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SMM Morning Comments (Jul 12)


Copper: LME copper lost more than its SHFE counterpart last night on the threat of a trade war. LME copper fell to a low of $6,082/mt and lost $210/mt from Tuesday to close at $6,135/mt, while the SHFE 1809 contract slid 30 yuan/mt to close at 48,360 yuan/mt. The domestic price spread between scrap and refined copper narrowed to 100 yuan/mt, indicating a weaker substitution of scrap for the refined metal. This will provide some support to prices of refined copper. However, negative sentiment continues to exert downward pressure. We see LME copper trading at $6,090-6,150/mt with the SHFE 1809 contract at 48,000-48,500 yuan/mt today. Spot offers are expected at a discount of 40 yuan/mt to a premium of 10 yuan/mt.

Aluminium: LME aluminium rebounded to a high of $2,086/mt during the European trading session as market concerns over a trade war eased. However, it met resistance at the closing level on Tuesday, and inched down to close at $2,060.5/mt. We see it hovering weakly at $2,045-2,075/mt today.The SHFE 1809 contract touched a high of 14,135 yuan/mt as its LME counterpart rebounded and as shorts exited. The SHFE/LME aluminium price ratio rose to 6.85 as LME inventories grew. We expect the contract to trade at 14,030-14,230 yuan/mt today with spot offers at a discount of 30 yuan/mt to a premium of 10 yuan/mt.

Zinc: LME zinc tumbled over 2.4% last night to close at $2,564/mt. This followed after it dipped to a low of $2,503/mt on a gaining US dollar and fears of a trade war. The $2,500/mt level provided some support. As trade war concerns are likely to ease, LME zinc is seen seeking support at $2,520 -2,570/mt today. The SHFE 1809 contract rebounded back to above the daily moving average and gained 240 yuan/mt to close at 20,785 yuan/mt. While SHFE contracts received some respite as trade conflicts eased, umarket uncertainties will continue to limit their growth. The 1809 contract is expected to trade at 20,500-21,000 yuan/mt today.

Nickel: LME nickel consolidated around the daily moving average and hit a high of $14,040/mt with LME inventory down 774 mt to 263,220 mt. The SHFE 1809 contact rebounded from a low of 109,050 yuan/mt, with support at 109,000 yuan/mt, and closed at 11,171 yuan/mt. It failed to break the pressure at 112,000 yuan/mt last night. Weak movements are expected in nickel contracts amid a pessimistic sentiment over a potential trade war. We see LME nickel trading at $13,800-14,000/mt with the SHFE 1809 contract at 109,000-111,000 yuan/mt today. Spot prices are likely at 108,500-110,500 yuan/mt.

Lead: LME lead fell to a new low in close to a year overnight and maintained some distance from several moving averages as US-China trade tension heightened. Market sentiment was much affected as LME lead slumped nearly 5%. We expect LME lead to extend its decline today before stabilising. Support at the $2,200/mt level is expected to be tested. With its falling LME counterpart, the SHFE 1808 contract fell after it recovered some losses overnight. Bearish sentiment slightly eased overnight. We expect the contract to stablise today after deepening some losses.

Tin: LME tin dropped overnight due to threats of fresh US fresh tariffs. As the US-China trade conflict continues to suppress risk appetite, we expect LME tin to remain weak in the near term with support at $19,000/mt. The SHFE 1809 contract stemmed its daytime tumble but remained under pressure overnight. As bearish sentiment grows, we expect the contract to continue to face  pressure today with support at the 140,000 yuan/mt level.