SMM Morning Comments (Mar 8): LME and SHFE Base Metals Closed Mostly with Losses amid Worries over Global Economy Recovery

SHANGHAI, Mar 8 (SMM) – Shanghai and LME base metals mostly closed with losses last night as the investors worried that the surging energy prices in Europe on the back of Russia-Ukraine tensions would drag on global economy recovery.

LME copper dropped 2.69%, aluminium fell 2.62%, lead lost 0.59%, and zinc won 0.32%.

SHFE copper fell 2.29%, aluminium dropped 4.74%, lead rose 1.37%, and zinc gained 0.02%.

Copper: LME copper prices opened at $10,721/mt yesterday, then fell to $10,212/mt before closing at $10,315/mt, down 2.69%. Trading volume was 26,000 lots, and the open interest stood at 260,000 lots.

SHFE 2204 copper contract opened at 74,900 yuan/mt in overnight trading, then fell slightly to 70,560 yuan/mt before closing at 72,650 yuan/mt, down 2.29%. Trading volume was 118,000 lots, and the open interest stood at 140,000 lots.

The market was still trading the inflation risks caused by energy crisis on the back of escalating Russia-Ukraine conflicts. As the energy prices surged, copper prices also stood at a high level. Germany recently indicated that it has no plans of suspending the energy imports from Russia, repairing the night session to some extent. US stocks recorded the greatest fall in one and a half years as the investors worried the skyrocketing energy prices would drag on global economy recovery, hence overnight copper prices dipped.

In the spot market, downstream purchase was once again suppressed by surging copper prices yesterday. The smelters were preparing for exports amid significant import losses, and domestic supply was even tighter amid humble imports.

LME copper is expected to move between $10,260-10,360/mt, SHFE copper between 72,200-73,000 yuan/mt, and spot premiums between 50-100 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2204 aluminium contract opened at 24,020 yuan/mt, and hit a low of 22,550 yuan/mt, but then moved between 22,750-22,900 yuan/mt before closing at 22,700 yuan/mt, down 1,130 yuan/mt or 4.74%.

LME aluminium opened at $3,876/mt on Monday and hit a high of $4,073.5/mt before closing at $3,740/mt, a drop of $100.5/mt or 2.62%.

Expectations of tighter overseas supply side and the impact of logistics disruptions allowed LME aluminium to hit a record high of $4,073.5/mt yesterday and SHFE aluminium to rise to 24,255 yuan/mt. However, the overall domestic downstream consumption recovery was still slow and rapidly rising aluminium prices resulting in poor orders from end users. Some bulls reduced their positions at the current high prices, resulting in a sharp drop of nearly 5% in SHFE aluminium in overnight trading. However, the closure of import window as LME aluminium outperformed SHFE aluminium will keep aluminium prices at highs following correction.

Lead: LME lead opened at $2,474/mt on Monday, and moved up due to the geopolitical issues between Russia and Ukraine. Driven by skyrocketing LME nickel prices, LME lead once broke through $2,500/mt to a high of $2,526/mt. However, the support from fundamentals was limited. Longs took profits at highs and a large number of shorts entered, causing LME lead to erase most of the gains and close at $2,450/mt, a decrease of 0.59%.    

Expectations of macro policies had much bigger impact on the market sentiment than fundamentals. The tug of war between longs and shorts intensified. The most-traded SHFE 2204 lead contract fell to 15,230 yuan/mt after opening at 15,770 yuan/mt overnight, and then moved between 15,435-15,525 yuan/mt before closing at 15,450 yuan/mt, down 1.37%. Open interest added 321 lots to 49,985 lots.

Zinc: LME zinc touched a record of $4,248/mt after opening yesterday, the highest in 17 years. The contract dropped in the night session, and closed $13/mt or 0.32% higher at $4,103/mt. LME inventory dropped 450 mt to 142,725 mt. The natural gas supply issue in Europe was still the concern of the market, and the rising smelting cost will support zinc prices. LME zinc is expected to move between $3900-4100/mt today.

The most traded SHFE 2204 zinc contract closed at 26,565 yuan/mt, up 5 yuan/mt or 0.02%. On the fundamentals, domestic consumption recovered slowly though the Winter Olympics have ended, and the social inventory kept rising. The fundamentals were neutral as a whole. Short-term zinc many drop slightly after LME zinc rose wildly for some time. SHFE zinc is expected to move between 26000-26500 yuan/mt, Shuangyan zinc will be in discounts of 50-60 yuan/mt.

On the macro front, Chinese Ministry of Foreign Affairs re-iterated that the Taiwan issue is not comparable to the Ukraine issue! Germany emphasised the important of Russian energy supplies, France raised the subsidies, while the US and EU were considering reduce the dependence on Russian energy, and the US even considered Saudi Arabia as an alternative.

Nickel: Nickel futures touched limit up and rose above 210,000 yuan/mt yesterday, LME nickel tested $36,000/mt in morning trade, a rise of almost 20%. Spot premiums dropped slightly in light of rising nickel futures prices. Jinchuan nickel was in premiums of 3,000-3,300 yuan/mt over SHFE 2204, while NORNICKEL nickel was in premiums of 2,800-3,000 yuan/mt over SHFE 2204. Spot transactions were thin. For nickel briquette, imports losses were as high as 40,000 yuan/mt, and market supply was tight due to low inventory. The premiums of nickel briquette once hit 10,000 yuan/mt.

Tin: Overnight, SHFE tin pulled back sharply with the exit of capital. Domestic inventory under SHFE warrants and overseas inventory did not change much. The spot market performed poorly due to the sharply rising prices. Market sentiment has become the main factor that dominates price fluctuations. SHFE tin prices are unlikely to keep rising as high prices suppress demand in the spot market.