SMM Morning Comments (Mar 7): Base Metals Closed Mostly with Gains on Upcoming Powell Testimony and Job Data

SHANGHAI, Mar 7 (SMM) – LME and SHFE base metals closed mostly with gains overnight. On the macro front, due to a lack of short-term policy for guidance, the market is still waiting for the testimony of Fed Chairman Powell and job data to be released later this week to gauge the size of the US interest rate hike.

Copper: LME copper closed with a gain of 0.3% at $8,950/mt in overnight trading. Trading volume was 15,000 lots and open interest stood at 250,000 lots. The most active SHFE 2304 copper contract finished at 69,630 yuan/mt last night, up 0.16%. Trading volume was 26,000 lots, and open interest stood at 146,000 lots.

On the macro front, due to a lack of short-term policy for guidance, the market is still waiting for the testimony of Fed Chairman Powell and job data to be released later this week to gauge the size of the US interest rate hike. In terms of fundamentals, as of this Monday March 6, copper stocks in Chinese markets tracked by SMM dropped 1,000 mt from last Friday to 308,100 mt. The current total inventory was 111,500 mt higher than the 196,600 mt before the Chinese New Year holidays. Specifically, the inventory destocking in east China is mainly due to the low arrivals of both imported and domestic copper when the demand gradually picked up, thus the supply was insufficient to meet the demand. The inventory in Guangdong added with the increased arrivals of domestic copper. At the same time, it is expected that consumption will continue to recover slowly as the peak season kicks off in March. But both macro factors and fundamentals have been weak recently, so copper prices are estimated to rise slightly against the slow recovery of consumption.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,540 yuan/mt overnight before closing at 18,700 yuan/mt, up 40 yuan/mt or 0.21%. LME aluminium opened at $2,398/mt on Monday and closed at $2,389/mt, down $16/mt or 0.67%.

Overseas macro factors continued to put downward pressure on commodities. After aluminium smelters in Yunnan complete production cuts, the market attention will focus more on the recovery of domestic consumption. It remains to be seen when the seasonal destocking will begin. In view of expectations for stimulus policies during the “Two Sessions” and high inventory of aluminium ingots, SHFE aluminium prices move rangebound.

Lead: Overnight, LME lead opened at $2,109/mt. The US dollar index fluctuated downward and the LME lead rose to $2,140/mt, but then fell and fluctuated between $2,105-2,140/mt. LME lead finally closed at $2,105.5/mt, a decrease of 0.59%.

The most-traded SHFE 2303 lead contract opened at 15,280 yuan/mt overnight amid the increasing domestic and overseas inventory. SHFE lead remained at 15,250-15,280 yuan/mt for a long time amid the long-short game and finally closed at 15,255 yuan/mt, down 0.16%, with the open interest up 61 lots to 61,134 lots.

Zinc: Overnight, LME zinc opened at $3,052.5/mt and touched $3,000/mt before finishing up $8.5/mt or 0.28% at $3,051.5/mt. Trading volume was down to 5,148 lots, and open interest lost 1,066 lots to 193,000 lots. LME zinc inventory decreased by 300 mt to 35.150 mt. The European Central Bank released hawkish remarks, and LME fell under pressure during European trading hours and pulled back at night session.

The most-traded SHFE 2304 zinc contract opened at 23,230 yuan/mt and closed at 23,465 yuan/mt, up 95 yuan/mt or 0.41%. Trading volume was reduced to 43,280 lots, and open interest gained by 1,546 lots to 83,980 lots. In terms of fundamentals, TCs at most domestic mines have been lowered recently. At present, there are relatively few goods available at ports, and the supplies at some mines are tight due to labour shortage. Nevertheless, the zinc smelters are currently running normally, unaffected by the disruptions on raw material side. Powell’s testimony and the policies to be introduced during the Two Sessions will be watched.

Tin: The SHFE 2304 tin contract fluctuated and close at 200,000 yuan/mt, up 0.25%.

Fundamentally, the warrants of SHFE decreased slightly yesterday, but the spot market continued to be depressed. The spot discounts of deliverable brands remained stable while that of small brands were still high. The market supply of imported goods were still insufficient.

The SHFE 2304 tin contract fluctuated and close at 200,000 yuan/mt, up 0.25%.

To sum up, demand stimulus policies are expected to be released intensively during the recent "two sessions", but it will take time for the demand to improve. Tin prices may continue to hover sideways.

Nickel: On the supply side, the nickel prices remained low yesterday. Upstream positions basically held SHFE 2304 nickel, which curbed the premiums from a further drop, hence the spot prices bounced back. NPI imports from Indonesia surged, while the stainless steel transactions remained poor. Bearish sentiment currently fills the market. On the demand side, according to SMM research, the spot transactions in the past few trading days were slack. Tsingshan Group disclosed a new bid price, which was about 200 yuan/mt lower than the previous price, but the new orders were still unsatisfactory. Alloys companies were less willing to restock as the nickel prices have bottomed out recently. To sum up, the pure nickel sector faces weak supply and demand. Nickel prices will move rangebound in the short term.

[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.]