SMM Morning Comments (Mar 11): LME and SHFE Base Metals Closed Mixed on Falling European Energy Prices

SHANGHAI, Mar 11 (SMM) – Shanghai and LME base metals closed mixed as the market is facing the mixture of factors, including falling European energy prices, unexpected hawkish rhetoric from ECB, geopolitical uncertainties, etc.

LME copper added 1.53%, aluminium rose 3%, lead jumped 0.23%, and zinc lost 0.26%.

SHFE copper added 0.45%, aluminium rose 1.28%, lead lost 0.42%, and zinc edged up 0.04%.

Copper: LME copper opened at $10,119/mt yesterday and then fell at $10,077/mt after slightly rising to $10,194.5/mt. At last, the prices closed at $10,130/mt, up 1.53%. The trading volume was 9,352 lots, and the open interest reached 254,000 lots.

SHFE 2204 copper contract opened at 72,300 yuan/mt in overnight trading, then fell at 72,030 yuan/mt after reaching a high level of 72,460 yuan/mt. At last, the prices closed at 72,170 yuan/mt, up 0.45%. The trading volume was 20,000 lots, and the open interest reached 115,000 lots.

On the macro front, the increase in the number of non-farm employment in the US in February was significantly higher than expected, and the annual CPI in February continued to hit a 40-year high. The inflation data strengthened the market’s bet on the US Fed's interest rate hike. In addition, there was no breakthrough in the talks between foreign ministers of Russia and Ukraine, therefore, the uncertainty caused by the geopolitical crisis still exists. Recently, under the influence of contradictory signals from UAE officials and voices related to the US-Iran negotiations, oil prices fluctuated wildly, and international crude oil futures have fallen for two days. The fluctuation of copper futures weakened due to the interference of market sentiment, and the prices remained rangebound at a high level in the night trading.

In the spot market, downstream purchasing picked up as the prices continuously declined, and traders were willing to purchase and restock. Although the import price ratio was improved, the market inventory was still relatively low due to the domestic net export in the short term. Thus, the premiums were maintained at high levels. LME copper will trade between $10,080-10,180/mt today; SHFE copper prices are expected to move between 71,800-72,400 yuan/mt. Spot premiums are likely to fluctuate between 120-190 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2204 aluminium contract opened at 22,100 yuan/mt, with the highest and lowest prices at 22,100 yuan/mt and 21,730 yuan/mt before closing at 21,760 yuan/mt, up 275 yuan/mt or 1.28%.

LME aluminium opened at $3,302/mt on Thursday and hit a high and low of $3,557.5/mt and $3,302/mt respectively before closing at $3,400/mt, up $99/mt or 3%.

From the perspective of the supply side, the resumption of production at domestic aluminium smelters has accelerated. With the steady growth of domestic daily aluminium output in March, the aluminium output is expected to total 3.3 million mt, and the operating capacity in May is expected to return to the level in the same period last year. The demand side is suppressed by high aluminium prices. On the whole, in the absence of bullish factors, the recent price correction is normal.

Lead: LME lead opened at $2,375/mt Thursday and then hovered around $2,400/mt in Asian trading hours. But the bullishness on energy supply shortage caused by Russia-Ukraine tensions have already priced in, hence the contract posted downside potential. LME dropped after entering European trading, and closed at $2365.5/mt, up 0.23%.

The most-traded SHFE lead contract changed from 2204 to 2205, and the contract opened at 15595 yuan/mt, and then dropped quickly to 15300 yuan/mt before closing at 15260 yuan/mt, down 0.42%. The open interest stood at 42564 lots, up 2292 lots from a day ago.

Zinc: LME zinc closed at $3830/mt, down $10/mt or 0.26%. LME inventory dropped 100 mt to 140950 mt. On the macro front, zinc prices almost halved and gave up all the gains after European energy prices slumped. LME zinc is expected to move between $3800-3850/mt today.

The most traded SHFE 2204 zinc contract closed at 25565 yuan/mt, up 10 yuan/mt or 0.04%. On the fundamentals, the inventories across seven regions were still rising, but the transactions picked up after zinc prices dropped yesterday. SHFE zinc is expected to move between 25300-25800 yuan/mt today, and Shuangyan zinc flat.

Overnight, the ECB delivered hawkish signals unexpectedly, and will end debt purchase sooner than originally expected. President Christine Lagarde said that the inflation risks heightened though the short-term economic activities have been restricted. She also said that the long-term inflation estimate has returned to targeted level, and the bank would take all measures to regulate prices. European natural gas prices have dropped for two days in a row.

Tin: Overnight, SHFE tin rose initially and then pulled back and the price volatility became much smaller. SHFE tin warrants decreased slightly thanks to improved sales in the spot market. Overseas inventories remained stable. Quotations for imported refined tin products reappeared. It is expected that SHFE tin prices will hover at highs in the short term.

Nickel: Both LME and SHFE nickel contract trading was partly suspended yesterday.