SMM Evening Comments (Feb 22): Shanghai Nonferrous Metals Closed Mixed, Market Sentiment Was Comparatively Bullish

SHANGHAI, Feb 22 (SMM) – Shanghai nonferrous metals closed mixed as the escalating Russia-Ukraine tension kept the investors on the edge. Nonetheless, the market sentiment was comparatively bullish as China one-year and five-year loan rates remained stable, and the six major banks in China collectively lowered their loan margins in Guangdong.

Shanghai copper retreated 0.64%, aluminium added 1.46%, lead rose 0.68%, zinc was flat, tin climbed 0.22%, and nickel hiked 0.75%.

Copper: The most-traded SHFE 2203 copper closed down 0.64% or 460 yuan/mt at 71030 yuan/mt, with open interest down 14641 lots to 89816 lots.

On the macro front, the Russian President Vladimir Putin signed a decree recognising the independence of two breakaway regions of Ukraine, intensifying the confrontation with the West. As such, US dollar index rose with strong risk aversion sentiment in the market.

In addition, US Fed officer Bowman expressed support for a rate hike in March, and indicated that the speed of rate hike would be subject to economic growth and the possibility of a rate hike by 50 bp.

Tonight, the market shall watch the unadjusted US Markit manufacturing PMI for February, as well as the progress of Russia-Ukraine crisis.

Aluminium: The most-traded SHFE 2203 aluminium closed up 1.46% or 330 yuan/mt to 22930 yuan/mt, with open interest down 19720 lots to 118929 lots.

On the fundamentals, SMM domestic aluminium inventory stood at 1.08 million mt, up 42,000 mt from last Thursday. The most-traded SHFE contract remained congested after hitting a high in the day trading.

Lead: The most-traded SHFE 2204 lead closed up 0.68% or 105 yuan/mt at 15530 yuan/mt, with open interest up 7276 lots to 53224 lots.

On the macro market, the UK completely liberalised its pandemic-related restrictive policies and proposed to "live with the pandemic". In China, the one-year and five-year loan rates remained stable, in line with market expectations, with room for downward adjustment. The six major banks in China collectively lowered their loan margins in Guangdong. The macro market was comparatively bullish as a whole.

In the spot market, primary lead smelters slightly lowered their discounts over SMM #1 lead to 100-250 yuan/mt, and secondary lead smelters mostly shipped according to market demand. Secondary refined lead was offered with discounts of 200-350 yuan/mt over SMM #1 lead. The prices of lead brands of Jijin, Jiangxi Copper, Tongguan, Mulun stood between 15460-15490 yuan/mt in the spot market in Zhejiang and Jiangsu, or in premiums of 0-30 yuan/mt over SHFE 2203. The spot market was still subdued. In the short term, the supply growth is expected to be low amid soon-to-start maintenance of some secondary lead smelters.

Zinc: The most-traded SHFE 2204 zinc closed down 0.02% or 5 yuan/mt at 24860 yuan/mt, with open interest up 5636 lots to 125570 lots.

On the fundamentals, the zinc social inventory has not welcomed its pivot yet, and the optimistic outlook on the demand side was broken gradually. The market held diverged opinions concerning the future consumption. Meanwhile, electricity prices in Europe will usually fall by the end of Q1 or early Q2 with the ending of the heating season, hence the increase of zinc prices on energy crisis in the Europe will too come to an end soon. Zinc prices are expected to move rangebound with the narrowing of risk exposure pending the US Fed rate meeting.

Tin: The most-traded SHFE 2203 tin closed up 0.22% or 750 yuan/mt at 338870 yuan/mt, with open interest down 3083 lots to 24226 lots.

On the fundamentals, the spot market transactions were not exciting as the surging tin futures prices in morning trading suppressed downstream purchases, and the downstream players mostly stood wait-and-see. In addition, the quotes from upstream manufactures differed greatly from yesterday, and the premiums of some non-deliverable brands narrowed from a day ago.

SHFE warrants added 86 mt to 2,849 mt, reversing the previous trend when the inventory dropped for five consecutive trading days. SMM statistics also showed that the operating rates of upstream smelters will rise slightly on the week, hence raising domestic supply slightly.

Nickel: The most-traded SHFE 2203 nickel closed up 0.75% or 1340 yuan/mt to 179620 yuan/mt, with open interest down 18729 lots to 95272 lots.

On the fundamentals, LME nickel inventory kept falling, while the nickel matte output in Indonesia was still low. Downstream demand in the stainless steel spot market and nickel sulphate sector was robust, indicating strong fundamentals.

In terms of spots, Jinchuan nickel was in premiums of 1,800-2,000 yuan/mt, down 300 yuan/mt on average. NORNICKEL nickel was in premiums of 1,200-1,500 yuan/mt, down 150 yuan/mt on average. The downstream stood on the sidelines amid high absolute prices.