SMM Morning Comments (Apr 20): Base Metals Closed Mostly with Losses on Continued Rate Hikes of BoE

SHANGHAI, Apr 20 (SMM) – LME and SHFE base metals closed mostly with losses overnight. On the macro front, the U.S. dollar rose due to the rise in U.S. bond yields. But as the UK inflation rate remained above 10% in March, the Bank of England continued to raise interest rates, making the pound rise against the U.S. dollar, and limiting the dollar’s gains.

Copper: LME copper prices closed at $8,970/mt overnight, a drop of 0.36%. Trading volumes were 14,000 lots and open interest stood at 253,000 lots. The most active SHFE 2305 copper contract finished at 69,580 yuan/mt overnight, down 0.03%. Trading volume was 17,000 lots, and open interest stood at 152,000 lots.

In terms of fundamentals, the outflow of warrants in Shanghai was limited yesterday, which had little impact on spot premiums and discounts. In addition, the import loss narrowed to around 300 yuan/mt yesterday, and the market concerns about the continuous flows of imported copper into the spot market grew. The market is worried about the pressure on spot premiums and discounts. In terms of consumption, lower SHFE copper prices failed to arouse the downstream buying interest, and only some low-priced goods were traded actively. In terms of price, the domestic economy is expected to provide support for copper prices, and the high-end prices will be weighed by Fed rate hike. Copper prices are expected to remain rangebound.

Aluminium: Overnight, the most-traded SHFE 2305 aluminium contract opened at 19,025 yuan/mt, with its high at 19,115 yuan/mt before closing at 19,085 yuan/mt, up 85 yuan/mt or 0.45%. LME aluminium opened at $2,436/mt on Wednesday and closed at $2,450/mt, up $10.5/mt or 0.43%.

As the Fed’s interest rate hike seems to be coming to an end, market focus has shifted onto market fundamentals. In the current aluminium market, both supply and demand are growing. The supply increase was mainly contributed by Guizhou and Sichuan. Yet, smelters in Yunnan are still at risk of power rationing. The overall end demand continues to pick up, but it is still not as strong as expected. The bigger-than-expected decline in aluminium ingot inventory will support aluminium prices. Aluminium prices have climbed above 19,000 yuan/mt, but continued rise depends on further improvement of fundamentals.

Lead: Overnight, the LME lead prices opened at $2,145/mt and closed at $2,146/mt after hitting the lowest point at $2,120/mt and the highest point at $2,158.5/mt, a decrease of 0.09%. The open interest decreased 2,314 lots to 101,000 lots compared to the previous trading day, and trading volume increased 1,253 lots to 5,250 lots.

Overnight, the most-traded SHFE 2306 lead contract opened at 15,410 yuan/mt and closed at 15,390 yuan/mt after hitting the highest point at 15,420 yuan/mt, up 0.07%. The open interest increased 1,241 lots to 60,382 lots compared to the previous trading day, and trading volume decreased 21,307 lots to 22,729 lots.

Zinc: Overnight, LME zinc opened at $2,859/mt and closed at $2,791.5/mt, down $58/mt or 2.04%. Trading volume stood at 9,730 lots, and open interest lost 29 lots to 172,000 lots. The weaker consumption overseas amid bearish market sentiment caused the LME zinc cash-to-three-month backwardation to expand to $9/mt. The LME zinc prices lacked momentum.

The most-traded SHFE zinc 2305 contract opened at 21,980 yuan/mt and finally settled at 22,080 yuan/mt, down 270 yuan/mt or 1.21%. The trading volume was 39,000 lots, and open interest was reduced by 2,056 lots to 76,000 lots. The most active SHFE zinc contract is about to switch to the June contract.

With regard to zinc supply in China, although the power rationing in Yunnan has little impact on the local output of #0 zinc ingots, the secondary zinc smelters are more sensitive to power shortage and most of them cut or suspend production. The tightened crude zinc supply hurts the purchasing willingness of some downstream buyers, but thankfully it only has a limited impact on SHFE zinc prices.

Tin: Overnight, SHFE 2305 tin contract fluctuated upwards after opening at a low level and hit the highest point at 219,400 yuan/mt and finally closed at 219,000 yuan/mt, down 0.65%.

In the spot market, the premiums of deliverable brands remained stable while the discounts of small brands expanded significantly, with a minimum discounts of 800 yuan/mt. However, most traders reported that the market transactions were still sluggish. But the transactions of goods with large discounts has improved. As of the close of yesterday’s night trading, the import losses of the SHFE 2305 tin contract was 196.95 yuan/mt while the import profits of the SHFE 2308 tin contract was about 2,647.35 yuan/mt. As the inflation in the United Kindom is unlikely to ease in the short term, the expectations for subsequent interest rate hikes are still strong.

Nickel：The imported pure nickel supply in China stood tight on import losses. NORNICKEL nickel premiums hovered at highs yesterday, and the prices were flat from those of Jinchuan nickel. Low-priced NPI spots decreased, and spots held by traders were quoted at highs. On the demand side, the spot stainless steel quotes generally rose yesterday, while the transactions were general. After Tsingshan offered the intraday quotes at noon and soon closed the trading, the spot prices fell somewhat. It is expected that in the short term stainless steel prices will be stable with some falls. In summary, the nickel supply was tight, but the demand weakened, which may not prop up nickel prices strongly.

[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.]