SMM Morning Comments (Feb 18): Shanghai base metals rose on China central bank stimulus

SHANGHAI, Feb 18 (SMM) – SHFE nonferrous metals traded higher on Tuesday morning, extending the increase from the previous day, as a monetary policy intervention by China's central bank to counter the economic impact from the coronavirus outbreak reassured investors and boosted demand for higher-risk assets.

The People’s Bank of China offered 200 billion yuan ($29 billion) of one-year medium-term loans on Monday. The rate was lowered by 10 basis points to 3.15%, the lowest since 2017. 

The central bank also added 100 billion yuan of funds via 7-day reverse repurchase agreements, resulting in a net 700 billion yuan withdrawal of money from markets as some 1 trillion yuan of reverse repos matured on Monday.

This comes after the country's central bank in early February announced an injection of 1.2 trillion yuan worth of liquidity into the markets.

LME base metals closed mostly higher on Monday. Zinc added 1.2%, copper advanced 1.1%, nickel gained 0.8%, tin climbed 0.4%, while lead fell 0.1%, and aluminium lost 0.2%. The SHFE night trading session remained suspended to contain the spread of the virus.

Copper: Three-month LME copper consolidated at high levels, ending up 1.14% on the day at $5,822/mt, lifted by improved market sentiment after monetary stimulus from China’s central bank. With support from several moving averages, LME copper is estimated to trade between $5,800-5,850/mt today, with the most-liquid SHFE contract at 46,300-46,700 yuan/mt. Spot discounts may widen to 200-150 yuan/mt as sellers are keen to destock while downstream consumers have not fully returned. 

Aluminium: A stronger US dollar and a rebound in inventories weighed on three-month LME aluminium, which slipped to close to $1,700/mt and finished the day 0.17% lower at $1,717/mt. Trading range is expected at $1,700-1,760/mt today, and the most-active SHFE contract is likely to trade between 13,500-13,800 yuan/mt. 

Zinc: Three-month LME zinc climbed to an intraday high of $2187/mt, with support from the daily moving average, and finished the session 1.23% higher at $2,175.5/mt. LME zinc inventories shrank 100 mt, or 0.13%, to stand at 74,725 mt. This, coupled with China’s further moves to add monetary stimulus, supported zinc prices. Today, LME zinc is expected to trade between $2140-2190/mt with the most-traded SHFE contract at 17,100-17,500 yuan/mt. 

Nickel: Three-month LME nickel regained losses from the previous session as it closed 0.8% higher on the day at $13,155/mt after hovered rangebound around the daily moving average. It is expected to test pressure from $13,200/mt today. 

Lead: Three-month LME lead pared gains over the daytime as loaded-up shorts dragged it from a high of $1,898.5/mt, and end it 0.11% lower on the day at $1,872/mt. It will face resistance to break up the 40-day moving average. 

Tin: Three-month LME tin rose to a session high of $16,680/mt and closed $60/mt higher on the day at $16,615/mt, as LME tin inventories shrank 260 mt to stand at 6,555 mt. Pressure above is seen from $16,700/mt today.