SMM Morning Comments (Mar 21): Base Metals Closed Mostly with Gains on Eased Concerns over Banking Crisis

SHANGHAI, Mar 21 (SMM) - LME and SHFE base metals closed mostly with gains overnight. On the macro front, the US dollar index fell overnight as investors reacted to UBS’s low-priced acquisition of its troubled rival Credit Suisse and market worries were digested.

Copper: LME copper closed at $8,711/mt in overnight trading, a gain of 1.15%. Trading volume was 18,000 lots and open interest stood at 244,000 lots. The most active SHFE 2305 copper contract finished at 67,510 yuan/mt overnight, up 0.75%. Trading volume was 45,000 lots, and open interest stood at 150,000 lots.

On the macro front, the US dollar index fell overnight as investors reacted to UBS’s low-priced acquisition of its troubled rival Credit Suisse and market worries were digested. On the fundamentals, as of Monday March 20, SMM copper inventories in major Chinese markets decreased 7,500 mt from last Friday to 218,700 mt, down 43,700 mt from Monday March 13. This is up 22,100 mt from pre-CNY level. The destocking in east China over the weekend was mainly due to the sharp drop in copper prices last week and the active downstream replenishment of goods. In addition, with the profitability of copper imports, the inflow of imported copper supplies in Shanghai increased over the weekend. It is expected that there will still be continuous inflows of imported supplies this week, which may have a certain impact on spot quotes. It is expected copper prices will move narrowly.

Aluminium: Overnight, the most-traded SHFE 2304 aluminium contract opened at 18,200 yuan/mt, with its lowest and highest at 18,125 yuan/mt and 18,240 yuan/mt before closing at 18,170 yuan/mt, up 130 yuan/mt or 0.72%. LME aluminium opened at $2,284.5/mt on Monday, with its high and low at $2,300/mt and $2,254/mt respectively before closing at $2,284/mt, an increase of $6/mt or 0.26%.

On the macro level, the liquidity crisis brought about by overseas banks has not been alleviated. There are many macro uncertainties, triggering strong risk aversion sentiment. On the fundamentals, the domestic supply side has recovered slightly. The improvement in downstream consumption has driven the rapid destocking of aluminium ingot stocks. The fundamentals are well supported. The short-term aluminium prices will trade rangebound amid macro uncertainty.

Lead: LME lead opened at $2,095/mt last night and rose1.27% to $2,115.5/mt, with the lowest and highest prices at $2,076/mt and $2,121.5/mt respectively. The open interest fell 34 lots to 105,000 lots, and trading volume declined 1,049 lots to 3,668 lots.

The most-traded SHFE 2304 lead contract opened at 15,355 yuan/mt and fell to 15,330 yuan/mt in the early stage, but then rebounded and closed at 15,360 yuan/mt amid the increase of LME lead, a decrease of 0.16%. Open interest fell 3,596 lots to 33,471 lots, and trading volume declined 38,266 lots to 16,900 lots.

Zinc: Overnight, LME zinc opened at $2,935/mt and closed down $35/mt or 1.19% at $2,898/mt. The trading volume was 6,607 lots, and open interest added 901 lots to 184,000 lots. LME zinc lacked momentum as bearish sentiment intensified propelled by risk aversion. LME inventory declined by 350 mt to 37,375 mt. Despite the small decline, the LME zinc inventory generally showed an upward trend. Although Credit Suisse and the First Republic Bank received the bailout, traders were still concerned about a lack of systemic liquidity against interest rate hikes. As a result, the market was still filled with bearish sentiment.

Overnight, the most-traded SHFE 2305 zinc contract opened at 22,410 yuan/mt and settled at 22,350 yuan/mt, down 75 yuan/mt or 0.33%. Trading volume stood at 45,000 lots, and open interest gained by 1,813 lots to 91,000 lots. The turmoil in the banking sector has added to the risks of bank failures and a slowdown in economic growth. The bearish macro sentiment overseas weighed on both LME zinc and SHFE zinc prices. On top of that, the expected increase in the supply of domestic zinc ingots in March also provided weak support for SHFE zinc prices.

Tin: SHFE 2304 tin contract rose last night and close at 186,810 yuan/mt, up 1.01%.

On the fundamentals, the warrants inventory continued to fall and the spot market turned cold amid rising tin prices. In the spot market, the discounts of small brands remained stable. The supply of imported tin was sufficient.

To sum up, the current tin prices were still suppressed by the weak demand from downstream enterprises. Downstream processing companies cannot actually digest inventory by stocking up at low prices, and they still need to pay close attention to the progress of consumer confidence restoration.

Nickel: On the supply side, SHFE nickel prices bounced back. The spot market inquiries and transactions fell short of expectations. Frequent news of production reduction and shutdown of stainless steel mills were bearish for NPI prices. The prices of finished products dropped following the raw material prices, limiting the stainless steel mills’ profit margins. Therefore, the mills were less willing to purchase raw materials at low prices. On the demand side, according to SMM research, due to high production costs, the steelmaking production lines of a stainless steel mill in east China have been shut down, and the resumption date is to be determined. This slightly alleviates the oversupply in the market, but spot prices still stayed stable under inventory pressure. The spot transactions were average. To sum up, the pure nickel sector faced weak supply and demand. Nickel prices will move rangebound.

[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.]