SMM Morning Comments (Feb 28): Shanghai Base Metals Mostly Closed Lower on Friday Night, While LME Metals Rose across the Board

SHANGHAI, Feb 28 (SMM) – Shanghai base metals generally closed with losses in the overnight trading last Friday, while their counterparts on LME rose across the board.

LME copper inched up 0.07%, aluminium rose 0.45%, lead increased 1.8%, and zinc gained 0.28%.

SHFE copper fell 0.24%, aluminium dropped 1.92%, lead lost 0.31%, zinc rose 0.22%, and nickel shed 0.75%

Copper: LME copper opened at $9,828/mt and then fell after reaching $9,907/mt. At last, LME copper prices closed at $9,860/mt, up 0.07% in overnight trading. Trading volume was 12,000 lots, and open interest stood at 252,000 lots.

SHFE copper opened at 70,660 yuan/mt in overnight trading, and then rose after dropping to 70,530 yuan/mt. At last, SHFE copper closed at 70,860 yuan/mt, down 0.24%. The open interest reached 132,000 lots.

In terms of macroeconomics, the market reassessed the US new sanctions against Russia. Copper futures remained rangebound amid the falling US dollar index. Affected by the Russia-Ukraine conflicts, the chaos and shortage of copper supply in Russia will offer strong support to copper prices. The prices will probably fluctuate wildly due to the risk aversion sentiment in the market. In terms of spot, approaching the end of February, the traders were unwilling to trade, and smelters stopped selling and held firm to their prices. The premiums are likely to rise when the downstream and traders gradually recover in March. LME copper will trade between $9,800-9,900/mt today; SHFE copper prices are expected to move between 70,400-71,000 yuan/mt. Spot premiums are likely to fluctuate between 50-100 yuan/mt.

Aluminium: LME aluminium opened at $3,376/mt last Friday and closed at $3,380/mt, an increase of $15/mt or 0.45%.

The most-traded SHFE 2204 aluminium contract opened at 23,190 yuan/mt during last Friday’s night session, with the highest and lowest prices at 23,265 yuan/mt and 22,450 yuan/mt before closing at 22,510 yuan/mt, down 440 yuan/mt or 1.92%.

On the macro front, in the early morning of February 27 Beijing time, the United States, the European Union, the United Kingdom and Canada issued a joint statement announcing the latest sanctions against Russia: prohibiting several major Russian banks from using the "Society for Worldwide Interbank Financial Telecommunication" payment system (SWIFT) and imposing "restrictive measures” on the central bank of Russia.

On the supply side, aluminium smelters in Yunnan, Guangxi, Guizhou and other regions have steadily resumed production, and domestic aluminium production is on the rise, but the total output is still lower than in the same period last year. The import window remains closed as LME aluminium outperforms SHFE aluminium. Downstream consumption is gradually recovering, and the growth rate of aluminium ingot social inventory has slowed down. Aluminium billet inventory has entered destocking cycle. The short-term decline in coal prices may have an impact on market sentiment, but expectations for supply gap in China and tight overseas supply will keep the short-term aluminium prices at highs.

Lead: Three-month LME lead opened at $2,338/mt on Friday, hitting the highest point at $2,376/mt, and closed at $2,375.5/mt, up $42/mt or 1.8% from the previous day.

The most traded SHFE 2204 lead contract opened at 15,560 yuan/mt on Friday night, hitting the lowest and highest points at 15,579 yuan/mt respectively, before closing at 15,550 yuan/mt, down 20 yuan/mt or 0.31%.

Zinc: Three-month LME zinc opened at $3,621/mt on Friday, and it gained support at $3,600/mt, fluctuating between $3,600-3,640/mt. It closed at $3,625/mt, up $10/mt or 0.28%. The trading volume dropped to 6,688 lots, and the open interest increased by 1,505 lots to 246,000 lots.

The most traded SHFE 2204 zinc contract opend at 24,860 yuan/mt, facing resistance at 2,500 yuan/mt, and closed at 24,820 yuan/mt, up 55 yuan/mt or 0.22%. The trading volume dropped at 99,900 lots, and the trading volume decreased by 2,827 lots to 256,000 lots.

The domestic smelters gradually started the negotiations on TCs for March. The smelters in Shaanxi, Yunnan, Guangxi, and Hunan plan to maintain the TCs unchanged, while the smelters in Inner Mongolia plan to lower the TC to around 3,800 yuan/mt. The consumption was far weaker than expected, which intensified the bearish sentiments in the market. SHFE zinc is expected to trade between 24,600-25,100 yuan/mt.

Nickel: On Friday night, nickel futures rose slightly. The prices opened at 174,450 yuan/mt in overnight trading, then rose to 177,000 yuan/mt. The highest transaction prices were 176,680 yuan/mt and closed at 176,390 yuan/mt, which was 1,330 yuan/mt lower than the previous trading day, with a decrease of 0.75%. The open interest decreased by 16,666 lots to 141,300 lots. The overall trend of nickel futures rebounded slightly after Friday's consolidation, and it remained the upward trend. In terms of macroeconomics, there was risk aversion sentiment in the market due to the Russia-Ukraine conflicts. The supply of nickel will be a problem if the NORNICKEL nickel is sanctioned. On the fundamentals, nickel prices could not fall in the short term because the new energy and stainless steel had stable demand for nickel, and the nickel sulphate prices remained high due to the high cost. However, the prices will change according to the macro factors.

Tin: Domestic tin inventory fell slightly last week, while the overseas inventory has remained stable recently. Cargoes of certain brands in the spot market were sold at discounts. SHFE tin fell slightly and then rebounded during last Friday’s night session. SHFE tin may continue to hover at highs, with little upward momentum due to weak demand in the spot market.