SMM Morning Comments (Feb 24): Base Metals Dropped across the Board Overnight amid Risk Aversion Sentiments

SHANGHAI, Feb 24 (SMM) – Shanghai base metals fell across the board in the overnight trading, and their counterparts on LME performed similarly in the trading on Wednesday.

LME copper fell 0.38%, aluminium dropped 0.27%, and zinc decreased 0.54%.

SHFE copper lost 0.83%, aluminium dropped 1.11%, lead fell 0.61%, zinc decreased 1.55%, and nickel shed 0.96%.

Copper: LME copper opened at $9,962/mt in the overnight trading and fell at $9,817/mt approaching the end. At last, the prices closed at $9,846/mt, down 0.38% in the overnight trading. Trading volume was 12,000 lots, and open interest stood at 252,000 lots.

The most-traded SHFE 2204 copper contract opened at 71,320 yuan/mt in overnight trading and reached a low level of 70,610 yuan/mt. At last, the prices closed at 70,750 yuan/mt, down 0.83%. The open interest reached 128,000 lots.

In terms of macroeconomics, the tense Ukrainian-Russian conflict once again boosted the risk aversion of the US dollar. At night, the US dollar index rose sharply in the trading, and copper futures fell under pressure. Besides, Daly, from the US Fed, said yesterday that geopolitical uncertainty would not disrupt the interest rates hike plan which tended to raise interest rates at least four times. He also said that the current inflation was too high, and actions would be taken in March when there are no major negative accidents. In terms of spot, the premiums yesterday continued to narrow because the supply of smelters continued to flow in, and the consumption fell short of expectations. The market hardly showed signs of recovery. LME copper will trade between $9,780-9,880/mt today; SHFE copper prices are expected to move between 70,400-71,000 yuan/mt. Spot premiums are likely to fluctuate between discounts 50 yuan/mt-premiums 40 yuan/mt.

Aluminium: Three-month LME aluminium opened at $3,305/mt on Wednesday morning in European trading hours, and lost $9/mt or 0.27% to close at $3,294mt.

The most traded SHFE 2204 aluminium contract opened at 22,680 yuan/mt last night, hitting the lowest and highest points at 22,630 yuan/mt and 22,795 yuan/mt respectively, and closed 255 yuan/mt or 1.11% lower at 22,635 yuan/mt.

On the supply side, the Russia-Ukraine conflicts were still ambiguous, and Russia’s supply of aluminium to the overseas market may be influenced. On the demand side, the resurging COVID-19 pandemic in various regions have not had great impacts on the production of aluminium processing companies, and the downstream operating rates were still rising, offering support to aluminium prices.

Lead: Three-month LME lead opened at $2,342.5/mt on Wednesday, hitting the highest level at $2,352/mt, and falling to the lowest level at $2,326/mt, before closing at $2,348/mt.

The most traded SHFE 2204 lead contract opened at 15,575 yuan/mt, and dropped 0.61% to close at 15,455 yuan/mt, after hitting the lowest point at 15,430 yuan/mt.

Zinc: Three-month LME lead opened at $3,606/mt on Wednesday and fluctuated around $3,600/mt before closing at $3,577/mt, down $19.5/mt or 0.54%. The trading volume was 5,978 lots, and the open interest increased by 1,303 lots to 244,000 lots.

The most traded SHFE 2204 lead contract opened at 25,060 yuan/mt in the overnight trading and dropped to the lowest point at 24,700 yuan/mt. It closed at 24,740 yuan/mt, down 390 yuan/mt or 1.55%. The trading volume was 115,000 lots, and the open interest increased by 9,437 lots to 253,500 lots.

On the supply side, the mining of ROM was still restricted, so the overall supply of lead concentrate was tight, and the raw material inventory across the smelters in Inner Mongolia stood low. The quotations for concentrate were few in the market. On the consumer side, the downstream work resumption was more slowly due to the high zinc prices and environmental protection control. The spot transactions were modest. The spot premiums are hard to rise as the supply increased after the warrants have flowed into the market. SHFE zinc is expected to trade between 24,500-25,000 yuan/mt today.

Nickel: The SHFE nickel prices remained rangebound between 174,000-176,000 yuan/mt in the overnight trading. The prices opened at 175,950 yuan/mt and dropped to a low level of 174,400 yuan/mt because the longs left the market, then bottomed out and consolidated at 175,000 yuan/mt. At last, the prices closed at 175,660 yuan/mt, a decrease of 1,700 yuan/mt, or 0.96%, from the settlement price of the previous trading day. In terms of macroeconomics, the spot premiums and prices fell simultaneously because of the potential sanctions on Russia from the US. On fundamentals, the demand for nickel from precursors and stainless steel was high. The gradual resumption of production supported the nickel prices. It is expected that the nickel prices will remain rangebound in a short time.

Tin: The most-traded SHFE contract shifted to SHFE 2205 today, while LME tin continued to rise and hit new highs. SHFE rose after opening last night, and the most-trade contract touched new highs; the contract then pulled back slightly, and moved in a narrow range. The capitals were flowing to the most-traded SHFE contract, but the open interest maintained growth.

On the fundamentals, domestic warrants inventory stood largely stable, but the shipments in the spot market was still sluggish. Spot premiums rose slightly, but the spot prices dropped along with the futures market. The supply and demand were still weak, and the prices are likely to hover at the current level recently.