SMM Morning Comments (Mar 14): Shanghai Base Metals Closed Mixed on Friday Night, Aluminium Went up

SHANGHAI, Mar 14 (SMM) – Shanghai base metals closed mixed in the overnight trading on Friday. Their counterparts on LME also settle mixed on Friday.

LME copper fell 0.29%, aluminium increased 2.35%, lead dropped 2.92%, and the zinc price was flat from the previous day.

SHFE copper rose 0.33%, aluminium increased 0.11%, lead fell 0.16%, and zinc dropped 0.78%.

Copper: LME copper prices opened at $10,250/mt yesterday, then reached a low level at $10,091/mt. At last, the prices closed at $10,101/mt, down 0.29%. Trading volumes stood at 8,388 lots and open interest stood at 254,000 lots.

SHFE 2204 copper contract opened at 72,390 yuan/mt in overnight trading and remained rangebound around the daily average line. At last, the prices closed at 72,370 yuan/mt, up 0.33%. The trading volumes stood at 17,000 lots and open interest stood at 111,000 lots.

On the macro front, the United Arab Emirates and Iraq supported the supply and the Russia-Ukraine conflict was slightly cooled, pulling back the international crude oil futures. In addition, Ukraine and Russia were tending to reach a compromise on signing a comprehensive agreement, the Russia-Ukraine conflict would be eased. Moreover, in March, the US Fed is about to raise interest rates.  Europe and the US are facing potential stagflation risks under high inflation. Thus, copper prices bear huge pressure to rise in the short term. As of Friday March 11, SMM copper inventory across major Chinese markets decreased 11,400 mt from Monday March 7 to 216,000 mt, up 117,300 mt from the pre-CNY holiday level of 98,700 mt. The decline of weekly destocking and reduced increment of inventory was realised. It is highly probable that a turning point in domestic stock has already occurred. In the spot market, the import volume was still limited even though the SHFE/LME price ratio was briefly improved. Smelters are still preparing the exported goods, so the overall inventory is still tight. After the prices fell to 72,000 yuan/mt, traders and downstream sectors purchased stocks and pushed up the premiums. Narrowed spread between the front-month and next-month contracts boosts the market’s confidence to some extent. LME copper will trade between $10,050-10,150/mt today; SHFE copper prices are expected to move between 72,000-72,600 yuan/mt. Spot premiums are likely to fluctuate between 150-260 yuan/mt.

Aluminium: LME aluminium opened at $3,400/mt last Friday and closed at $3,480/mt, an increase of $80/mt or 2.35%.

During last Friday’s night session, the most-traded SHFE 2204 aluminium contract opened at 21,880 yuan/mt, with the highest and lowest prices at 22,160 yuan/mt and 21,880 yuan/mt before closing at 21,950 yuan/mt, up 25 yuan/mt or 0.11%.

SHFE aluminium rose initially and then fell back. According to SMM statistics, the average operating rate in the aluminium wire and cable industry increased by 6.55 percentage points year-on-year to 33.18% in February. The average operating rate in the aluminium plate/sheet and strip industry was 77.41%, a year-on-year increase of 1.35 percentage points.

Lead: LME lead opened at $2,364.5/mt last Friday, hitting the lowest point at $2,291.5/mt amid surging US dollar, and closed at $2,296.5/mt, down 2.92%.

The most traded SHFE 2204 lead contract opened at 15,345 yuan/mt last Friday night, hitting the lowest point at 15,205 yuan/mt, and closed at 15,230 yuan/mt, down 0.16%.

Zinc: LME zinc moved downward last Friday and gained support at the 20-day moving average. It closed at $3,830/mt, flat from the previous trading day. The LME zinc inventory dropped by 225 mt to 140,725 mt. The market turned to rationality after the fierce price fluctuation caused by the energy shortage, and the prices fluctuated within a narrow range. LME zinc is expected to trade at $3,800-3,850/mt.

The most traded SHFE zinc contract closed 200 yuan/mt or 0.78% lower at 25,360 yuan/mt. The zinc inventory across seven major markets increased more slowly. If the orders from infrastructure industry increase significantly, the zinc prices may gain support. SHFE zinc is expected to trade between 25,300-25,800 yuan/mt. The premiums of domestic Shuangyan zinc will be seen at around 20 yuan/mt.

Nickel: The supply of pure nickel still cannot keep up with the growth rate of demand. At present, the nickel price remains high, and the downstream procurement is generally weak. Against the background of the extreme market last week, there were few spot transactions. It was known that NiMH battery factories were not willing to purchase even though they had low inventory, and they intended to reduce production. In addition, the supply of nickel sulphate was relatively tight due to the tight supply of raw materials. At present, whether nickel matte can be released in large quantities is the key point that affects the supply of new energy and relieves the tight supply of nickel briquette. However, the output of nickel matte has not reached the expected level. Last week, SHFE and LME released a series of negative policies, which is conducive to the surged nickel price to return to the fundamentals. In general, the most traded SHFE nickel contract may continue to be pulled back this week. SHFE nickel prices are expected to fluctuate between 190,000-220,000 yuan/mt this week, and LME nickel prices are expected to move between $35,000-50,000/mt.

Tin: SHFE tin moved within a narrow range around 340,000 yuan/mt during last Friday’s night session. The domestic tin social inventory accumulated as high tin prices suppressed demand. There were increasing quotations of Indonesian tin in the market amid open import window. The market cooled down with outflows of capital. The worsening pandemic in Myanmar and China fuelled market pessimism over future supply and demand. SHFE tin is expected to consolidate at highs.