SMM Morning Comment For SHFE Base Metals On May 20

SHANGHAI, May 20 (SMM) –

Copper

LME copper prices opened at $10482.5/mt last Friday evening before reaching a low of $10470/mt and a high of $10720/mt, and closed at $10715/mt, a rise of 3.31%. Trading volumes were 33,000 lots and open interest stood at 341,000 lots. The most active SHFE 2407 copper contract prices opened at 84530 yuan/mt and finished at 85270 yuan/mt overnight, up 2.38%, with the low-end of 84420 yuan/mt and the high-end of 85430 yuan/mt. Trading volume was 93,000 lots and open interest stood at 229,000 lots. On the macro level, in order to lower the threshold for residents to buy houses, the People's Bank of China (PBOC) issued three notices in a row, canceling the national floor policy on interest rates for commercial personal housing loans for the first and second homes, lowering the interest rate on personal housing provident fund loans by 0.25 percentage points, and adjusting the minimum down payment ratio for commercial personal housing loans for the first home to no less than 15%, and for the second home to no less than 25%. In terms of fundamentals, as copper prices continued to rise, the purchasing demand of processing companies was suppressed and market activity remained low. After the subsequent warehouse receipts are released, the spot supply will be more abundant, and it is expected to continue to impact the premiums and discounts. Due to the influence of macro sentiment, copper prices will move at highs in the near future.

Aluminum

The most-traded SHFE 2407 aluminum contract opened at 2,965 yuan/mt at last Friday’s night session, with its high and low at 21,070 yuan/mt and 20,955 yuan/mt before closing at 21,060 yuan/mt, up 65 yuan/mt or 0.31%. LME aluminum opened at $2,586/mt in the previous trading day, with its low and high at $2,582/mt and $2,623/mt respectively before closing at $2,621/mt, up $33/mt or 1.28%.

Summary: On the macro front, the US employment data was relatively weak, US CPI fell as expected. In April, the monthly retail sales rate unexpectedly fell, indicating that price pressures are easing, increasing expectations for the Fed to cut interest rates; the domestic economic data improved, and there were growing expectations for real estate. The domestic aluminum operating capacity continued to grow. Around 660,000 mt of aluminium capacity in Yunnan has been resumed, and the remaining 630,000 mt are expected to be restarted and then reach full capacity in June. In addition, the arrivals of aluminum ingots in mainstream consumption areas were relatively small, the inventory pressure of upstream aluminum plants eased, and domestic inventory of aluminum ingots and billets continued to drop. Amid bullish macro sentiment, aluminum cost went up, and domestic downstream consumption found solid support. Aluminum prices are expected to move rangebound.

Lead

The most active SHFE lead contract opened at $2289/mt last Friday and fluctuated upward to hit the highest price at $2307/mt, the highest in six months, before closing at $2302.5/mt, up 0.46%. Entering May, LME lead stocks have been declining, with a cumulative drop of nearly 50,000 tons, and a further drop of 4,600 tons on Friday last week.

Last Friday, the SHFE 2407 lead contract opened at 18,730 yuan/ton. It closed at 18770 yuan/mt, an increase of 0.13%. Open interest stood at 85561 lots, a decrease of 449 lots from the previous trading day.

Zinc

LME zinc opened at $2956/mt last Friday evening, and closed at $3043/mt, an increase of $82/mt or 2.77%. The trading volume decreased to 9674 lots, and open interest decreased 1717 to 241,000 lots. LME zinc stocks fell by 300 mt or 0.12% to 259375 mt. Last Friday, the international market gained confidence in China's future domestic real estate consumption, short sellers left the market, macro sentiment may continue, and LME zinc fluctuated widely.

The most-traded SHFE 2407 zinc contract opened at 24000 yuan/mt overnight and fell to a low of 23900 yuan/mt. It eventually settled at 24190 yuan/mt, up 415 yuan/mt or 1.75%. Trading volume reduced to 114,000 lots, and open interest gained by 5468 lots to 123,000 lots. From a fundamental perspective, supply of ore remains tight, and the zinc concentrate TCs fell a three-year low, providing support for the upward trend of zinc prices. However, the consumer end is weak, and there is a certain upward pressure on SHFE zinc prices.

Tin

SHFE 2406 tin contract rose slightly last Friday night, closing at 278,670 yuan/mt, up 1.47%.

Last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 500-1,000 yuan/mt for SHFE 2406 tin contract, versus discounts of 600 yuan/mt to premium of 300 yuan/mt for delivery brands and premiums of 200-500 yuan/mt for Yunxi brand. Tin prices stabilized in early trading last week. Inquiries from downstream market were sluggish. Transactions were poor last Friday.

Nickel

Nickel prices rose sharply last Friday. During the night session on May 16, nickel prices broke through 150,000 yuan/mt and reached a peak of 154,690 yuan/mt on May 17, finally closing at 153,460 yuan/mt, up 4.67% compared with the last trading day and approximately 6.01% WoW, which was primarily contributed to the slow RKAB approval. The outbreak of the New Caledonia incident last week fuelled nickel prices higher. External macro sentiment continued to favor the non-ferrous metals sector. Last Wednesday night, the US announced that April CPI rose 3.4% YoY, with both MoM and YoY growth lower than that in March. The market believed that the data retained the possibility of a US Fed rate cut in September. News on last Thursday reported the outbreak of the New Caledonia incident, affecting the normal operations of local production companies. Supply was disrupted at an Australian mine due to cost and other factors. Affected by multiple events simultaneously, nickel prices fluctuated upward. Fundamentally, the Indonesian government has not updated the nickel ore quota approval status for two months. However, according to SMM, some quotas have been approved in Indonesia, but are far from meeting the 2024 capacity demand for refined nickel and secondary nickel. Additionally, nickel ores from New Caledonia and Australia cannot be supplied normally. Therefore, prices rose across various products in the nickel industry chain. Demand side, stainless steel demand continued to weaken in Q2, while in the new energy sector, although demand from end users increased, their raw material inventories stayed high, providing limited support for raw material demand. It is expected that SHFE nickel will run between 145,000-155,000 yuan/mt this week.