SMM Morning Comments (Feb 28): Base Metals Closed Mostly with Gains on Falling US Dollar

SHANGHAI, Feb 28 (SMM) – SHFE and LME base metals closed mostly with gains overnight. On the macro front, the pound rose sharply and the US index pulled back. At the same time, the market is also waiting for the US February employment and consumer price data.

Copper: LME copper closed with a gain of 1.6% at $8,834/mt in overnight trading. Trading volume was 19,000 lots and open interest stood at 252,000 lots.

The most active SHFE 2304 copper contract finished at 68,800 yuan/mt overnight, up 0.13%. Trading volume was 40,000 lots, and open at 157,000 lots.

On the macro front, the pound rose sharply and the US index pulled back. At the same time, the market is also waiting for the US February employment and consumer price data.

On the domestic front, with regard to economic recovery, we need to pay attention to the upcoming Chinese manufacturing data. In terms of fundamentals, as of Monday February 27, copper stocks in Chinese markets tracked by SMM held flat from last Friday at 325,400 mt. The current total inventory increased 128,800 mt from 196,600 mt before the Chinese New Year holidays. Specifically, the decrease in inventory in east China is mainly due to the increase in downstream replenishment after the copper price fell and limited arriving shipments. The growth in Guangdong is attributable to maintenance at downstream producers which have not resumed production yet as well as arrivals of imported copper. In terms of consumption, after the fall of copper prices, consumption is expected to improve on the back of sufficient cash flows in March. Copper prices rose slightly due to a lower US dollar.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,425 yuan/mt overnight before closing at 18,535 yuan/mt, up 160 yuan/mt or 0.87%.

LME aluminium opened at $2,344/mt on Monday and closed at $2,376.5/mt, an increase of $34.5/mt or 1.47%.

On the macro side, the US dollar index fell overnight, driving base metals prices to rebound, but expectations for subsequent overseas interest rate hikes are strong. Aluminium ingot social inventory maintained the trend of accumulation, and spot transactions have not improved significantly. On the whole, rising inventory and unfavourable macro conditions will cap gains of aluminium prices. Before consumption shows signs of a substantial improvement, aluminium prices will remain rangebound.

Lead: LME lead prices remained sideways after opening yesterday and closed with gains of 1.46% at $2,112.5/mt, after hitting the highest point at $2,113/mt.

SHFE 2303 lead contract fluctuated sideways and closed at 15,330 yuan/mt, up 0.03%.

Zinc: On the news front, the Central Committee of the Communist Party of China and the State Council issued the "Overall Layout Plan for the Construction of Digital China” to promote the standardised and healthy development of platform companies. Shenzhen Stock Exchange encouraged real estate companies to make good use of financing and M&A tools and supported them to expand the applications of bond fund raised. BYD launched a promotion to cut the prices of its Dynasty series new energy models. At the same time, its delivery cycle has been shortened to varying degrees compared with 2022.

Yesterday, LME zinc opened steadily and then rose sharply before closing at $3,001/mt, up 1.15% or 34/mt. LME zinc inventory decreased by 50 mt to 33,350 mt overnight.

Overnight, the most active SHFE zinc contract climbed back to 23,000 yuan/mt mark and eventually finished at 23,160 yuan/mt. On the supply side, the production of some zinc smelters were restrained by power rationing, but the transactions in the spot market were weighed down by high zinc prices. Since the inventory decline cycle has not fully started, the zinc prices are expected to remain rangebound under the pressure on the macro front.

Tin: SHFE 2304 tin contract fell last night and rose 0.3% to close at 210,400 yuan/mt.

The domestic tin inventory under warrants increased slightly and the spot discounts increased slightly. As such, the imported goods were less cost-effective.

SHFE 2304 tin contract stopped falling and stabilised yesterday night, and rose 0.3% to close at 210,400 yuan/mt.

To sum up, tin prices fluctuated widely in the past two days, and downstream enterprises were sensitive towards the price change, reflecting that downstream demand was still fragile. The upstream smelters has already fully recovered and downstream enterprises restocked to a certain extent. The overall demand in the spot market is still recovering, especially the electronics sector. It is still necessary to pay further attention to the recovery of the spot market.

Nickel: Affected by the weak demand and falling open interest of SHFE 2303 nickel, SHFE nickel prices and the spot premiums kept falling. The upstream companies were more willing to ship. The average price of NPI dropped 10 yuan/mtu yesterday compared with the previous trading day. Thousands of metric tonnes of NPI were traded at 1,335 yuan/mtu by a stainless steel mill in east China. On the demand side, according to SMM research, spot stainless steel quotations continued to fall yesterday, and transactions weakened. SMM believes that the spot stainless steel prices will remain rangebound with some downward potential in the short term under the inventory pressure. In general, pure nickel demand remained weak, and the supply did not grow palpably. SMM presumes that nickel prices will remain rangebound around low levels.

[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.]