SMM Evening Comments (Mar 2): Shanghai base metals rebounded after Friday’s massive losses

SHANGHAI, Mar 2 (SMM) – Shanghai base metals rebounded broadly on Monday after plunging last week on coronavirus-related concerns. Asian shares, oil prices and the ferrous complex also bounced.

Expectations of coordinated global stimulus to help soften the economic blow of the coronavirus outbreak, and an activity recovery in China helped improve investor sentiment.

Fears of a pandemic lingered, however, as the number of new cases from the disease rose quickly beyond China. That raises doubts on the magnitude and sustainability of the market rally.

On the Shanghai Futures Exchange, nickel surged 2.7% to lead the gains across nonferrous metals, lead jumped 1.7%, copper and zinc rose more than 0.9%, tin advanced close to 0.8% and aluminium gained 0.1%. Their counterparts on the London Metal Exchange, also moved higher across the board.

The SHFE has suspended night trading session until further notice.

Copper: The most-traded SHFE 2004 contract opened higher and extended the gains during the day, rallying from three-year lows to end at 45,230 yuan/mt. Open interest for the contract shrank 4,770 lots on the day to 123,662 lots, as shorts trimmed their positions. Whether it could remain above 45,200 yuan/mt will come under scrutiny tomorrow.

Aluminium: The most-active SHFE 2004 contract recovered from earlier losses to end at 13,255 yuan/mt. Growing inventories capped gains in SHFE aluminium, but the slower inventory growth, recovering consumption and wider losses on primary aluminium production would limit further downside room in prices. SMM calculations showed that the average cost for primary aluminium in China has climbed to 13,300 yuan/mt.   

Zinc: The most-liquid SHFE 2004 contract reversed an early slip to climb to close at 16,160 yuan/mt. SMM data showed that social inventories of refined zinc ingots in China grew slower, indicating that consumption is recovering on support measures by Beijing. SHFE zinc is likely to stabilise in the short term and to see a substantial rally after inventories peak.

Nickel: As shorts cut their positions, the most-traded SHFE 2004 contract returned above the 100,000 yuan/mt mark and five-day moving average to end at 102,000 yuan/mt. SHFE nickel now faces pressure at the 10-day moving average, but is supported by 98,000 yuan/mt.

Lead: The most-liquid SHFE 2004 contract climbed to end at 14,640 yuan/mt, a high close last seen on February 21. SHFE lead returned to highs in four weeks, with short- and mid-term moving averages expanding upwards, underpinned by temporary supply tightness, as most of Chinese secondary lead smelters have yet to resume production. Fundamentals will turn negative after secondary lead smelters restart production, which is likely to pull SHFE lead prices from highs.   

Tin: The most-traded SHFE 2006 contract rallied from four-week lows to end at 134,500 yuan/mt, below the 20-day moving average. Immediate resistance is seen at the five- and 20-day moving averages, between 134,500-135,000 yuan/mt, with next resistance at 135,500 yuan/mt.