SMM Morning Comments (Mar 21): Base Metals Mostly Went Up Last Friday Following Fed’s Hawkish Speech

SHANGHAI, Mar 21 (SMM) - Shanghai base metals mostly closed with gains in the overnight trading last Friday as the Fed indicated more aggressive measures for countering the inflation. LME metals basically picked up on Friday as well.

LME copper rose 0.51%, aluminium increased 0.15%, lead fell 0.35%, and zinc gained 0.15.

SHFE copper increased 0.77%, aluminium rose 1.53%, edged up 0.03%, and zinc fell 0.45%.

Copper: LME copper opened at $10,304/mt last Friday March 18 and rose to $10,380/mt after falling to $10,235/mt. At last, the prices closed at $10,306/mt, up 0.51%. Trading volume was 13,000 lots, and open interest stood at 241,000 lots.

SHFE 2205 copper contract opened at 72,800 yuan/mt last Friday night and once rose to the high level of 73,780 yuan/mt. At last, the contract fell slightly and closed at 73,350 yuan/mt, up 0.77%. Trading volume was 41,000 lots, and open interest stood at 132,000 lots.

On the macro front, last week, the US Fed raised the interest rate by 25 basis points, which was in line with the market expectations. The risk sentiment picked up. Meanwhile, last Friday, the hawkish speech of the US Fed officials indicated that more aggressive measures would be taken to counter the inflation, and the US dollar index rebounded slightly in intraday trading. In the spot market, the sharp decrease of arrivals in Shanghai warehouses during the week made the inventory decline rapidly, which supported the spot premiums of copper to some extent.

LME copper is expected to move between $10,260-10,360/mt today, SHFE copper between 73,100-73,700 yuan/mt, and spot premiums between 300-400 yuan/mt.

Aluminium: LME aluminium opened at $3,380/mt last Friday and closed at $3,388/mt, an increase of $5/mt or 0.15%.

During last Friday’s night session, the most-traded SHFE 2205 aluminium contract opened at 22,720 yuan/mt, with the highest and lowest prices at 22,975 yuan/mt and 22,700 yuan/mt before closing at 22,935 yuan/mt, up 345 yuan/mt or 1.53%.

From a fundamentals point of view, the operating aluminium capacity in China increased slightly, but the total output was still lower than in the same period last year. The transportation efficiency of aluminium ingots in some areas declined due to the pandemic. The operating rates of aluminium extrusion, plate/sheet, strip and foil sectors continued to recover. However, the pandemic-induced logistics issues could potentially hurt the consumption. The domestic aluminium ingot social inventory may continue to decline as slower transportation due to the pandemic will affect arrivals. Low aluminium inventory in China and overseas will keep aluminium prices at highs.

Lead: Three-month LME lead opened at $2,252.5/mt last Friday, hitting the highest point at $2,315/mt before closing at $2,246/mt, down 0.35%.

The most traded SHFE 2205 zinc contract opened at 15,285 yuan/mt last Friday night, hitting the highest and lowest points at 15,355 yuan/mt and 15,225 yuan/mt respectively, and closed at 15,240 yuan/mt, up 0.03%.

Zinc: Three-month LME zinc opened at $3,820/mt last Friday, and gained $4/mt or 0.1% to close at $3,839/mt. The trading volume dropped by 4,089 lots, and the open interest stood at 235,000 lots. The zinc stocks across LME-listed warehouses dropped by 700 mt to 143,325 mt, down 0.49%. The overseas prices of natural gas and electricity pulled back and stabilised. LME zinc is expected to trade between $3,820-3,870/mt today.

The most traded SHFE 2205 zinc contract opened at 25,385 yuan/mt last Friday night, and dropped by 115 yuan/mt or 0.45% to close at 25,295 yuan/mt. The trading volume was 50,663 lots, and the open interest increased by 2,971 lots to 87,062 lots. The domestic COVID-19 pandemic is affecting the downstream production. If the pandemic cannot be controlled effectively, the downstream consumption may weaken. The social inventory of lead ingot dropped mainly due to the impeded logistics in the pandemic. The downstream uses still purchased on rigid demand. The most traded SHFE zinc contract is expected to trade between 25,000-25,500 yuan/mt today, and the discounts of 0# domestic Shuangyan zinc may stand at 20 yuan/mt over the SHFE 2204 contract.

Tin: During last Friday’s night session, the most-traded SHFE tin contract rose above 340,000 yuan/mt. Some bulls entered the market. Overall, longs and shorts were still cautious. The domestic tin social inventory fell sharply, and the supply of goods in the spot market was still tight. This week, the resumption of production of some downstream enterprises will boost the demand. The expectations for demand recovery and the decline in domestic social inventory will support tin prices. However, high tin prices may constrain the release of demand, hence affecting the price trend in the short term.

Nickel: Last Friday, the most-traded SHFE 2204 nickel contract opened at low prices and rose to 218,000 yuan/mt at the end. Nickel futures opened at 215,000 yuan/mt at night and then rose rapidly at around 21: 26 because the shorts left the market. The prices soared to the highest traded price of 220,090 yuan/mt and then fluctuated and fell back. The nickel prices gained support from the increasing positions of longs and rebounded to 219,000 yuan/mt. At last, the prices closed at 218,520 yuan/mt, down 1,100 yuan/mt from the previous closing price, down 0.5%. LME nickel prices continuously hit the daily limit down after the resumption of nickel trading, which dragged down the market sentiment in SHFE nickel. However, the spread between domestic and overseas markets was still large, the import losses still existed, so there was certain support for the SHFE nickel prices. High nickel prices hindered the nickel sulphate and stainless steel from purchasing, and the transaction was slack. LME adjusted the price limits of nickel to 15%, which accelerated the nickel to return to fundamentals. The market sentiment may be affected, but the nickel prices will maintain fluctuating in the short term if the spread between domestic and overseas markets has not recovered.