SMM Morning Comments (Mar 1): Shanghai Base Metals Closed Mixed Overnight amid Intensifying Cautious Sentiments

SHANGHAI, Mar 1 (SMM) – Shanghai base metals closed mixed in the overnight trading as the cautious sentiments intensified amid uncertainties of Russia-Ukraine conflicts. Their counterparts on LME mostly went up.

LME copper dipped 0.01%, aluminium rose 0.44%, lead increased 0.93%, and zinc went up 0.77%.

SHFE copper dropped 0.13%, aluminium fell 0.44%, lead rose 0.29%, zinc gained 0.96%, and nickel shed 1.06%.

Copper: LME copper prices opened at $9,901/mt yesterday, then fell at $9,794/mt after reaching a high level of $9,956.5/mt. At last, the prices closed at $9,859.5/mt, down 0.01%. Trading volumes stood at 15,000 lots and open interest stood at 250,000 lots.

SHFE 2204 copper contract opened at 70,920 yuan/mt in overnight trading, then fell at 70,660 yuan/mt after reaching a high level of 71,150 yuan/mt. At last, the prices closed at 70,750 yuan/mt, down 0.13%.

The open interest reached 132,000 lots. In terms of macroeconomics, Russia-Ukraine negotiations, which attracted worldwide attention, ended. Ukrainian President Zelensky said that the expected results was not achieved, and Russia's position and conditions will be evaluated before the second round of negotiations. The uncertainty of Russia-Ukraine conflict aggravated the market cautious sentiment, and copper futures could not keep its prices anymore and fell slightly in overnight trading. In terms of spot, according to SMM, the social inventory of copper cathode in Shanghai increased by 2,400 mt to 132,300 mt last week. With the inflow of some imported goods and the willingness of the smelter to ship, premiums dropped yesterday. If the transactions of imported goods are achieved in March, it is expected that the premiums will gradually stabilize in the following days. LME copper will trade between $9,800-9,900/mt today; SHFE copper prices are expected to move between 70,500-71,100 yuan/mt. Spot premiums are likely to fluctuate between 50-110 yuan/mt.

Aluminium: LME aluminium opened at $3,407/mt yesterday and closed at $3,395/mt, an increase of $15/mt or 0.44%.

The most-traded SHFE 2204 aluminium contract opened at 22,710 yuan/mt during last night’s session, with the highest and lowest prices at 22,760 yuan/mt and 22,585 yuan/mt before closing at 22,585 yuan/mt, down 270 yuan/mt or 0.18%.

On the macro front, US dollar index dropped after opening high, and recorded a gain of 0.18% yesterday, as the Russia-Ukraine talk eased the market panic and the centralisation status of US dollar has been questioned, both of which suppressed the US dollar.

On the supply side, the aluminium smelters in Yunnan, Guangxi and Guizhou gradually resumed their production, and the output has been rising as well. Nonetheless, the gross total was below the level in the same period in 2021. The import window remained closed as the LME market outperformed the SHFE market.

On the demand side, the downstream consumption has been recovering, containing the growth of aluminium ingot social inventory, while the inventory of aluminium billet has started to fall.

On the while, SHFE aluminium is expected to move in a narrow range amid weak support from the fundamentals, while the LME aluminium will be greatly affected by the uncertainties on the macro front.

Lead: Three-month LME lead opened at $2,370.5/mt, hitting the lowest point at $2,365.5/mt and rebounded to $2,402.5/mt, before closing at $2,397.5/mt, up $22/mt or 0.93%.

The most traded SHFE 2204 lead contract opened at 15,650 yuan/mt, hitting the lowest point at 15,560 yuan/mt, and closed at 15,580 yuan/mt, up 45 yuan/mt or 0.29%.

Zinc: Three-month LME zinc opened at $3,630/mt, fluctuating around $3,660/mt before rising to the highest point at $3,717/mt. It closed at $3,653/mt, up $28/mt or 0.77%. The trading volume was 9,838 lots, and the open interest dropped 480 lots to 246,000 lots. The zinc stocks across LME-listed warehouses decreased by 300 mt to 144,100 mt. the market will focus on the energy supply amid Russia-Ukraine conflicts. LME zinc is expected to trade between $3,660-3,710/mt today.

The most traded SHFE 2204 zinc contract opened at 24,955 yuan/mt, hitting the highest point at 25,340 yuan/mt as shorts reduced their positions, then falling to around 25,140 yuan/mt as longs left the market. It closed 240 yuan/mt or 0.96% higher at 25,145 yuan/mt. The trading volume was 91,645 lots, and the open interest dropped by 3,560 lots to 124,190 lots. As the zinc concentrate supply remains tight in Chinese market, the TCs in some regions may continue to drop. The post-CNY consumption falls short of expectations. The total zinc ingot inventory across major markets stood at 283,500 mt. The spot market was slack after the zinc prices went up yesterday, and the transactions were sluggish. The zinc prices are expected to move downward in the short term. SHFE zinc is expected to trade between 24,700-25,200 yuan/mt, and the prices of domestic 0# Shuangyan zinc are expected to stand at flat levels over SHFE 2204 zinc contract.

Nickel: The nickel futures dropped last night. The prices opened at 177,300 yuan/mt, then went straight down and closed at 174,200 yuan/mt, which was 1,870 yuan/mt lower than the previous trading day, with a decrease of 1.06%. The open interest decreased by 6,030 lots to 137,200 lots. The overall trend of nickel futures was due to the profit-taking of longs and the rising shorts positions. Prices in the overnight trading followed that in daytime, and the prices did not violate the rising trend. In terms of macroeconomics, the situation after the negotiations between Russia and Ukraine yesterday was not clear, and there was no consensus on whether to stop the war or not, and even more severe sanctions will be imposed on Russia. Russia hiked interest rates to maintain the stability of the economic system, but the nickel market was still panic. The US claimed that it will impose sanctions on Russian crude oil and natural gas in the future, therefore, the nickel supply problem may be severe. On fundamentals, the stainless steel market weakened, but the demand for nickel sulphate was still strong. Nickel prices would not fall due to the wide gap between nickel and NORNICKEL nickel, and the tight supply globally was not changed. SMM presumes that, in recent days, nickel prices will fluctuated at a high level.

Tin: On the fundamentals, domestic warrants inventory experienced little fluctuations, and the spot market was muted as a whole. Some brands were still offered with discounts. In terms of SHFE tin, the contract moved in a narrow range after hitting high opening the night session. The capitals were actively seeking the right opportunity to enter the market.

On the whole, the market was in a dynamic balance in terms of supply and demand, and SHFE tin will be less volatile with the absence of large capitals.