SMM Morning Comments (Feb 22): Shanghai Nonferrous Metals Closed Mixed amid Escalating Geopolitical Crisis

SHANGHAI, Feb 22 (SMM) – Shanghai base metals closed mixed increasing risk aversion sentiment in the market after the Russia-Ukraine conflict escalated, and the US and the Europe vowed to impose sanctions on Russia.

LME copper fell 0.8%, aluminium rose 0.72%, lead dropped 0.41%, and zinc lost 0.73%.

SHFE copper dropped 0.59%, aluminium increased 0.58%, lead gained 0.42%, and nickel lost 0.37%.

Copper: LME copper opened at $9,965/mt in the overnight trading, then fell continually.  At last, the prices closed at $9,875/mt, down 0.8%. Trading volume was 7,351 lots, the open interest was 255,000 lots.

The most-traded SHFE 2204 copper contract opened at a low level of 71,090 yuan/mt in overnight trading, then fell after reaching a high level of 71,320 yuan/mt. At last, the prices closed at 71,120 yuan/mt, down 0.59%. The open interest reached 119,000 lots.

In terms of macroeconomics, the market risk sentiment suddenly increased after Russian President Vladimir Putin signed two decrees recognizing the “Luhansk People's Republic (LPR)” and the “Donetsk People's Republic (DPR)” as independent and sovereign states. European stock markets fell across the board overnight. Influenced by the risk aversion sentiment and the rising US dollar index at night, copper futures fluctuated and fell. In terms of spot, the consumption was less than expected due to the slow downstream resumption of production, and the continuous pandemic in Suzhou, Nantong and other places. The premiums and discounts in Shanghai continued to decline. LME copper will trade between $9,850-9,950/mt today; SHFE copper prices are expected to move between 71,000-71,600 yuan/mt. Spot premiums are likely to expand 10-80 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2204 aluminium contract opened at 22,610 yuan/mt, with the highest and lowest prices at 22,800 yuan/mt and 22,595 yuan/mt before closing at 22,715 yuan/mt, up 130 yuan/mt or 0.58%.

LME aluminium opened at $3,265.5/mt on Monday and closed at $3,290/mt, an increase of $23.5/mt or 0.72%.

On the macro level, Russian President Vladimir Putin announced the recognition of the independence of the Donetsk People's Republic and the Luhansk People's Republic, and the market risk sentiment increased sharply. On the supply side, Baise in Guangxi has lifted its COVID prevention and control measures, hence the operating capacity of local aluminium smelters and alumina refineries is not expected to drop again. The tensions between Russia and Ukraine and the continued energy shortage will intensify overseas supply pressure. On the demand side, downstream processing enterprises have gradually resumed production. With the pick-up in seasonal consumption, destocking can still be expected. It is expected that SHFE aluminium will move in the current range in the short term.

Zinc: LME zinc opened at $3,554/mt, down 0.73% or $26/mt. LME zinc open interest rose 281 lots to 243,000 lots.

On the supply side in China, the imports in Q1 are expected to be low compared with previous years amid the closed import window and less imports under long-term orders. On the demand side, the downstream gradually resumed the production, and the recovery of production was disturbed by the environmental protection issues in north China. Nonetheless, the inventory is likely to drop as the current downstream in-plant stocks were low, which created considerable restocking demand. In the spot market, downstream purchases increased after zinc prices dropped, and the spot discounts in Tianjin and Guangdong narrowed.

SHFE zinc is expected to move between 24,700-25,200 yuan/mt, and Shuangyan zinc will be in premiums of 50-60 yuan/mt.

On the macro front, the US and the Europe vowed to impose sanctions on Russia with the escalation of Russia-Ukraine issue, after Russian President Vladimir Putin recognizsed the independence of two breakaway regions in eastern Ukraine on Monday.

Lead: LME lead opened at $2,332.5/mt on Monday and hit a high of $2,347/mt before moving down to $2,316/mt, and closed at $2,322.5/mt, a decrease of 0.41%.

Overnight, the most-traded SHFE 2204 lead contract fell to 15,425 yuan/mt after opening at 15,475 yuan/mt, but then rebounded to 15,540 yuan/mt, and closed at 15,490 yuan/mt, an increase of 0.42%.

Tin: Overnight, SHFE tin prices were little changed. The inventory of warrants continued to decrease slightly. Trades in the spot market improved as the prices fell, and spot premiums remained low.  Smelters have gradually resumed production this week. The supply and demand are recovering at the same time, the balance will continue to be maintained in the short term. It is expected that SHFE tin prices will hover at highs.

Nickel: The most active SHFE 2203 nickel contract consolidated at a high level, and fluctuated within a narrow range. The prices opened at 179,250 yuan/mt in overnight trading, and consolidated at 179,000 yuan/mt at the beginning of the session. Then the prices went down slightly, falling to the lowest transaction prices of 177,750 yuan/mt, and consolidated at 178,000 yuan/mt. At the end of the session, the shorts gained their profits and sold out. The nickel prices hit a low level and rebounded to 179,000 yuan/mt, which finally closed at 178,860 yuan/mt, down by 670 yuan/mt, or 0.37%, from the settlement price of the previous trading day.

LME and SHFE pure nickel inventories were still destocking at a low level. The prices could hardly fall due to the tight supply. The nickel price stabilised at night trading and remained high. On fundamentals, the trading was slack because of the high pure nickel prices. The situation was caused by, firstly, there was still a gap between the upstream and downstream intentional prices of nickel sulphate to be adjusted. Secondly, the premiums of nickel sulphate compared with that of pure nickel continued to recover. Thirdly, the tight supply of NPI supported the NPI prices. Finally, the profit of stainless steel rose the prices. At present, it is still necessary to pay more attention to the interest rates hike, Ukrainian-Russian geopolitics and related information of Tsingshan’s high-grade nickel matte. It is expected that the nickel prices will fluctuate at a high level.