SMM Evening Comments (Feb 28): Shanghai Nonferrous Metals Closed Mixed amid Haunting Uncertainties around Russia-Ukraine Issue

SHANGHAI, Feb 28 (SMM) – Shanghai nonferrous metals closed mixed. Risk aversion sentiment was still high in light of sanctions from US and European counties on Russia. Nonetheless, it is specially pointed out by US officials that Russia’s oil and natural gas exports will be unaffected, easing the market sentiment to some extent.

Shanghai copper edged down 0.06%, aluminium inched up 0.09%, lead fell 0.13%, zinc rose 1.13%, tin lost 0.22%, and nickel notched up 0.03%.

Copper: The most-traded SHFE 2204 copper closed down 0.06% or 40 yuan/mt at 70,990 yuan/mt, with open interest up 560 lots to 133,553 lots.

On the macro front, the Western world continued to impose sanctions on Russia, and some Russia banks have been kicked out of the SWIFT system. In addition, the EU will suspend all transactions with Bank of Russia, and the White House also did not rule out the possibility of carrying out energy sanctions on Russia. As such, overnight US dollar index dropped slightly.

On the other hand, the US Fed’s semi-annual report re-iterated that the timing for rate hike is “imminent”, St. Louis Fed President suggested that it is reasonable to raise the rate by 100 basis points by July and the Russia-Ukraine tension will have little impact on the economic outlook. Intraday US dollar index rose again, which pressured SHFE copper.

On the fundamentals, LME copper dropped 1,850 mt to 73,000 mt, underpinning copper prices.

Tonight, the market shall watch the February manufacturing PMI in China, US and eurozone, US ADP payrolls and unemployment in February, and the monthly rate of CPI in eurozone in February.

Aluminium: The most-traded SHFE 2204 aluminium closed up 0.09% or 20 yuan/mt to 22,855 yuan/mt, with open interest down 739 lots to 219,170 lots.

On the supply side, the aluminium smelters in Yunnan, Guangxi and Guizhou gradually resumed the production, and the output is ramping up. But the gross domestic output was lower than in the same period in previous years. In addition, the import window remained closed as the LME market outperformed the SHFE market.

On the demand side, the domestic downstream consumption has been recovering, which slowed down the increase of social aluminium ingot inventory, while aluminium billet inventory has already started to decline. The falling coal prices may depress the market, but it will not be enough to reverse the expected tight supply in the future.

Lead: The most-traded SHFE 2204 lead closed down 0.13% or 20 yuan/mt at 15,550 yuan/mt, with open interest up 293 lots to 56,486 lots.

In the spot market, primary lead smelters lowered slightly their discounts. The downstream orders for March have been sluggish, while the supplies have been sufficient. For secondary refined lead, the sellers were less willing to sell on the back of limited increase in supplies resulting from high production costs, slow recovery of production of a few large smelter, and the maintenance. Secondary refined lead (tax included) were quoted with discounts of 200-300 yuan/mt over SMM #1 lead, and the discounts narrowed palpably.

The spot market was also sluggish today. Lead brands – Chihong and Tonguang – were offered at 15490-15510 yuan/mt in Shanghai, or in discounts of 20-0 yuan/mt over SHFE 2203. Brands of Jijin, Jiangtong, Tongguan and Mulun were offered at 15480-15510 yuan/mt, over in premiums of 30-0 yuan/mt over SHFE 2203.

Downstream battery companies restocked on demand, and the spot market was flat from last Friday as a whole.

Zinc: The most-traded SHFE 2204 zinc closed up 1.13% or 280 yuan/mt at 25,045 yuan/mt, with open interest down 7,009 lots to 127,750 lots.

On the supply side, social zinc ingot inventory continued to rise by 7,100 mt to 284,500 mt as of Monday over the weekend, which was higher compared than in previous years, indicating sufficient market supplies on the contrary of subdued demand in the spot market.

Tin: The most-traded SHFE 2205 tin closed down 0.22% or 740 yuan/mt at 337,950 yuan/mt, with open interest up 1,164 lots to 34,540 lots.

In the spot market, some non-deliverable brands were offered with discounts, and the mainstream tractions today were also made with discounts. Nonetheless, the transaction volume was not very satisfactory, and some sellers had to lower their offers in order to promote the sales.

The currently high tin prices suppressed the downstream demand, and they mostly purchased on rigid demand. It is expected that the tin supply and demand will remain relatively balanced in the short term.

Nickel: The most-traded SHFE 2204 nickel closed up 0.03% or 60 yuan/mt to 177,780 yuan/mt, with open interest down 14,756 lots to 143,225 lots.

On the fundamentals, LME outperformed SHFE amid escalating Russia-Ukraine conflicts and uncertain US financial sanctions on Russia, and the market shall watch the following US-Russia talk.

In the spot market, Jinchuan nickel was in premiums of 1,650 yuan/mt over SHFE 2203, down 200 yuan/mt from the last trading day; NORNICKEL nickel was in premiums of 950 yuan/mt, flat from a day ago.

For nickel briquette, the spot goods started to be quoted against SHFE 2204 since last week, and the premiums were as high as 3,500-4,000 yuan/mt over SHFE 2204 in light of tight spot supplies. But there were rarely any transactions in the spot market.