SMM Morning Comment For SHFE Base Metals On February 26

SHANGHAI, Feb 26 (SMM) –

Copper

LME copper prices opened at $8600/mt and closed at $8559/mt overnight, down 0.57%, with the highest of $8607.5/mt and the lowest of $8495/mt. The trading volume was 20,000 lots, and open interest stood at 299,000 lots. The most active SHFE 2404 copper contract prices opened at 69060 yuan/mt and finished at 69240 yuan/mt overnight, with the high-end of 69360 yuan/mt and the low-end of 69040 yuan/mt, down 0.19%. The trading volume was 23,000 lots, and open interest stood at 156,000 lots. On the macro front, oil prices fell sharply amid the Fed's continued hawkish remarks, driving copper prices down. At the same time, the United States announced more than 500 new sanctions on Russia, which may affect supply and provide some support for copper prices. This week we also need to pay attention to the latest PCE data in the United States. In terms of fundamentals, from the supply side, as the end of the month approaches, smelters have a need to clear inventories, and imported copper will also gradually flow in. It is expected that supply will continue to increase further from last week's surge in inventories. In terms of consumption, copper prices have continued to rise, which has suppressed downstream consumption. However, after the Lantern Festival, downstream companies will also resume work and production. It is expected that consumption will recover this week driven by the resumption of downstream work and restocking. Overall, supply and consumption are expected to increase. In terms of price, on the whole, the U.S. sanctions against Russia and the downstream resumption of work and production and procurement after the Lantern Festival will play a certain supporting role in copper prices. Copper prices are expected to remain high.

Aluminium

At last Friday’s night session, the most-traded SHFE 2404 aluminium contract opened at 18,785 yuan/mt, with its lowest and highest at 18,700 yuan/mt and 18,840 yuan/mt before closing at 18,730 yuan/mt, down 120 yuan/mt or 0.64%. LME aluminum opened at $2,202/mt last Friday, with its high and low at $2,213/mt and $2,175/mt respectively before closing at $2,184/mt, down $17/mt or 0.77%.

Summary: From a macro perspective, better economic data continued to cool expectations of the Fed's interest rate cut, and commodities were under pressure. Fundamentally, Guinea may hold a nationwide strike this week, and the market is worried that it will affect the supply of bauxite in Guinea, which has not yet been affected; domestic aluminium companies maintain steady operations. On the demand, aluminium downstream companies are steadily resuming production. With the end of rain and snow and the arrival of the peak season, short-term consumption is expected to continue to improve. Low inventory and weak inventory growth will also somehow support aluminium prices. However, the recent opening of the aluminium ingot import window may inhibit the upward room of aluminium prices. Overall, aluminium prices continue to fluctuate, and we need to pay attention to the impact of the strike in Guinea on the mine, the recovery of consumption, and the inventory decline of aluminium ingot and aluminium billets.

Lead

LME lead prices opened at $2085/mt last Friday evening. Entering the European session lead stocks decreased, and LME lead rose to a high of $2101/mt. The contract closed at $2099.5/mt, a gain of 0.38%.
The most active SHFE 2404 lead contract prices opened at 15845 yuan/mt with the high-end of 15900 yuan/mt, and finally closed at 15885 yuan/mt, down 0.06%. Open interest increased 1362 lots to 43474 lots.

Zinc

Last Friday evening, LME zinc prices opened at $2390/mt and closed at $2416.5/mt, up $25/mt or 1.05%. The trading volume decreased to 7061 lots, and the open interest fell 1630 to 237,000 lots. LME zinc inventories decreased 100 mt to 268600 mt, a decline of 0.04%.

Last Friday, the SHFE 2404 zinc contract opened at 20,395 yuan/ton. After the opening, short positions increased. SHFE zinc reached a low of 20,295 yuan/ton, then reached an intraday high of 20,410 yuan/ton. It finally closed down at 20,380 yuan/ton, down 5 yuan/ton, or 0.02%. The trading volume reduced to 43,520 lots, and the open interest increased by 2,042 lots to 119,000 lots. From the fundamentals of the spot, domestic downstream production has not yet returned to normal, and most companies still have not started production during the week.

Tin

SHFE 2403 tin contract inched lower before closing at 216,910 yuan/mt last Friday, up 0.51%.
Last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 100-500 yuan/mt against SHFE 2403 tin contract, versus discounts of 200 yuan/mt to premiums of 500 yuan/mt for delivery brands, premiums of 500-800 yuan/mt for Yunxi brand, and discounts of 600-1,000 yuan/mt for imported brand tin ingots. Tin prices fell sharply last Friday, and downstream companies were more enthusiastic about purchasing.

Nickel

Nickel prices surged significantly, reaching 135,620 yuan/mt by last Friday's closing, marking a three-day consecutive increase. The notable increase was driven by slow progress in approving Indonesia's RKAB nickel mining quotas and geopolitical factors. The slow approval process raised concerns about future nickel supply, causing a significant uptick in prices and influencing market sentiment. Meanwhile, both the United States and the European Union, the world's two largest economic entities, announced a new round of sanctions against Russia last week. The Biden administration stated that it would impose more "significant" sanctions on Russia starting February 23, targeting defense, industry, and sources of economic income. On the other hand, the European Union plans to blacklist over 200 companies or individuals, accusing them of aiding Russia in acquiring weapons. Sanctions will involve freezing the financial accounts of entities or individuals on the blacklist. Therefore, the market is starting to predict that this round of sanctions may involve Russian metals. From a fundamental perspective, pure nickel inventories are consistently increasing. For pure nickel, although there is a slight decrease in actual production due to the impact of the Chinese New Year holiday and a lower number of working days in February compared to usual, some nickel enterprises still maintain a high production rate. Furthermore, with the prospect of new nickel projects, both domestically and internationally, gradually starting operations in the second quarter, the anticipated growth in pure nickel supply remains unchanged. From the demand perspective, pure nickel still predominantly finds its major downstream application in alloy electroplating. Although the overall situation in the alloy industry is better than expected earlier, the impact of the Chinese New Year has led to some temporary shutdowns and production reductions. Consequently, the demand for nickel plates from downstream has experienced a decrease. In the electroplating sector, SMM research indicates a slight drop in orders in the first week after the Chinese New Year holiday. This is mainly because some electroplating factories pre-stocked inventory before the holiday, and downstream industries are inclined to use existing raw materials amid the rise in nickel prices.