SMM Morning Comments (Mar 25): Base Metals Closed with Losses on Inflating US Dollar except Nickel

SHANGHAI, Mar 25 (SMM) - Shanghai and LME base metals mostly closed with losses in light of a strong US dollar index as the number of initial jobless claims in the US last week and the initial value of manufacturing PMI in March, which was announced yesterday, both performed strongly.

LME copper shed 1.1%, aluminium lost 3.12%, lead fell 3.16%, and zinc slid 3.58%.

SHFE copper shed 0.31%, aluminium lost 0.97%, lead fell 0.33%, zinc slid 0.25%, nickel gained 8.51%.

Copper: LME copper opened at $10,430/mt yesterday and fell to $10,282/mt after reaching the high level of $10,491/mt. At last, the prices closed at $10,310/mt, down 1.1%. Trading volume was 11,000 lots, and open interest stood at 245,000 lots.

SHFE 2205 copper contract opened at 73,600 yuan/mt in overnight trading and once rose to a high level of 73,920 yuan/mt. At last, the contract fell and closed at 73,410 yuan/mt, down 0.31%. Trading volume was 28,000 lots, and open interest stood at 153,000 lots.

On the macro front, the EU failed to reach an agreement on the plan to boycott Russian crude oil. It was also reported that the crude oil export of the CPC Caspian oil pipeline terminal may be partially restored on Thursday. Therefore, the crude oil prices dropped overnight. In addition, the number of initial jobless claims in the US last week and the initial value of manufacturing PMI in March, which was announced yesterday, both performed strongly, making the US dollar stronger again. Strong US economic data and high inflation reinforced the market’s expectation that the US Fed will increase interest rates more significantly. In the spot market, the impact of the COVID-19 outbreaks on Jiangsu, Zhejiang and Shanghai has not weakened approaching the end of March. Under the requirements of pandemic prevention and control, trade, downstream production and consumption, and logistics were greatly hindered, and it was difficult to see a large number of purchases in the market, which made traders dump their goods for cash.

LME copper is expected to move between $10,280-10,380/mt today, SHFE copper between 73,100-73,700 yuan/mt, and spot premiums between 130-200 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 23,190 yuan/mt, with the highest and lowest prices at 23,235 yuan/mt and 22,920 yuan/mt before closing at 23,055 yuan/mt, down 225 yuan/mt or 0.97%.

LME aluminium opened at $3,670/mt on Thursday and closed at $3,570/mt, down $115/mt or 3.12%.

On the supply side, the resumption of domestic aluminium production has accelerated, but the output has not reached the level of the same period last year. The pandemic has continued to affect the transportation efficiency of aluminium ingots. Aluminium ingot social inventory in China’s major markets fell by 5,000 mt from a week ago to 1.04 million mt yesterday. Under the impact of the pandemic, some downstream processing enterprises reduced or stopped production, which affected the recovery of demand. It is expected that the short-term aluminium price will remain at a high level. The market still needs to pay attention to how the overseas energy crisis will evolve, inventory changes and the impact of the pandemic on transportation of upstream and downstream enterprises.

Lead: Three-month LME lead opened at $2,370.5/mt Thursday, and rose to the high of $2,389/mt in European trading hours and then fell to a low of $2,281.5/mt. The contract closed at $2,302/mt, down 3.16%.

The most-traded SHFE lead opened at 15,255 yuan/mt, and then hit the highest at 15,400 yuan/mt before closing at 15,300 yuan/mt, down 0.33%.

Zinc: Three-month LME zinc opened at $4,158/mt Thursday, and lost $149/mt or 3.58% to close at $4,011/mt. The open interest added 1,085 lots to 237,000 lots. Overnight LME zinc inventory lost 225 mt to 142,950 mt. LME zinc is expected to move between $4,150-4,200/mt.

The most traded SHFE 2205 zinc contract opened at 26,250 yuan/mt last night, and dropped 65 yuan/mt or 0.25% to close at 26,185 yuan/mt. The trading volume was 74,000 lots, and the open interest fell 1,746 lots to 98,000 lots. SHFE zinc is expected to move between 26,000-26,500 yuan/mt, and 0# Shuangyan zinc in premiums of 20 yuan/mt over SHFE 2204.

Overnight, three summits in Brussels, where the West unanimously backed Ukraine and slammed Russia for its "barbaric behaviour", and the US announced a new round of sanctions against Russian individuals and entities. The EU refused to buy Russian gas in rubles. US initial jobless claims fell to a 52-year low last week, and the case for a sharp Fed rate hike in May strengthened. LME nickel prices hit the 15% limit up for the second day in a row, and the exchange banned nickel traders from placing orders beyond the price limit.

On the supply side, electricity prices rose amid inflating natural gas prices, which underpinned zinc prices. On the consumption side, market sentiment was dented by natural gas shortage, and subsequently rising futures prices have depressed the consumption, hence orders placed by terminal companies dropped as a whole. The downstream was generally wait-and-see in light of high zinc prices. Spot transactions were thin as logistics has not yet improved.

Tin: Overnight, SHFE tin fell back slightly with exit of longs. The domestic tin inventory under warrants fell at a slower pace, while the overseas inventory rose slightly. Spot premiums fell sharply amid weak demand. SHFE tin is expected to hover at highs in the short term.

Nickel: The most-traded SHFE nickel 2204 contract was pulled back after hitting the limit up, and then the prices rose and remained on an upward trend. Nickel futures opened at 279,990 yuan/mt, and then were sealed for 1.5 hours. At around 22: 37 p.m., the nickel prices dropped sharply after the longs decreased their positions. Then, the prices hit a low rebound and gained support from the increase of positions of longs, and once rose to 280,000 yuan/mt. At last, the prices fell and closed at 266,650 yuan/mt, up 20,910 yuan/mt from the previous closing price, up 8.51%. Trading volume increased by 133,000 to 134,000 lots, and open interest dropped by 3,434 lots to 40,202 lots. The abnormal fluctuation of LME nickel prices led to the substantial adjustment of SHFE nickel prices, and the transaction risk in the spot market was high, especially the nickel products priced by LME. Therefore, the trading in the spot market was slack, with both upstream and downstream taking a wait-and-see attitude. It is expected that the SHFE nickel will remain rangebound today. On the fundamentals, spot prices of stainless steel were driven upward by futures, but the trading was sluggish. In terms of new energy, there was still no deal in the upstream and downstream of nickel sulphate, and the upstream and downstream were both cautious. Before the nickel price has not returned to the fundamentals, it is expected that the trading in the market will be less.

[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.]