SMM Morning Comment For SHFE Base Metals On Jun 3

Copper

Last Friday night, LME copper opened at $10,109/mt, initially fluctuating higher to a peak of $10,198/mt. It then fell to a session low of $10,020/mt, consolidated at the end of the trading session, and finally closed at $10,069/mt, with a decline of 0.55%. Trading volume reached 24,000 lots, and open interest reached 347,000 lots. Last Friday night, the most-traded SHFE copper contract opened at ¥82,290/mt, initially peaking at ¥82,680/mt, then fell to a session low of ¥81,130/mt, consolidated at the end of the trading session, and finally closed at ¥81,280/mt, with a decline of 1.14%. Trading volume reached 88,000 lots, and open interest reached 188,000 lots.

On the macro front, China's manufacturing PMI for May fell to 49.5, below the expansion-contraction line, prompting funds to liquidate more bullish positions. Additionally, Indonesia, a major copper-producing country, decided to postpone the launch of its copper concentrate export ban to the end of this year, putting pressure on copper prices. On the fundamentals side, supply remains ample, while on the consumption side, copper prices have been falling continuously, and inventories remain high. Downstream companies are bearish on the market outlook, and sellers are actively holding prices firm, leading to a heavy wait-and-see sentiment among downstream buyers, with no significant recovery in consumption. Overall, the U.S. core PCE for April hit a new low since December 2023, OPEC+ extended its "collective production cut measures" until the end of 2025, and Chile's copper production in April declined YoY, making it difficult for copper prices to continue falling.

Aluminum

Last Friday night, the most-traded SHFE 2407 aluminum contract opened at 21,630 yuan/mt, with a high of 21,670 yuan/mt, a low of 21,080 yuan/mt, and closed at 21,145 yuan/mt, down 295 yuan/mt, a decrease of 1.38%. The previous trading day, LME aluminum opened at $2,705.5/mt, with a high of $2,737/mt, a low of $2,643/mt, and closed at $2,655/mt, down $50/mt, a decrease of 1.85%.

Summary: Overall, from a macro perspective, the State Council issued the "Action Plan" to guide the optimization of capacity in the aluminum industry and achieve high-quality development. Multiple favorable factors boosted aluminum prices. The market is concerned that capacities failing to meet energy consumption standards by 2025 will be required to undergo technological upgrades or exit the market. However, in recent years, domestic aluminum plants have been undergoing intensive maintenance and technological upgrades, with most capacities meeting industry energy consumption standards. This plan may further promote rapid optimization and technological upgrades in the industry, but the likelihood of voluntary exit under high profits is low. Fundamentally, domestic aluminium operating capacity continues to rise, with good progress in Yunnan's resumption, which may be completed in June, gradually highlighting supply pressure. Social inventory of aluminum ingots has been accumulating continuously. From the demand, recent aluminum prices hit a record high for the year and have shown strong volatility, inhibiting downstream procurement enthusiasm, leading to a decline in orders and operating rates for aluminum processing enterprises. Additionally, as the market transitions between peak and off-peak seasons, orders in multiple sectors have shown slight declines, and the overall operating rate is expected to weaken steadily. SMM expects short-term aluminum prices to maintain wide fluctuations at a high level.

Lead

Last Friday, LME lead opened at $2,274/mt, fluctuating around $2,285/mt during the Asian session. Entering the European session, due to continuous declines in LME lead inventory, LME lead rose to $2,313/mt in the evening, then fell back to a low of $2,253/mt, and finally closed at $2,273.5/mt, down 0.26%.

Last Friday night, the most-traded SHFE lead contract opened at ¥18,840/mt, briefly touching a high of ¥18,940/mt. Dragged down by the decline in LME lead, SHFE lead fell to a low of ¥18,640/mt at the end of the trading session, and finally closed at ¥18,725/mt, down 0.19%.

Zinc

Last Friday, LME zinc opened at $3,062.0/mt, initially fluctuating around $3,050.0/mt, peaking at $3,078.5/mt. Bulls then pushed LME zinc higher to around $3,070.0/mt, but it lacked upward momentum, and bears took control, driving LME zinc down to a low of $2,962.5/mt. It consolidated around $2,990.0/mt at the end of the trading session, finally closing down at $2,985.0/mt, down $76.0/mt or 2.48%. Trading volume increased to 11,000 lots, and open interest increased by 3,065 lots to 248,000 lots. LME zinc inventory increased by 5,250 lots to 257,025 lots, up 2.04%. The Chicago PMI unexpectedly fell, and China's April PMI was below the expansion-contraction line, reducing bullish sentiment in the macro view. Last Friday, the most-traded SHFE zinc contract opened at ¥24,890/mt, initially peaking at ¥25,010/mt, then fell below the average daily line to a low of ¥24,220/mt. It consolidated around ¥24,300/mt at the end of the trading session, finally closing down at ¥24,320/mt, down ¥450/mt or 1.82%. Trading volume increased to 142,000 lots, and open interest increased by 878 lots to 106,000 lots. SHFE zinc fell due to the impact of overseas futures, but tight supply of ore still supports zinc prices, limiting the short-term decline in SHFE zinc.

Tin

Last Friday night, the most-traded SHFE tin contract moved downwards after a higher opening, closing at 267,520 yuan/mt, down by 2.32%.

During last Friday's morning session, 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 over SHFE 2407 tin contract, versus discounts of 0-700 yuan/mt for delivery brands, discounts of 0-300 yuan/mt for Yunxi brand. Tin prices moved rangebound on last Friday's morning session, and downstream companies buying sentiment performed well.

Nickel

Last week, SHFE nickel prices showed a downward trend, with a significant drop last Thursday. They hit the lowest at 148,820 yuan/mt last week and slightly rose to 151,650 yuan/mt by Friday, down 0.74% WoW. Recently, while supported by strong macro sentiment, nickel prices were affected by the fundamentals of weakening refined nickel demand. High nickel prices continued to affect downstream purchasing sentiment, leading to a continuous buildup in nickel plate inventory, which increased the bearish pressure on nickel prices. On the macro front, the European Central Bank signaled a rate cut last week. The current slowdown in the inflation rate in the Eurozone provided room for the ECB to cut rates. According to Reuters, the ECB is expected to announce a rate cut at its monetary policy meeting on June 6. However, the market remained somewhat concerned, with some institutions still viewing inflation as the biggest risk to the Eurozone economy, followed by the impact of the US presidential election and geopolitical tensions. In the US, initial jobless claims rose to 219,000 in the week ending May 25, a slight increase compared to the expected and previous values, but still at a low level. The underlying strength of the job market continued to show signs of sustained robustness, which is expected to support the US economy. The fundamentals of refined nickel were affected by high nickel prices, leading to poor transaction atmosphere in the spot market. Specifically, electroplating and alloy, as traditional downstream sectors of nickel plates, saw an increase in demand for nickel plates last week amid the downward trend in nickel prices starting last Thursday, with nickel prices returning to around 150,000 yuan/mt. The decline in raw material prices led to a slow but steady recovery in demand from end-users. It is worthy of attention that NPI prices rose last week, due to the tight spot circulation supply and concentrated downstream demand. In summary, although current nickel prices showed a significant pullback last week amid bearish fundamentals, a deep decline in nickel prices seems unlikely in the absence of a shift to pessimistic macro sentiment. Nickel prices are expected to range between 145,000-150,000 yuan/mt this week.