SMM Morning Comments (Feb 25): SHFE Base Metals Closed Mixed Overnight amid Intensifying Risk Aversion Sentiments

SHANGHAI, Feb 25 (SMM) – Shanghai base metals closed mixed in the overnight trading amid risk aversion sentiments aroused by the Russia-Ukraine military conflicts. Their counterparts on LME mostly increased in the trading on Thursday.

LME copper inched up 0.07%, aluminium rose 2.16%, lead fell 0.62%, and zinc went up 1.06%.

SHFE copper won 0.16%, aluminium edged up 0.02%, lead rose 0.42%, zinc fell 0.67%, and nickel dropped 0.57%.

Copper: LME copper prices opened at $9,982/mt in the overnight trading, then fell at $9,778/mt after reaching a high level of $10,076.5/mt. At last, the prices closed at $9,853/mt, up 0.07%. Trading volumes stood at 24,000 lots and open interest stood at 250,000 lots.

The SHFE 2204 copper contract opened at 71,360 yuan/mt, then rose after dropping continually to 70,630 yuan/mt. At last, the prices closed at 70,960 yuan/mt, up 0.16%. The open interest reached 130,000 lots.

In terms of macroeconomics, the risk aversion sentiment in the market aroused by the tense Ukrainian-Russian conflict boosted the US dollar index to a new high of 97.74 since June 30, 2020, at night. The copper futures pulled back. Investors' worries about geopolitics that will undermine economic stability were increasing due to the tense Ukrainian-Russian conflict. Meanwhile, the market speculated that the US Fed will not raise interest rates sharply at the March meeting. Therefore, the copper prices will maintain rangebound under the influence of uncertain factors. In terms of spots, some traders had a weak willingness to trade. At the same time, after the copper prices fell back from the high level, stockpiling downstream actively began. LME copper will trade between $9,800-9,900/mt today; SHFE copper prices are expected to move between 70,700-71,300 yuan/mt. Spot premiums are likely to fluctuate between discounts 30 yuan/mt-premiums 50 yuan/mt.

Aluminium: LME aluminium opened at $3,288/mt on Thursday and closed at $3,365/mt, an increase of $71/mt or 2.16%.

Overnight, the most-traded SHFE 2204 aluminium contract opened at 23,190 yuan/mt, with the highest and lowest prices at 23,260 yuan/mt and 22,735 yuan/mt before closing at 22,845 yuan/mt, up 5 yuan/mt or 0.02%.

On the macro level, Russia officially launched military operations against Ukraine, and Biden announced a new round of sanctions against Russia, including export controls and restrictions on Russia’s transactions with dollars, euros, and pounds, but did not involve the energy industry and Swift. It was reported that the US sanctions against Russia will bypass the aluminium industry. On the supply side, after the outbreak of the Russian-Ukrainian war, concerns of the shortage of energy and aluminium supply will intensify. The speed of aluminium inventory accumulation has slowed down. Aluminium processing enterprises are gradually resuming production. Intensified overseas supply risks and moderate domestic consumption will support short-term aluminium prices at highs.

Lead: Three-month LME lead opened at $2,335.5/mt on Tursday, hitting the highest point at $2,382/mt and falling to the lowest point at $2,382/mt. It closed at $2,333.5/mt, down 0.62%.

The most traded SHFE 2204 lead contract opened at 15,555 yuan/mt last night, hitting the highest and lowest points at 15,640 yuan/mt and 15,515 yuan/mt respectively, and closed at 15,550 yuan/mt, up 0.42%.

Zinc: Three-month LME zinc opened at $3,575/mt last on Thursday, and fluctuated between $3,570-3,590/mt before rising to test $3,600/mt. In the European session, it hit the highest point at $3,663/mt boosted by the surging natural gas prices, and closed at $3,615/mt, up 1.06%. The trading volume increased to 11,137 lots, and the open interest rose by 1,009 lots to 245,000 lots.

The most traded SHFE 2204 lead contract opened at 25,000 yuan/mt, rising briefly before falling to the lowest point at 24,525 yuan/mt, and then the shorts left the market with profits. However, the game intensified. SHFE zinc closed at 24,620 yuan/mt, a drop of 165 yuan/mt or 0.67%. The trading volume increased to 183,800 lots, and the open interest rose by 5,130 lots to 260,400 lots.

On the supply side, the natural gas prices in Europe soared again, pushing up the overseas smelting costs further. SMM will monitor whether the European smelters will continue to cut the production. The domestic demand has not increased significantly, so the overall consumption in China falls short of expectations. Although the zinc prices are falling, the social inventory of lead ingots remain high, hence the spot prices are hard to rise. Therefore, the overseas fundamentals outperform the domestic fundamentals, and the zinc prices in China will be more affected by the consumption. SHFE zinc is expected to trade between 24,500-25,000 yuan/mt.

Nickel: Most active SHFE 2204 nickel contract dropped sharply at a high level, returning to maintain rangebound at 176,000 yuan/mt. Nickel futures opened at 182,000 yuan/mt, and went straight up, reaching a historical high of 184,650 yuan/mt in overnight trading.

However, the prices fell back after the longs leaving the market and the shorts increasing lots. At around 23 o'clock at night, nickel futures returned to 176,000 yuan/mt and remained consolidating to the end of the session. At last, the nickel futures prices closed at 176,720 yuan/mt, a decrease of 1,020 yuan/mt, or 0.57%, from the settlement price of the previous trading day.

At the macro level, the problem of nickel supply in Europe caused anxiety, owing to the tense Ukrainian-Russian conflict and the decreased long-term orders of NORNICKEL nickel, and the potential sanctions on Russia. In addition, the export and transportation of ferronickel in Ukraine may also be affected, and the nickel supply will be disturbed in the short term. On fundamentals, the demand for nickel in new energy and stainless steel was stable. High cost made nickel sulphate prices high, and the ferronickel prices could hardly fall in the short term supported by supply and demand. It is expected that the nickel prices will remain rangebound in a short time, and attention should be always paid to the macro factors.

Tin: Overnight, SHFE tin rose initially and then fell back with the exit of capital. Changes in domestic warrant inventory were small. Spot prices rose along with futures prices, resulting in poor demand. Spot premiums remained low. SHFE tin will remain at highs in the short term amid stable supply-demand relationship and strong wait-and-see sentiment.