SMM Morning Comment For SHFE Base Metals On Mar 4

SHANGHAI, Mar 4(SMM) –

Copper

LME copper prices opened at $8445.5/mt and closed at $8522/mt in last Friday evening trading, a gain of 0.51%, with the low-end of $8445.5/mt and the high-end of $8634/mt. Trading volume was 16,000 lots, and open interest stood at 285,000 lots. The most active SHFE 2404 copper contract prices opened at 68870 yuan/mt and closed at 69060 yuan/mt last evening, up 0.15%, with the high-end of 69240 yuan/mt and the low-end of 68840 yuan/mt. Trading volumes stood at 18,000 lots and open interest stood at 147,000 lots. On the macro front, the U.S. consumer confidence index released last Friday was lower than market expectations, and its ISM manufacturing PMI in February also fell below market expectations, reinforcing expectations that the Federal Reserve will cut interest rates in June. In addition, the decline in LME inventories also supported copper prices. On the fundamentals, as of Feb 29, SMM copper inventories in major Chinese markets added 7,400 mt to 305,700 mt from last Monday, and up 137,400 mt from pre-CNY levels. From the supply side, most refineries have digested most of the inventory accumulated during the holiday in the two weeks after the holiday. However, due to insufficient recovery in current consumer demand, there was still a large supply of goods in the hands of cargo holders, so the overall supply was still relatively abundant. In terms of consumption, demand from processing companies will continued to recover in March, and demand for copper is expected to be stronger than last week. In terms of price, on the occasion of China's two political sessions, the market has optimistic expectations for domestic economic policies. Coupled with the decline of the U.S. index, copper prices are expected to rise.

Aluminium

The most-traded SHFE 2404 aluminium contract opened at 18,985 yuan/mt last Friday night, with its low and high at 18,955 yuan/mt and 19,055 yuan/mt before closing at 19,025 yuan/mt, up 55 yuan/mt or 0.29%. LME aluminum opened at $2,224.5/mt last Friday, with its high and low at $2,248.5/mt and $2,208/mt respectively before closing at $2,236/mt, up $8/mt or 0.36%.

Summary: From a macro perspective, lower-than-expected economic data has strengthened the Fed’s interest rate cut expectations, making it possible to cut interest rates in June, and the US dollar index weakened; the domestic Two Sessions are about to begin, and the State Council released favourable policies to boost the economy and consumer demand, the market had strong expectations for stimulus policies. Fundamentally, the strike in Guinea has been suspended, and an aluminium smelter in Inner Mongolia has resumed power supply and production. In addition, there has been no increase in power in Yunnan and other regions. Aluminium smelters maintained stable production, and supply disturbances in China and overseas have basically eased. On the demand, the production resumption after CNY holiday boosted the operating rate of aluminium downstream enterprises. Short-term consumption is still expected to rebound, and spot transactions and outbound performance improved. Aluminium ingots inventory continued to grow in the second week after CNY holiday. SMM expects domestic aluminium ingot inventories may move between 800,000-900,000 mt in the first half of March , while aluminium billets inventories has entered destocking cycle last Thursday, about a week earlier than the same period last year. Overall, aluminium prices are likely to grow in traditional peak season in March, and we need to pay attention to aluminium supply, recovery of consumption, and when aluminium ingot and aluminium billets stocks will begin to drop.

Lead

LME lead opened at $2063/mt, declining to a low of $2033/mt during the European trading hours. It finally dropped and closed at $2038/mt, down $27/mt or 1.31%.

The most-traded SHFE 2404 lead contract opened at 15970 yuan/mt and fell 60 yuan/mt or 0.38% to 15920 yuan/mt last Friday evening, briefly hitting the lowest point at 15915 yuan/mt and the highest point at 16020 yuan/mt.

Zinc

Last Friday evening, LME zinc prices opened at $2422.5/mt and closed at $2432.5/mt with the low-end of $2400.5/mt and the high-end of $2435/mt, up $9/mt or 0.37%. Trading volume increased to 9438 lots, and open interest decreased 4693 lots to 234,000 lots. LME zinc inventory decreased by 150 mt or 0.054% to 275950 mt. The Federal Reserve's hawkish speech continued, dampening market sentiment. However, the U.S. ISM manufacturing index in February recorded 47.8, which was lower than expected and lower than the previous value. The weak U.S. manufacturing data increased expectations of U.S. interest rate cuts. The U.S. dollar weakened.

Last Friday, the SHFE 2404 zinc contract opened at 20,525 yuan/ton with a low of 20,510 yuan/ton and a high of 20,610 yuan/ton. It finally closed down at 20,570 yuan/ton, down 25 yuan/ton, or 0.12%. The trading volume dropped to 31,368 lots, and the open interest decreased by 9 lots to 106,000 lots. In February, Caixin China's manufacturing PMI rose month-on-month. Since the second half of 21, it has been in the expansion range for four consecutive months. The prosperity of the manufacturing industry has improved, and weekly TCs have been reduced again. The cost support of smelters is strong.

Tin

SHFE 2404 tin contract rose slightly to 219,760 yuan/mt and then fell back last Friday night, closing at 218,200 yuan/mt, up 0.22%.

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 500-900 yuan/mt against SHFE 2404 tin contract, versus discounts of 500 yuan/mt to premiums of 300 yuan/mt for delivery brands, premiums of 400-700 yuan/mt for Yunxi brand, and discounts of 800-1,200 yuan/mt for imported brand tin ingots. Tin prices consolidated swung on a soft note last Friday, and downstream companies were less cautious about entering the market.

Nickel

Nickel prices continued to rise last week because the approval of nickel ore mining quotas in Indonesia under RKAB was slower than anticipated. According to SMM research, as of February 26, 2024, Indonesia had approved a quota of 145 million wmt of nickel ore for 2024, accounting for 60% of the demand. It is expected that the process will accelerate in the future, but concerns over supply of nickel ore persist. US core inflation increased 2.8% on a year-on-year basis in January, the smallest advance since March 2021, after rising 2.9% in December. However, the month-on-month growth of PCE data hit a new high, and recent data indicates rising costs of goods and services, which could potentially reignite the inflation trend. It's crucial to closely monitor the February data to verify the inflation rate. Additionally, U.S. initial jobless claims in the week ending Feb 29 rose to 215,000, surpassing both the previous figure and market expectations. From a fundamental perspective, the spot market witnessed subdued trading activity. Due to the impact of high nickel prices, even as the regular replenishment period comes, downstream purchasing willingness remains relatively low. Some downstream plants opted to use the raw material inventory on hand. Upstream smelters were keen on shipping out products, while traders kept reducing premiums to boost sales. Smelters, which slowed down over the Chinese New Year holiday, will gradually increase output in March. Demand for nickel plates decreased in various sectors because downstream plants were not willing to accept the current low nickel prices. In summary, the nickel market fundamentals now looks bearish, but the overall macro outlook is leaning bullish. Nickel prices are expected to trend slightly stronger this week, with the 2404 nickel contract moving between130,000-140,000 yuan/mt.