SMM Evening Comments (Apr 1): Shanghai Nonferrous Metals Mostly Closed with Losses with Weakening Demand

SHANGHAI, Apr 1 (SMM) – Shanghai nonferrous metals mostly closed with losses as the demand was still contained by the pandemic in China.

Shanghai copper fell 0.52%, aluminium dropped 0.7%, lead slid 0.41%, zinc was flat, tin lost 0.89%, and nickel dipped 1.84%.

Copper: The most-traded SHFE 2205 copper closed down 0.52% or 380 yuan/mt at 73,160 yuan/mt, with open interest down 3,221 lots to 152,682 lots.

March PMI was 49.5 in China, 0.7 point lower than the previous month. Also in March, a slowdown in manufacturing activity was observed in several Asian countries, with lower demand from China and rising raw material costs adding to the woes of companies plagued by supply chain disruptions. On the other hand, the United States announced the release of crude oil reserves; and in the next six months it will release 1 million barrels a day through the strategic oil reserves. As such, crude oil prices fell, short-term inflationary pressure eased. And copper prices were under pressure.

On the fundamentals, some enterprise were shut down for the Tomb Weeping holiday, while some were closed due to high transport costs. And the overall demand is still weak. As of April 1, copper cathode social inventory stood at 137,700 mt, and the inventory dropped more slowly.

Looking forward, overseas high inflation and interest rate hikes coexist, while domestic weak demand and easing macro expectations also coexist. Hence copper prices will remain rangebound.

The market shall pay attention to LME copper inventory changes; domestic copper social inventory changes; Russia and Ukraine situation progress; US manufacturing PMI and the euro zone CPI.

Aluminium: The most-traded SHFE 2205 aluminium closed down 0.7% or 160 yuan/mt to 22,640 yuan/mt, with open interest down 3,298 lots to 196,224 lots.

Aluminium production resumption accelerated, but output in Q1 will drop YoY. Pandemic has restricted downstream operating rates, and aluminium social inventory dropped slowly, with a number of ingot on road.

Lead: The most-traded SHFE 2205 lead closed down 0.41% or 65 yuan/mt at 15,740 yuan/mt, with open interest down 4,294 lots to 50,197 lots.

In the spot market, primary lead smelters maintained discounts of 100-150 yuan/mt, and secondary lead smelters’ inventory of finished product was slow after sell-off yesterday and still restricted purchases of lead-acid battery scrap. Secondary refined lead (tax included) was offered with discounts of 200-275 yuan/mt over SMM #1 lead, and downstream purchased only on rigid demand.

Zinc: The most-traded SHFE 2205 zinc closed up 0.04% or 10 yuan/mt at 26,875 yuan/mt, with open interest down 1,640 lots to 108,951 lots.

On the supply side, import losses expanded to more than 4,800 yuan/mt, and supply tightness remained. On the consumption side, high raw material prices suppressed terminal orders, and downstream was cautious in light of high prices.

In addition, some manufacturers planned to suspend the production starting from today amid a complicated market and upcoming Tomb Sweeping holiday. The overall consumption was sluggish. In terms of logistics, the transportation of spots were sluggish in east China.

Tin: The most-traded SHFE 2205 tin closed down 0.89% or 3,060 yuan/mt at 340,950 yuan/mt, with open interest down 3,059 lots to 29,961 lots.

In the spot market, spot transactions picked up in the afternoon after futures prices pulled back from high recorded in morning trade. However, demand for refined is expected to be impacted due to repeating COVID and transport restrictions. SHFE warrants rose 85 mt in the past week to 2,030 mt.

According to SMM research, social refined tin inventory rose 476 mt to 3,126 mt, up 18% on a weekly basis. The average operating rate of smelters stood at 62.79%, up 1.36% WoW, and up 4.46% from February. The capacity utilisation rate of solder companies was 82.62% in March, up 17.29% MoM.

Nickel: The most-traded SHFE 2205 nickel closed down 1.84% or 4,090 yuan/mt at 217,910 yuan/mt, with open interest down 7,343 lots to 51,415 lots.

On the supply side, the domestic market was quiet amid long-term import losses that resulted in supply tightness as well as the pandemic. On the nickel pig iron side, domestic nickel pig iron smelting costs are high and the supply is tight, thus providing support to nickel pig iron prices.

On the demand side, nickel price volatility has not subsided. But due to the delayed procurement cycle of precursor plants, nickel sulphate plants were willing to lower their prices.

For stainless steel, Wuxi upgraded the pandemic prevention and control, and a number of areas have been locked down. Hence the transportation was still restricted.

The volatility of SHFE and LME is subsiding, but the prices have not fully returned to the fundamentals. In the short term, the supply and demand will remain weak before the upstream raw material supply for nickel sulphate and ferronickel pricing issue are resolved.