SMM Morning Comment For SHFE Base Metals (Feb 20)

SHANGHAI, Feb 20 (SMM) –

Copper

Overnight, LME copper opened at $9,529/mt, peaked at $9,538.5/mt in early trading, then fluctuated downward, hitting a low of $9,438/mt near the close, and finally settled at $9,442/mt with open interest at 289,000 lots. Overnight, the most-traded SHFE copper 2504 contract opened at 77,670 yuan/mt, peaked at 77,710 yuan/mt in early trading, then fluctuated downward, hitting a low of 77,340 yuan/mt near the close, followed by a slight rebound in the center, and finally settled at 77,520 yuan/mt, up 0.51%, with trading volume at 20,000 lots and open interest at 162,000 lots.

Prices: Macro side, the US Fed January meeting minutes indicated that several participants suggested it might be appropriate to pause or slow balance sheet reduction until the debt ceiling issue is resolved. Additionally, Trump warned Zelensky to make a quick decision on peace talks or risk "losing his country." Meanwhile, after Trump announced a 25% tariff on cars and chips, the EU trade commissioner stated readiness to discuss lowering car tariffs with the US. Market uncertainties persisted, lifting copper prices. Fundamentals side, after copper prices rose, market consumption was suppressed again. Trading activity yesterday was relatively subdued, with the market awaiting a copper price correction. Overall, market uncertainties persist, and copper prices are unlikely to see a significant decline.

Aluminum

Yesterday, the SHFE aluminum 2504 contract opened at 20,790 yuan/mt, with a high of 20,800 yuan/mt and a low of 20,700 yuan/mt, closing at 20,720 yuan/mt, up 30 yuan/mt or 0.14% from the previous day. LME aluminum opened at $2,665/mt, with a high of $2,704/mt and a low of $2,655.5/mt, closing at $2,680.5/mt, up $12/mt or 0.45%.

Summary: Recently, the macro front and fundamentals side have shown a tug-of-war between longs and shorts. In the short term, aluminum prices are likely to maintain a fluctuating trend: on one hand, inventory pressure and cost easing limit upside room; on the other hand, macro policy expectations and hopes for consumption recovery provide bottom-line support. In Q2, with the arrival of the traditional consumption peak season and the release of policy dividends, aluminum prices are expected to strengthen driven by demand recovery. However, attention should be paid to systemic risks from unexpectedly rapid tightening of overseas liquidity. Fundamentals side, the pressure of resumed production in the aluminum supply side has re-emerged, with domestic aluminum operating capacity expected to rise slowly in February. Alumina average spot prices have continued to weaken, driving aluminum costs downward, further weakening cost-side support. As both supply and demand are increasing and post-holiday demand recovery has exceeded expectations, aluminum futures and spot prices can still remain strong despite the lack of cost support. Regarding inventory, current domestic aluminum ingot inventory buildup has slightly exceeded expectations, with inventory likely to surpass last year's level by the end of February. Q1 inventory peak may be revised upward to the range of 900,000-950,000 mt, making it difficult to support further short-term aluminum price increases. On the demand side, last week, the operating rate of leading domestic aluminum downstream processing enterprises maintained a recovery trend, up 4.1 percentage points WoW to 60.8%. After the Lantern Festival, aluminum processing enterprises accelerated resumption of production, and with the approach of the traditional peak season in March, operating rates in various sectors still have upside room. However, attention should be paid to the recovery of end-use consumption and changes in the export market. In the future, with increasing PV demand and comprehensive resumption of production by end-users, and limited supply-side increments, aluminum prices are expected to fluctuate at highs in the short term.

Lead

Overnight, LME lead opened at $1,995/mt, fluctuated downward during the Asian session, and continued to decline during the European session, hitting a low of $1,972.5/mt before rebounding to a high of $1,999/mt. It eventually closed at $1,992.5/mt, down $4/mt or 0.2%.

Overnight, the most-traded SHFE lead 2503 contract opened at 16,965 yuan/mt, fluctuated upward to 17,000 yuan/mt during the early session and consolidated, eventually closing at 17,025 yuan/mt, down 10 yuan/mt or 0.06%.

Macro Side: Overnight, the US dollar index rose by 0.14% due to the US issuing a new round of tariff threats and controversial negotiations to end the Russia-Ukraine conflict, which heightened market tensions. A stronger US dollar suppressed precious metal prices and LME base metals. Meanwhile, China's State Administration for Market Regulation and four other departments issued the "Three-Year Action Plan for Optimizing the Consumption Environment (2025–2027)" to create new-type consumption scenarios.

In the spot market, downstream rigid demand recovered slowly, and refined lead supply remained relatively abundant. Early-week inventory accumulation temporarily weighed on lead prices. However, as lead prices weakened, scrap battery prices remained firm, narrowing secondary refined lead profits, with some regions even seeing inverted quotations for primary lead. In Hunan, some smelters resumed production but primarily focused on shipments under long-term contracts. In Henan and Hunan, traders' ex-factory cargoes continued to be sold at discounts. Lead prices are expected to fluctuate downward in the short term, with further attention needed on the pace of downstream production recovery and buying the dip sentiment.

Zinc

Overnight, LME zinc opened at $2,884/mt. In the early session, a tug-of-war between longs and shorts caused LME zinc to fluctuate around the daily moving average, with longs gaining the upper hand as LME zinc fluctuated upward. During European trading hours, it peaked at $2,900/mt, but shorts launched a high-level attack, driving LME zinc down to a low of $2,857.5/mt. By the session close, the center fluctuated near $2,870/mt, and it ultimately closed down at $2,874.5/mt, a decrease of $15/mt or 0.52%. Trading volume increased to 9,191 lots, and open interest rose by 629 lots to 224,000 lots. Overnight, the most-traded SHFE zinc 2504 contract opened at 23,940 yuan/mt. After briefly consolidating around the daily moving average in the early session, shorts increased positions, causing SHFE zinc to drop sharply, with the center shifting down to around 23,880 yuan/mt. By the session close, longs entered at lower levels, leading to an upward correction in SHFE zinc. It ultimately closed down at 23,935 yuan/mt, a decrease of 30 yuan/mt or 0.13%. Trading volume decreased to 31,343 lots, while open interest increased by 1,106 lots to 66,606 lots.Overnight, LME zinc recorded a bearish candlestick, with support from the 5-day moving average below. Potential impacts of Trump’s policies raised the Fed’s concerns about rising inflation, driving the US dollar index higher and causing zinc prices to jump initially and then pull back. Overnight, SHFE zinc recorded a small bearish candlestick, with the KDJ indicator narrowing. Currently, macro sentiment is relatively positive, which contrasts with expectations of a surplus on the mine side. Zinc prices lack clear direction for now and are expected to fluctuate.

Tin

The US Fed meeting minutes revealed that the Fed wants to see "further progress on inflation" before deciding on another interest rate cut. The Fed kept rates steady in the 4.25%-4.5% range at the last meeting, citing rising inflation pressure, and the market expects no rate cut in the March meeting either. According to the minutes, the committee unanimously agreed that "the Fed has ample time to assess the evolving outlook for economic activity, the labour market, and inflation." Many economists and market strategists are concerned that tariffs and stricter immigration policies could exacerbate inflation pressure, potentially offsetting the positive effects of tax cuts and deregulation. The Fed has previously indicated that it is not in a hurry to cut interest rates further due to persistently high inflation. Inflation has fallen back from highs seen after the pandemic but remains stubbornly above the Fed's desired level. For instance, the Consumer Price Index in January was up 3% YoY, marking the fastest pace in seven months and exceeding the Fed's 2% target. In the futures market, SHFE tin prices at the night session rebounded slightly after a sharp decline, adjusting to around 260,500 yuan/mt before the close. Overall open interest in SHFE tin contracts decreased. In the spot market, stimulated by the price drop during the night session, some downstream enterprises conducted small-scale restocking, while others only made just-in-time procurement. Overall market trading volume increased slightly compared to the previous two days, but as prices rebounded, the overall growth in trading volume was limited. If SHFE tin prices remain above 260,000 yuan/mt, the spot market may continue to see a subdued situation.

Nickel

The mainstream spot premium quotation range for Jinchuan No. 1 nickel was 2,000-2,100 yuan/mt, with an average premium of 2,050 yuan/mt, down 50 yuan from the previous trading day. The premium/discount quotation range for Russian nickel was -100 to 100 yuan/mt, remaining on par with the past two trading days. Futures: Nickel prices briefly surged yesterday but then fluctuated downward, declining 0.22% to a low of 123,650 yuan/mt. Regarding spot premiums, Jinchuan nickel's premium fell by 50 yuan, mainly due to the overall low market trading activity and insufficient downstream end-use demand. From a technical perspective, the SHFE nickel 2503 contract opened lower and trended downward in the morning session, maintaining a rangebound trend. Current prices have returned to the lower end of the fluctuation range since November, but there is some technical support below, with market sentiment leaning cautious. Although macro policy expectations provide some support to the market, nickel prices remain constrained by fundamentals, particularly the increase in LME nickel inventory and seasonal demand weakness. Regarding the price spread with nickel sulphate: Nickel briquette prices ranged from 123,350 to 123,700 yuan/mt, with an average price of 123,525 yuan/mt, up 250 yuan/mt from the previous trading day's spot price. Nickel sulphate remains at a discount to refined nickel.