SMM Evening Comments (Mar 7): Shanghai Nonferrous Metals All Closed with Gains on Deep Supplies Concerns

SHANGHAI, Mar 7 (SMM) – Shanghai nonferrous metals closed with gains as the market was in deep concern over supply shortage in the Europe, and LME metals recorded significant increases as well.  

Shanghai copper added 3.08%, aluminium rose 1.63%, lead gained 2.04%, zinc advanced 2.69%, tin climbed 4.82%, and nickel soared 12%.

Copper: The most-traded SHFE 2204 copper closed up 3.08% or 2,240 yuan/mt at 74,980 yuan/mt, with open interest up 6,496 lots to 156,329 lots.

On the macro front, Secretary of State Antony Blinken said Sunday that the US and its allies are considering banning Russian oil and natural gas imports in response to Russia’s military actions. In terms of oil, WTI crude hit a high of $130/barrel, while Brent also spiked to $139.13/barrel once, the highest since July 2008.

On the fundamentals, as of Monday March 7, SMM copper inventory across major Chinese markets decreased 1,500 mt from last Friday to 227,400 mt. This is the first destocking after the CNY holiday, and the market shall watch if the inventory can continue to decline.

Aluminium: The most-traded SHFE 2204 aluminium closed up 1.63% or 385 yuan/mt to 24,020 yuan/mt, with open interest down 5,938 lots to 231,811 lots.

In the short term, the aluminium market was still dominated by the rising aluminium costs and supply cuts due to escalating Russia-Ukraine conflicts, and will stand high in the short term.

Lead: The most-traded SHFE 2204 lead closed up 2.04% or 315 yuan/mt at 15,770 yuan/mt, with open interest down 6,329 lots to 49,664 lots.

In the spot market, wait-and-see sentiment was high after the sudden rise of lead prices, and the transactions were just modest as the downstream presented no surprises. According to SMM research, most downstream companies purchases on demand, and the goods holders would rather deliver for SHFE contracts when the futures and spot spread expanded to more than 300 yuan/mt. Lead ingot social inventories rose slightly. Tonight the market shall watch if SHFE lead could maintain its level above 15,700 yuan/mt.

Zinc: The most-traded SHFE 2204 zinc closed up 2.69% or 695 yuan/mt at 26,560 yuan/mt, with open interest up 184 lots to 127,275 lots.

On the macro front, LME zinc posted strong gains today amid deteriorating international situations, and touched the high since June 2007. Meanwhile, the constantly rising electricity prices have greatly increased the production costs of smelters, which may endanger the supply in Europe.

On the fundamentals, the inventory across seven regions in China added 2,800 mt from last Friday to 287,000 mt. The downstream consumption has been improving though the inventory still climbed. The market shall watch if the rising consumption could create a pivot to the social inventory.

Tin: The most-traded SHFE 2205 tin closed up 4.82% or 16,480 yuan/mt at 358,500 yuan/mt, with open interest up 2,337 lots to 40,275 lots.

On the fundamentals, the spot price moves had a close correlation with futures prices. According to the traders, the shipments have been sluggish, and market transactions were mainly made on rigid demand. The fact of few market quotations may be the result of greater willingness to deliver for SHFE contract. In terms of supply and demand, imports from Myanmar sent expectations of uncertainty, while the demand stood weak.

To sum up, as the supply and demand were largely unchanged recently, the market shall watch if weak demand would cap the growth of prices after market sentiment cools down.

Nickel: The most-traded SHFE 2204 nickel closed up 12% or 22,600 yuan/mt to 210,950 yuan/mt, with open interest up 4,583 lots to 157,942 lots.

On the fundamentals, LME nickel inventory kept falling, and the supply stood tight. On the demand side, the production schedules of stainless steel improved on the imminent seasonal high, and the cost efficiency of self-dissolution of nickel briquette also picked up.

On the macro front, the non-ferrous metals rose broadly today in light of the Russia-Ukraine tensions which created deep concerns over overseas supplies. LME nickel skyrocketed, and forcing up SHFE nickel.

The market shall still watch the US Fed’s rate hike, the progress of nickel matte project in Indonesia, and the evolvement of Russia-Ukraine conflicts.