SMM Morning Comments (Mar 2): Base Metals Closed Mostly with Gains on Strong Chinese Manufacturing PMI

SHANGHAI, Mar 2 (SMM) – SHFE and LME base metals closed mostly with gains overnight. On the macro front, metal prices rebounded amid the exciting Chinese manufacturing PMI reading.

Copper: LME copper closed at $9,129.5/mt in overnight trading, a gain of 1.65%. Trading volume was 19,000 lots and open interest stood at 245,000 lots.

The most active SHFE 2304 copper contract finished at 70,010 yuan/mt overnight, up 0.49%. Trading volume was 32,000 lots, and open stood at 153,000 lots.

On the macro front, the sharp rise in German inflation in February raised expectations for interest rate hikes in the eurozone, and the rise in the euro lowered the US dollar index, which is positive for copper prices.

Domestic commodity prices rose on the back of strong manufacturing data. In east China, some traders restocked for March as copper prices returned to around 70,000 yuan/mt. Downstream buyers were cautious. Some downstream buyers restocked early this week when copper prices edged down. After copper prices rebounded yesterday, traders and smelters held prices firm, and downstream buyers lacked purchasing interest. Some enterprises reported sluggish export orders. Domestic demand is expected to improve in March. Copper prices climbed further to around 70,000 yuan/mt thanks to strong manufacturing figures.

Aluminium: The most-traded SHFE aluminium opened at 18,685 yuan/mt overnight, and closed the night session at 18,670 yuan/mt, up 120 yuan/mt or 0.65%. LME 3M aluminium opened at $2,370/mt, and closed Wednesday at $2,440/mt, up $72/mt or 3.04%.

On the macro front, SHFE aluminium rebounded amid the exciting Chinese manufacturing PMI reading. On the fundamentals, the short-term supply side will remain stable as the aluminium capacity resumption in Sichuan and Guizhou has been rather slow. On the demand side, downstream purchases picked up after aluminium prices rebounded. The consumption recovery and inventory change are of concerns in the follow-up stage.

Lead: LME cash to three month lead contract gradually rebound, then fell slightly and closed at $2,142.5/mt, down 1.66%.

SHFE 2304 lead contract fluctuated sideways and closed at 15,340 yuan/mt, up 0.13%.

Zinc: On the macro front, China's February official manufacturing PMI came in at 52.6, a new high since April 2012. Caixin manufacturing PMI was released at 51.6, and business confidence index rose to a 23-month high. All these readings suggested that the manufacturing sector in Asia was embracing a strong recovery, with China taking the lead. US February ISM manufacturing PMI rose for the first time in six months, but was still in the contraction range. The price index rebounded greatly, highlighting inflationary pressure. The Fed officials called for 5% or more interest rates to last until next year, and the FOMC vote committee did not rule out the possibility of 50 basis points in rate hike this March. China’s Ministry of Industry and Information Technology stressed the importance to accelerate the development of the core industries of the digital economy, increase support for arithmetic infrastructure empowerment, and promote fast mergers and acquisitions of key industries. 

LME zinc rose and closed at $3,134/mt in overnight trading, up 3.28% or $99.5/mt. LME zinc inventory decreased by 125mt to 33,225 mt.

SHFE zinc closed with gains at 23,600 yuan/mt overnight. The zinc prices are still full of rebounding potentials with the support of strong macro readings such as PMI. The strengthened bearish sentiment will keep zinc prices moving sideways.

Tin: The SHFE 2304 tin contract fell and remained at 206,000 yuan/mt yesterday night, and closed at 206,030 yuan/mt, down 0.16%.

The domestic tin inventory under warrants increased further. The spot discounts of deliverable brands remained stable while that of small brands increased. The imported goods were still less cost-effective.

The SHFE 2304 tin contract fluctuated at 206,000 yuan/mt last night and closed at 206,030 yuan/mt, down 0.16%.

To sum up, tin prices fell yesterday, failing to stimulate downstream demand. And the spot market continued to slump. The spot market was sluggish yesterday, reflecting that the raw material inventory of downstream enterprises was still sufficient. The demand is unlikely to pick up in the short term. In the follow-up stage, the market needs to pay attention to the changes in social inventory and the introduction of relevant policies during the Two Sessions.

Nickel: On the supply side, SHFE nickel prices hit a new low in 2023 yesterday, and the spot prices also dropped, but the pure nickel suppliers were still active in shipping. NPI traders got high in-plant stocks, and some were eager to dump their goods. On the demand side, in terms of stainless steel, according to SMM research, the low futures prices aroused panic in the market. The spot prices have been lowered several times in the early trading yesterday. The cold-rolled coil transactions were poor, while the hot-rolled coil transactions were average. Pure nickel trading picked up slightly on the fall in the prices yesterday. To sum up, the pure nickel supply is still expected to be sufficient, but the low nickel warrants support the nickel prices. SMM believes that the 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.]