SMM Morning Comments (Jun 1): Base metals rose broadly as China’s factory activity expanded in May

SMM Morning Comments (Jun 1): Base metals rose broadly as China’s factory activity expanded in May

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SHANGHAI, Jun 1 (SMM) – LME nonferrous metals ticked higher across the board on Monday morning, while their counterparts on the SHFE rose for the most part as official data release over the weekend showed China’s factory activity expanded in May.

China’s National Bureau of Statistics reported Sunday that its Purchasing Manager’s Index (PMI) for the country’s manufacturing sector eased to 50.6 in May from 50.8 in April, but held above the 50-point mark that separates expansion from contraction on a monthly basis.

No signals of changes to the trade deal with China from US President Donald Trump during a much-awaited news conference Friday also supported investor sentiment. Trump said he would take action to eliminate special treatment towards Hong Kong. However, he did not indicate the US would pull out of the phase one trade agreement reached with China earlier this year.

A jump in oil prices and continued decline in the US dollar gave a boost to the nonferrous complex on Friday. LME nonferrous metals, except for tin, closed higher on Friday, with zinc advancing 2.4% to lead the way up. Lead jumped 1.5%, nickel rose 1.2%, aluminium climbed 0.6% and copper gained 0.2%.

SHFE nonferrous metals performed similarly on Friday night. Zinc surged 1.8%, lead rose close to 1%, copper crept up 0.8%, nickel advanced 0.7%, aluminium gained 0.5%, while tin edged down 0.02%.

Copper: Three-month LME copper fluctuated to close 0.15% higher at $5,380/mt on Friday. It rose for a second straight day to register a positive week, and is expected to move at $5,380-5,450/mt today.

The most active SHFE July contract rose to a one-week high of 44,180 yuan/mt on Friday night, before it ended up 0.78% at 44,150 yuan/mt. It is expected to trade between 44,000-44,400 yuan/mt today. Higher futures prices are expected to narrow spot premiums to 150-180 yuan/mt, but low inventories and limited availability of cheap resources will limit downside in spot premiums.

Aluminium: Three-month LME aluminium rose for a fourth straight day on Friday, to post a substantial weekly gain. It hit a new two month-peak of $1,549/mt, before ending the day 0.59% higher at $1,547/mt. It is expected to hover between $1,530-1,550/mt today.

The most active SHFE July contract fluctuated to close 0.49% higher at 13,220 yuan/mt on Friday night. SMM data showed that social inventories of primary aluminium ingots in China fell slower last week, which may weigh on sentiment. The July contract is expected to trade between 13,050-13,300 yuan/mt today, while spot premiums are seen at 100-120 yuan/mt over the June contract.

Zinc: Three-month LME zinc surged 2.4% to $1,986.5/mt on Friday, to end the week a touch firmer. Data showed that zinc stocks at LME-approved warehouses extended their decline, decreasing 1.84%, or 1,900 mt to 101,350 mt as of May 29. LME zinc is expected to move at $1,940-1,990/mt today as investors weigh demand recovery overseas against US-China tensions.

The most-liquid SHFE July contract hit its highest since May 21 at 16,585 yuan/mt on Friday night, before it closed 1.78% higher at 16,575 yuan/mt. It is expected to trade at 16,500-17,000 yuan/mt today, while spot premiums for domestic 0# Shuangyan are likely to narrow to 120-140 yuan/mt over the SHFE June contract. The pace of inventory decline should be closely watched to assess its support to prices.

Nickel: Three-month LME nickel surged in Northern American trading hours on Friday, moving towards the $12,400/mt level, and finished the day 1.23% higher at $12,390/mt. Two consecutive days of gains sent it posting a positive week. Whether it could remain above the five- and 10-day moving averages will come under scrutiny.

The most-traded SHFE August contract erased earlier losses to end Friday night 0.71% higher at 101,130 yuan/mt.

Lead: Three-month LME lead rallied on Friday to register a positive week. It hit a high of $1,677.5/mt in Northern American trading hours, before closing the day 1.5% higher at $1,661.5/mt.

The most-liquid SHFE July reversed an earlier slip to end 0.95% higher at 14,335 yuan/mt on Friday night. SHFE lead remained firms given the risks of a short squeeze amid low inventories.

Tin: Three-month LME tin notched a one-week high of $15,585/mt in European trading hours on Friday, before it eased and gave back all earlier gains to close the day 0.77% lower at $15,415/mt. It ended the week slightly higher thanks to Thursday’s sharp gain. Support is seen at the 20-day moving average at 15,200.

The most-traded SHFE August contract rebounded after touching a session-low of 133,320 yuan/mt on the build of short positions on Friday night, and ended just a tad weaker at 133,830 yuan/mt. Support is seen at the 20-day moving average at 130,000.

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