SMM Evening Comments (May 4): Shanghai Nonferrous Metals Closed Mostly with Gains as US Fed Signalled a Rate Hike Pause

SHANGHAI, May 4 (SMM) - Shanghai nonferrous metals closed mostly with gains in day trading. On the macro front, the banking meltdown struck the US again, and the First Republic Bank collapsed during the Labour Day holiday. The US Fed raised the rates by 25 basis points as expected and hinted that there would be a pause in rate hike thereafter. However, Powell indicated there was still a long way to go to quell inflation, and it was not appropriate to cut rates now. The US dollar index fell overnight.

SHFE copper gained 0.03%, aluminium lost 0.14%, lead closed up 0.75%, zinc dipped 0.47%, tin added 0.80%, and nickel soared 2.85%.

Copper: SHFE 2306 copper gained 20 yuan/mt or 0.03% to 66,920 yuan/mt. The open interest added 2,537 lots to 178,647 lots.

The futures prices showed good resilience today, and the spot premiums remained stable. The imported copper will grow in the Chinese market since the SHFE/LME copper price ratio has grown recently. The spread between the front-month and next-month contracts widened from 60-80 yuan/mt in the early trading to about 100 yuan/mt. Whether the spot premiums can maintain a steady rise will depend more on consumption support.

Aluminium: SHFE 2306 aluminium lost 25 yuan/mt or 0.14% to 18,415 yuan/mt. The open interest fell 612 lots to 211,625 lots.

On the macro front, the US GDP grew by 1.1% in the first quarter, which slowed down more than expected, mainly due to the decline in corporate investment and inventory. Under the high interest rate level, companies are relatively pessimistic about the future macroeconomic prospects.

On fundamentals, the domestic aluminium supply maintained a slight growth trend, and the cost of the industry has dropped significantly, which will deprive aluminium prices of cost support. An increasing amount of molten aluminium has been made into billets rather than ingots, driving the social inventory of aluminium ingots to keep falling. The current downstream operating rates diverge from the inventory data. If the end demand is still lower than expected in the future, aluminium billet inventory may grow, which will drive smelters to 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. SMM predicts that aluminium prices will come under downward pressure after the Labour Day holiday, but low inventory may limit the downside room.

Lead: SHFE 2306 lead closed up 115 yuan/mt or 0.75% at 15,370 yuan/mt. The open interest rose 4,727 lots to 65,958 lots.

SHFE lead prices soared today. Spot holders shipped cargo based on specific situations, and there were fewer sources of primary lead quoted at discounts. The discounts for secondary lead expanded slightly, but the absolute prices did not change much compared with the level before the Labour Day holiday. Downstream companies mostly held the wait-and-see attitude and only purchased spots on rigid demand, resulting in slack small order transactions. The most-traded SHFE lead contract will move rangebound in the short term on a stable macro front.

Zinc: SHFE 2306 zinc dipped 100 yuan/mt or 0.47% to 21,100 yuan/mt. The open interest grew 4,641 lots to 118,324 lots.

A few spot traders wished to ship their goods as most of their spots were sold before the Labour Day holiday. Besides, the rising futures prices once suppressed the downstream enterprises’ purchases. The overall spot trading was slack today.
Tin: SHFE 2306 tin added 1,680 yuan/mt or 0.80% to 211,000 yuan/mt. The open interest declined 844 lots to 47,790 lots.

The spot transactions remained sluggish, curbing the spot tin ingot premiums from growing. As the delivery of the SHFE tin 2305 contract approaches, it is expected that the positions will increase in the future.

Nickel: SHFE 2306 nickel soared 5,190 yuan/mt or 2.85% to 187,280 yuan/mt. The open interest grew 2,826 lots to 68,703 lots.

On May 4, traders began to offer spot quotes against SHFE 2306 nickel. Spot premiums of Jinchuan nickel were 8,600-9,000 yuan/mt. The average premium was 8,800 yuan/mt, up 5,050 yuan/mt from the previous trading day. Premiums of NORNICKEL nickel stood at 7,500-8,000 yuan/mt. The average premium was 7,750 yuan/mt, an increase of 5,500 yuan/mt from the previous trading day. SHFE nickel surged in the early trading affected by the overseas nickel futures prices. The spot premiums trended lower, but the absolute prices still stood high. The spot transactions fell short of expectations. Nickel briquette prices were 194,300-195,000 yuan/mt, an increase of 3,650 yuan/mt from the previous trading day. The nickel briquette transactions were slack as it was still traded at premiums over nickel sulphate.
 

[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.]