SMM Morning Comments (Mar 8): Base Metals Closed with Losses as Powell Flagged Higher Terminal Rate

SHANGHAI, Mar 8 (SMM) – LME and SHFE base metals closed with losses overnight. On the macro front, Federal Reserve Chairman Powell said that the Fed may raise interest rates more than previously expected, and warned that there is still a long way to go to bring the inflation rate back to 2%. As a result, dollar jumped to a new high.

Copper: LME copper closed at $8,732.5/mt overnight, a decline of 2.43%. Trading volume was 19,000 lots and open interest stood at 251,000 lots. The most active SHFE 2304 copper contract finished at 68,750 yuan/mt last evening, down 1.16%. Trading volume was 47,000 lots and open interest stood at 146,000 lots.

On the macro front, Federal Reserve Chairman Powell said that the Fed may raise interest rates more than previously expected, and warned that there is still a long way to go to bring the inflation rate back to 2%. The dollar jumped to a new high, weighing down copper prices. In terms of fundamentals, contango of the SHFE front-month copper contract over the SHFE next-month copper contract expanded due to the approaching delivery, so sellers in east China raised their quotes. The low-price supply of goods in the market was quickly snapped up, and the supply of high-quality copper was relatively tight. In south China, due to weak consumption, the downstream purchasing enthusiasm was not strong against rising copper prices. The overall transaction was relatively quiet. In terms of consumption, demand continued to recover in March. Although it was not as strong as expected, most downstream companies believe that orders will increase significantly in March. Copper prices fell due to the impact of the Fed's hawkish speech.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,530 yuan/mt overnight before closing at 18,475 yuan/mt, down 195 yuan/mt or 0.89%. LME aluminium opened at $2,385/mt on Tuesday and closed at $2,347/mt, down $35/mt or 1.47%.

After aluminium smelters in Yunnan have completed production cuts, the market attention will focus more on the recovery of domestic consumption. Downstream operating rates and orders improved month-on-month, and the market is gradually entering peak season. However, inventory of aluminium ingots remained high. As the macro sentiment tends to be cautious, SHFE aluminium may remain rangebound.

Lead: Overnight, LME lead opened at $2,111/mt, and plummeted to the lowest point at $2,072.mt due to the unexpected hawkish remark from Powell, and finally closed at $2,086.5/mt, a decrease of 0.9%.

The most traded SHFE 2304 lead contract opened at 15,215 yuan/mt overnight and recorded a new low at 15,160 yuan/mt. Amid the considerable demand and rising lead ingot inventory, SHFE lead hovered sideways and finally closed at 15,175 yuan/mt, down 0.62%, with the open interest up 2,647 lots to 63,864 lots.

Zinc: LME zinc opened at $3,040.5/mt overnight and kept falling before closing down $104.5/mt or 3.42% at $2,947/mt. Trading volume rose to 8,473 lots, and open interest decreased by 2,003 lots to 191,000 lots. LME zinc inventory added by 4,275 mt to 39,125 mt. Hawkish remarks on the macro front and a substantial increase in inventory put downside pressure on LME zinc.

The most traded SHFE 2304 zinc contract opened lower at 23,230 yuan/mt in overnight trading and closed at 23,240 yuan/mt, down 185 yuan/mt or 0.79%. The trading volume was down to 54,007 lots, and open interest added 1,092 lots to 82,763 lots.  In Powell’s testimony, the Fed was likely to raise rates more than previously expected, which sent the U.S. dollar index jumping and non-ferrous metal prices falling. Although the consumption peak season is arriving, downstream enterprises still take a wait-and-see stance due to uncertainty over new order sustainability. SMM estimates zinc prices will remain rangebound with stable fundamentals.

Tin: The SHFE 2304 tin contract fluctuated and closed at 199,480 yuan/mt, down 0.02%.

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 closed at 199,480 yuan/mt, down 0.02%.

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, SHFE nickel prices bottomed out. The premiums of NORNICKEL nickel kept dropping, while Jinchuan nickel premiums stopped falling, and spot prices also grew. 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, stainless steel mills have recently restricted the flow of low-priced spot resources. The overall quotation of #304 stainless steel remained stable. Pure nickel demand from the alloy manufacturers decreased since the spot prices rebounded. 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.]