SMM Morning Comments (Apr 9): Base metals opened higher on hopes for oil production cut deal

SHANGHAI, Apr 9 (SMM) – Shanghai and London base metals opened mostly higher on Thursday, following an overnight spike in oil prices on hopes for a massive oil production cut deal.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, will meet on Thursday via video conference to discuss reducing output. A Bloomberg report said that the production cut could reach 10 million barrels per day.

On the SHFE, zinc plummeted shortly after the opening bell, diving into the red and reversing gains at the open. Lead also slipped into the red, while other metals remained in the green.

Copper, aluminium, nickel and tin on the LME were convincingly in the green, while zinc and lead oscillated between gains and losses. LME, base metals, except for nickel, closed lower overnight. Tin pulled back 1.8% to be the biggest loser, aluminium fell 0.6%, lead and zinc shed close to 0.5%, and copper dipped 0.03%. Nickel rose 0.7%.

SHFE base metals closed mixed on Wednesday, and the night trading session remained suspended.

US stocks surged on Wednesday, fueled in part by Sen. Bernie Sanders dropping out of the presidential race, as well as hopes that the coronavirus outbreak may soon turn a corner.

Investor concerns over the economic fallout of the pandemic, however, remained, which supported the US dollar on Wednesday.

Copper: Three-month LME copper edged lower and ended at $5,022.5/mt after a choppy trading session. We see moderate further upside in copper prices amid market optimism that the coronavirus crisis may be nearing a peak and an oil product cut deal will be reached. LME copper is expected to trade at $5,000-5,050/mt today, with SHFE copper at 40,300-40,800 yuan/mt. Spot premiums are seen stable at 120-160 yuan/mt as inventories are falling, but trades remain muted due the recent rally in copper prices.

Aluminium: Three-month LME aluminium fell to a new more than four-year trough of $1,455/mt in the North American trading session, before it recouped some losses to close the day 0.61% weaker at $1,469/mt.

Zinc: Three-month LME zinc slipped to an intraday low of $1,891/mt in European trading hours, before it recovered some ground to close the day 0.47% lower at $1,914/mt. It is expected to continue to move at $1,880-1,930/mt today, with the SHFE 2006 contract at 15,200-15,700 yuan/mt. Spot premiums for domestic 0# Shuangyan are seen slightly higher at 50-80 yuan/mt over the SHFE May contract.

Raw material supply woes vexing Chinese zinc smelters eased after recent gains in zinc prices and a cut to concentrate treatment charges improved the willingness among mines to sell. SMM data showed that China’s output of refined zinc rose in March. Greater supply is expected to limit upside in zinc prices.

Nickel: Three-month LME nickel jumped past the 20-day moving average to a nearly three-week high of $11,590/mt in the final minutes of the Asian trading session. It later eased below $11,500/mt and hovered in a tight range around $11,490/mt to close the day 0.7% higher at $11,510/mt, registering a three-day winning streak. The convergence of the five-, 10- and 20-day moving averages is likely to create strong support.

Lead: Three-month LME lead hovered in a wide range around $1,717/mt, before it rose to an intraday high of $1,733/mt in North American trading hours. It later erased those gains to end the day 0.49% lower at $1,715.5/mt. LME lead is expected to remain ranegbound in the short term.

Tin: Three-month LME tin pulled back, after two consecutive days of substantial gains, slipping to an intraday low of $14,350/mt in North American trading hours before clawing back some losses to end the day 1.83% lower at $14,560/mt. LME tin was supported by the 5-20 day moving averages.