SMM Morning Comments (Jul 31): Base metals mostly higher as China factory recovery accelerated

SHANGHAI, Jul 31 (SMM) – Nonferrous metals cruised higher for the most part on Friday morning, after China said its factory activity expanded in July for the fifth month in a row and at a faster pace.

The official manufacturing purchasing managers' index (PMI)rose to 51.1 in July from June's 50.9, official data showed on Friday, marking the highest reading since March. Analysts had expected it to slow to 50.7.

LME nonferrous metals closed lower across the board on Thursday as investor digested a record drop in US gross domestic product (GDP). Copper declined 0.3%, aluminium fell 0.2%, zinc shed 0.4%, nickel and tin shed 1%, and lead lost 0.5%.

On the SHEF, those metals traded mostly lower in overnight trading. Copper declined 0.2%, lead and nickel fell 0.3% and tin slumped 1.3%, while aluminium advanced 0.1% and zinc rose 0.4%.

The US economy saw the biggest quarterly plunge in history. GDP from April to June plunged 32.9% on an annualised basis, according to the Commerce Department’s first reading on the data released Thursday.

Copper: Three-month LME copper shed 0.32% to 6,455.5/mt on Thursday. It is expected to move between $6,440-6,500/mt today.

The most-active SHFE 2009 copper contract slipped to a one-week low of 51,190 yuan/mt in overnight trading, before recouping some losses to end down 0.19% at 51,730. It is likely to trade between 51,500-51,900 yuan/mt today. Spot premiums are expected to slide slightly to 10-80 yuan/mt as trades turn quiet at the end of the month.

Aluminium: Three-month LME aluminium weakened 0.17% to $1,724.5/mt in choppy trading on Thursday. It is expected to move between $1,710-1,750/mt today.

The SHFE September aluminium contract fell to a session-low of 14,525 yuan/mt in overnight trading before reversing the losses and closing 0.14% higher at 14,695. It is likely to trade between 14,500-14,900 yuan/mt today.

Zinc: Three-month LME zinc weakened 0.39% to end at $2,293/mt in choppy trading on Thursday, snapping a three-day winning streak. It remains above the five-day moving average, but has yet to shrug off resistance from the upper Bollinger band. Data showed that zinc stocks across LME warehouses continued to trend higher on Thursday, increasing 0.37%, or 700 mt to 188,175 mt. LME zinc is expected to continue to trade between $2,270-2,320/mt today.

The most-active SHFE September contract also saw volatile performance in overnight trading, and inched up 0.4% to 18,815 yuan/mt. Supply reduction in China caused by maintenance at some smelters, coupled with lingering expectations of consumption recovery, underpinned SHFE zinc prices. The SHFE September contract is expected to continue to move between 18,500-19,000 yuan/mt today, while spot premiums for domestic 0# Shuangyan are seen stable at 80-90 yuan/mt over the August contract.

Nickel: Three-month LME nickel eased after hitting an intraday high of $13,990/mt, within striking distance of a six-month peak of 13,995 notched on Tuesday, and finished the day 0.97% lower at 13,785 on Thursday. Pressure at the 14,000 mark will remain under scrutiny today.

The most-active SHFE October contract followed its LME counterpart lower to a session-low of 108,930 yuan/mt in overnight trading, before recovering some ground to end 0.31% lower at 110,340. Whether it could remain above the five-day moving average as high as 110,000 will come under scrutiny today.

Lead: Three-month LME lead came off a more than two-week high of $1,883.5/mt to an intraday low of 1,852, before clawing back some losses to end 0.45% lower at 1,869.5 on Thursday.

The most-active SHFE 2009 lead contract eased 0.29% to end at 15,600 yuan/mt in overnight trading. Firm fundamentals are likely to keep SHFE lead prices at high levels in the short term.

Tin: Three-month LME tin plunged 1% to close at $17,780/mt on Thursday, after plumbing an intraday low of 17,700 earlier in the session. Tin stocks across LME warehouses expanded 20 mt to 4,015 mt. Support is still seen at the 10-day moving average as low as 17,700.

The SHFE October tin contract dropped 1.29% to 145,380 yuan/mt in overnight trading. It now sees support from the 10-day moving average at 144,397.