SMM Evening Comments (Mar 2): Shanghai Nonferrous Metals Most Closed with Gains amid Inflating Oil Prices

SHANGHAI, Mar 2 (SMM) – Shanghai nonferrous metals mostly closed with gains as oil prices surged to new highs amid on-going conflicts between Russia and Ukraine.   

Shanghai copper added 0.85%, aluminium rose 1.35%, lead inched down 0.03%, zinc advanced 2.18%, tin climbed 0.21%, and nickel jumped 2.53%.

Copper: The most-traded SHFE 2204 copper closed up 0.85% or 600 yuan/mt at 71,520 yuan/mt, with open interest up 6,858 lots to 140,196 lots.

On the macro front, Russia continued its military action toward Ukraine in the face of international sanctions, with troops expected to regroup and then attack Kiev as the war moves towards a more brutal phase. The market was again on the edge amid geopolitical tensions, which sent up overnight US dollar index by 0.71%, coupled with the record-high US core PCE.

The oil market, however, was much more greatly affected by the sanctions on Russia, as WTI and Brent both refreshed their seven-year high at $106.78/barrel and $107.65/barrel respectively. In addition, the natural gas prices in Europe also surged by 20% once. SHFE copper gained 1.06% yesterday, and hovered high today despite modest gains.

Tonight, the market shall watch the annualised rate of February CPI in eurozone, ADP payrolls in February, and EIA crude reserves last week.

Aluminium: The most-traded SHFE 2204 aluminium closed up 1.35% or 305 yuan/mt to 22,955 yuan/mt, with open interest up 11,673 lots to 230,936 lots.

On the supply side, domestic aluminium production is recovering steadily in Yunnan, Guangxi and Guizhou, and the output has been rising, but the gross total was below the level in the same period in 2021. In addition, the downstream demand has been reviving as well, which was reflected in the social inventory of aluminium ingot and billet.

The short-term decline of coal prices may dent the market, but it will not change the general trend toward a short supply.

Lead: The most-traded SHFE 2204 lead closed down 0.03% or 5 yuan/mt at 15,580 yuan/mt, with open interest up 1,134 lots to 57,312 lots.

In the spot market, the buyers were mostly wait and see in light of tax-inclusive quotes of lead-acid battery scraps under the new VAT policy, and the spot transactions were thin. Primary lead smelters most quoted with discounts of 100-200 yuan/mt over SMM #1 lead, while secondary refined lead was offered with discounts of 250-300 yuan/mt over SMM #1 lead.

In the trading market, lead brands of Jijin, Jiangtong, Tongguan and Mulun in Zhejiang and Jiangsu were offered between 15,490-15,530 yuan/mt or in discounts of 40-0 yuan/mt over SHFE 2203. The downstream was sluggish as a whole, and the demand kept weakening.

It is expected the export market will improve in the short term amid narrowing SHFE/LME price ratio. Hence the market shall watch whether overseas demand could animate the domestic market and pull back social lead ingot inventory.

Zinc: The most-traded SHFE 2204 zinc closed up 2.18% or 550 yuan/mt at 25,740 yuan/mt, with open interest up 6,985 lots to 128,815 lots.

SHFE zinc rose tailing LME zinc as the production of refined zinc suffered great losses amid rising electricity prices in Europe. Currently, the electricity prices in Europe are about to touch highs recorded in Q4 2021, while overseas thermal coal prices already hit highs in the same period last year. As such, the energy end dominates the moves of zinc prices.

On the fundamentals, rising zinc prices suppressed downstream demand, which purchased mainly on rigid demand.

Tin: The most-traded SHFE 2205 tin closed up 0.21% or 720 yuan/mt at 340,490 yuan/mt, with open interest down 1,967 lots to 37,502 lots.

On the fundamentals, the spot market was still quiet, and the downstream purchased on rigid demand as poor profits supressed their production enthusiasm, and favoured sources with fixed prices. SHFE warrants dropped 1 mt to 2,763 mt, and have been stable recently.

Nickel: The most-traded SHFE 2204 nickel closed up 2.53% or 4,450 yuan/mt to 180,260 yuan/mt, with open interest up 12,392 lots to 147,921 lots.

Nickel prices climbed further on lingering Russia-Ukraine tensions that would potentially hamper NORNICKEL nickel supply. The premiums of nickel briquette rallied palpably, as the market supply was still tight. Nonetheless, the high prices have significantly suppressed market demand.