SMM Morning Comments (Feb 24): Base Metals Closed Mostly with Losses on Mounting Rate Hike Concerns

SHANGHAI, Feb 24 (SMM) – SHFE and LME base metals closed mostly with losses overnight. On the macro front, data on Thursday showed that the number of US jobless claims fell last week, and the previously released meeting minutes generally supported the continuation of interest rate hikes. The market expectations increased that the Fed will continue to raise interest rates to tame inflation.

Copper: LME copper closed at $8,879.5/mt, down 2.82%. Trading volume was 20,000 lots and open interest stood at 250,000 lots.

The most active SHFE 2304 copper contract finished at 69,170 yuan/mt overnight, down 1.5%. Trading volume was 43,000 lots, and open interest stood at 163,000 lots.

On the macro front, data on Thursday showed that the number of US jobless claims fell last week, and the previously released meeting minutes generally supported the continuation of interest rate hikes. The market expectations increased that the Fed will continue to raise interest rates to tame inflation.

In terms of fundamentals, domestic inventory is still at a high level, and Guangdong’s inventory has risen for four consecutive days, setting a new high for the year. In addition, import losses continued to expand, and attention should be paid to domestic smelters' export plans for March. Copper prices fell yesterday. As there is still no significant change in end-user consumption, the downstream purchasing interest is not high. Sellers were unwilling to sell at large discounts. The overall market transactions were weak. Copper prices were weighed down by market concerns about the Fed keeping raising interest rate.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,710 yuan/mt overnight before closing at 18,680 yuan/mt, a drop of 185 yuan/mt or 0.99%.

LME aluminium opened at $2,415/mt on Thursday and closed at $2,389.5/mt, a decrease of $23.5/mt or 0.97%.

On the supply side, market has gradually digested the impact of production cuts in Yunnan. The inventory of aluminium ingots continued to increase, and the supply in the spot market was relatively abundant. Downstream purchases were poor. On the macro front, data showed that inflation in Europe and the United States remained high, thus expectations for interest rate hikes still existed. The US dollar index rose again, putting pressure on metal prices. Generally speaking, it is currently in the process of transitioning from low season to peak season. Rising inventory, weak downstream buying, as well as expectations for overseas interest rate hikes dragged down aluminium prices. Until there are signs of substantial improvement in consumption, aluminium prices will remain weak.

Lead: Last night, LME lead opened at $2,099/mt and fell 1.89% to $2,052/mt after hitting the highest point at $2,106.5/mt and the lowest point at $2,051/mt. Open interest fell 660 lots to 102,000 lots, and trading volume rose 347 lots to 4,576 lots.

The most-traded SHFE 2304 lead contract opened at 15,390 yuan/mt and closed at 15,305 yuan/mt, up 0.65%, after briefly hitting the lowest point at 15,300 yuan/mt. Open interest increased 1,484 lots to 57,077 lots, and trading volume declined 35,135 lots to 19,840 lots.

Zinc: On the news front, the US president Joe Biden called on US allies, one year after the start of Russia-Ukraine war, to impose new sanctions on Russia. The initial jobless claims in the United States last week dropped unexpectedly, suggesting that the US labour force market remained intense and stoking people’s concerns that Fed’s rate hikes might be above the forecast. The inflation rate in the eurozone fell from 9.2% last December to 8.6% this January, slightly higher than the 8.5% initial value released earlier. The core inflation rate in the eurozone rose from 5.2% to 5.3%.

LME zinc opened at $3,067/mt overnight and closed down $40/mt or 1.3% at $3,033/mt. The trading volume was 5,258 lots, and open interest lost 762 lots to 197,000 lots. LME inventory declined by 375 mt to 30,650 mt. The weak fundamental support overseas, together with the liquidity pressure brought by Fed’s accelerating the pace of rate hikes, lifted US dollar and dragged down LME zinc.

Overnight, the most-traded SHFE 2304 zinc contract opened at 23,500 yuan/mt and fell slightly to close at 23,425 yuan/mt, down 80 yuan/mt or 0.34%. Trading volume stood at 39,000 lots, and open interest gained by 2,110 lots to 91,000 lots.

The actual end consumption in the zinc market was slow in recovery, and the domestic projects were challenged by limited capitals. The export orders were still slack despite that the freight rates already declined to pre-pandemic levels. In addition, previous retreat of zinc prices had caused downstream enterprises to restock on dips, which resulted in persisting sluggish spot trades over the past two weeks. In general, the supply has been growing steadily while the consumption is picking up slowly. Given the limited fundamental support for zinc prices, investors are warned against downside risks.

Tin: The SHFE 2303 tin contract fell last night and closed at 212,500 yuan/mt, down 2.46%. Open interest fell 2,363 lots to 33,417 lots, and trading volume increased 2,538 lots to 35,308 lots.

The domestic tin inventory under warrants increased significantly while the spot discounts decreased slightly. The imported goods were still less cost-effective.

The SHFE 2303 tin contract declined yesterday night and closed at 212,500 yuan/mt, down 2.46%. Open interest fell 2,363 lots to 33,417 lots, and trading volume increased 2,538 lots to 35,308 lots.

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 have fully recovered, and downstream enterprises restocked to a certain extent. As such, the overall demand in the spot market recovered, especially that from electronics sector. It is necessary to pay further attention to the recovery of the spot market.

Nickel: Previously, SHFE nickel prices moved rangebound with occasional ups supported by the macro factors, but the fundamentals failed to beef up the prices yesterday. Spot premiums also continued to decline as the delivery of SHFE 2303 nickel is approaching. As for NPI, spot stainless steel orders picked up a lot yesterday, but the overall market sentiment still weakened due to relatively low traded prices. On the demand side, according to SMM research, the #304 cold-rolled coil transactions were average, and the demand cannot be smoothly transmitted to the terminal sectors. Hot-rolled coil trading was acceptable. The market inventory fell thanks to the stainless steel mills’ reduction in shipments. Futures prices rose yesterday, and the spot quotes grew somewhat. But the traded prices remained almost unchanged. To sum up, the pure nickel industry faces weak supply and demand. SMM believes that the nickel prices will remain 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.]