SMM Morning Comments (Mar 2): Base Metals Rose across the Board on Macro support

SHANGHAI, Mar 2 (SMM) – Shanghai base metals all closed with gains in the overnight trading amid surging energy prices, and their counterparts on LME performed similarly on Tuesday.

LME copper rose 2.23%, aluminium increased 2.68%, lead gained 0.58%, and zinc advanced 3.6%.

SHFE copper increased 1.06%, aluminium rose 0.92%, lead won 0.48%, zinc gained 0.97%, and nickel advanced 1.87%.

Copper: LME copper opened at $9,915/mt last night, and closed at $10,080/mt, up 2.23%. Trading volumes stood at 38,000 lots and open interest stood at 249,000 lots.

SHFE 2204 copper contract opened at 70,660 yuan/mt in overnight trading, then fell to 70,530 yuan/mt before reaching high. At last, the contract closed at 71,670 yuan/mt, up 1.06%. The open interest stood at 138,000 lots.

On the macro front, the natural gas prices once gained as much as 20% amid escalating Russia-Ukraine conflicts. In addition, according to API, the US crude reserves dropped sharply by 6.1 million barrels, while gasoline reserves also fell by 2.5 million barrels last week. As such, WTI and Brent crude both touched new highs at $106.78/barrel and $107.65/barrel respectively. Overnight copper recorded palpable gains amid surging energy prices.

In the spot market, the prices dropped further amid shipments from smelters and inflow of imports. In addition, standard-quality and high-quality copper spread was quite narrow. According to current market response, the downstream was still slow in resuming the production, while the traders lowered their premiums in light of abundant market supplies.

It is expected that LME copper will move between $10000-10100/mt, SHFE copper between 71300-72000 yuan/mt, and spot premiums between -50 – 30 yuan/mt.

Aluminium: LME aluminium opened at $3,390/mt yesterday and closed at $3,486/mt, an increase of $91/mt or 2.68%.

The most-traded SHFE 2204 aluminium contract opened at 22,890 yuan/mt during last night’s session, with the highest and lowest prices at 22,960 yuan/mt and 22,840 yuan/mt before closing at 22,940 yuan/mt, up 210 yuan/mt or 0.92%.

On the macro front, the second largest shipping company is Asia suspended offering cargos to Russia and Ukraine, while the shipping giant Maersk is also considering suspending its orders in Russia.

In China, the aluminium companies in Yunnan, Guangxi and Guizhou were resuming their production, and the output has been rising as well, but the overall output was lower than in 2021. Meanwhile, the import window was still closed.

On the demand side, the aluminium ingot social inventory slowed down its growth on the back of recovering demand, while aluminium billet inventory has already started to fall. The market shall watch the falling coal prices which might dent the market, but it will not reverse the estimate of tight supply in the future.

Lead: Three-month LME lead opened at $2,393/mt on Tuesday, hitting the lowest and highest points at $2,378/mt and $2,420/mt respectively, and closed at $2,411/mt, up $14/mt or 0.58%.

The SHFE lead opened at 15,580 yuan/mt on Tuesday night, hitting the lowest and highest prices at 15,625 yuan/mt and 15,675 yuan/mt respectively, and closed at 15,660 yuan/mt, up 75 yuan/mt or 0.48%.

Zinc: Three-month LME zinc opened at $3,657.5/mt on Tuesday, and hit a high of $3,807.5/mt before closing at $3,784.5/mt, an increase of $131.5/mt or 3.6%. The trading volume rose to 11,036 lots, and open interest decreased by 669 lots to 245,000 lots. Zinc stocks across LME-listed warehouses dropped by 200 mt or 0.14% to 143,900 mt. The Russia-Ukraine conflicts caused the soaring energy prices in Europe, and the shorts left the market, which pushed up the LME zinc prices. The market needs to pay attention to the production of overseas smelters. LME zinc is expected to fluctuate between $3,750-3,800/mt today.

The most-traded SHFE zinc contract opened at 25,400 yuan/mt last night, and gained 245 yuan/mt to close at 25,435 yuan/mt, up 0.97%. The trading volume was 62,648 lots, and the open interest increased by 2,449 lots to 124,279 lots. The surging energy prices in Europe has caused smelters to worry about the costs. The operating rates of galvanising and die-casting plants increased, but were still significantly lower than expected, and the environmental protection control continued to disturb the production of galvanising producers in north China. The spot transactions were muted due to the rising prices and weak end consumption. The LME zinc prices still outperformed the SHFE zinc price, and the high energy prices will support the prices. The zinc prices are expected to fluctuate within a wide range. The SHFE zinc is expected to move between 25,000-25,500 yuan/mt today, and spot premiums for domestic 0# Shuangyan zinc will be seen at 40-50 yuan/mt against the April contract.

Nickel: The SHFE nickel pulled back in the intraday trading on Tuesday and rose steadily overnight, approaching 180,000 yuan/mt SHFE nickel opened at 177,000 yuan/mt last night, gaining support at 5 and 10-day moving averages, and closed at 179,100 yuan/mt, up 3,290 yuan/mt or 1.87%. The open interest increased by 230 lots to 135,800 lots. At the macro level, after Russia was banned from SWIFT by the US and many European countries, it is subjected to many sanctions and faces the devaluation of the ruble. Since most of Russia’s war funds are locked and the fighting situation is not clear, the market will follow the negotiations between Ukraine and Russia. The PMIs of manufacturing and non-manufacturing industries rose in February, thanks to the better investment environment brought by the financial policies and the stable development of the infrastructure industry. The market sentiments were bullish. SMM will continue to monitor the Fed’s speeches. The stainless steel transactions weakened, while the demand for nickel sulphate remained strong, still supporting the nickel prices. The global nickel supply remains tight, but the news of high-grade nickel matte may cause the prices to pull back. The overall nickel prices are expected to remain in an upward trend.

Tin: On the fundamentals, LME and SHFE inventory remained largely unchanged, while the market transactions were low. Non-deliverable brands were mostly offered in discounts.

In terms of chart moves, SHFE tin dropped after opening the night session with the decrease of open interest, and rose afterwards until the level recorded at the opening last night. The longs and shorts reduced their positions by turns.

To sum up, the fundamentals were largely unchanged recently, and the weak demand for sport contained the upside momentum of SHFE tin. And the low participation of funds will also keep the contract hovering at the current level.