pessimistic demand outlook may keep prices lower at 13,000 yuan/mt in the near term. 

Zinc: The most-active SHFE July contract regained losses after dipped to an intraday low of 16,470 yuan/mt with longs covering the positions. It closed the day flat at 16,590 yuan/mt. With lingering concerns about raw materials supply and the arrival of a slow season, the contract is expected to move sideways at high levels tonight. 

Lead: Loaded-up shorts sent the most-active SHFE July contract to a session low of 14,415 yuan/mt, before the contract pared some losses and finished the day 0.38% lower at 14,465 yuan/mt. Open interest added 186 lots to 29,717 lots. With support from the five-day moving average, the contract will likely consolidate around 14,450 yuan/mt tonight.