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SMM Evening Comments (Mar 21): Shanghai Nonferrous Metals Closed Mixed on Lingering COVID Pandemic in China

iconMar 21, 2022 19:00
Shanghai nonferrous metals closed mixed as the COVID-19 pandemic situation was still severe in China, which kept influencing domestic transportation and transactions of spots.

SHANGHAI, Mar 21 (SMM) – Shanghai nonferrous metals closed mixed as the COVID-19 pandemic situation was still severe in China, which kept influencing domestic transportation and transactions of spots.

Shanghai copper rose 0.12%, aluminium added 2.28%, lead fell 0.23%, zinc advanced 0.59%, tin advanced 1.04%, and nickel dropped 6.47%.

Copper: The most-traded SHFE 2205 copper closed up 0.12% or 90 yuan/mt at 72,880 yuan/mt, with open interest up 14,029 lots to 136,789 lots.

On the macro front, China released a series a macro economic data, and all of which are slightly better than expected. The value added of industries above the scale increased by 7.5% year-on-year, total retail sales of consumer goods rose by 6.7% YoY, and fixed asset investment added 12.2% YoY, among which the investment concerning manufacturing, infrastructure and real estate investment grew 20.9%, 8.1% and 3.7% YoY respectively. The manufacturing sector improved significantly, which benefited palpably from the export market. Meanwhile, thanks to financial support, the growth in the infrastructure sector was obvious. On March 16, the Financial Stability Development Committee of the State Council released a strong signal to stabilise the economy, finance, housing finance and stock market, and market confidence was significantly boosted.

Nonetheless, the market shall still watch how the COVID-19 pandemic would influence the demand.

Aluminium: The most-traded SHFE 2205 aluminium closed up 2.28% or 515 yuan/mt to 23,105 yuan/mt, with open interest up 18,381 lots to 234,847 lots.

On the supply side, domestic operating aluminium capacity rose slightly, but the overall output was still lower than the same period last week. And the transport efficiency of aluminium ingot in some places were low under the impact of COVID.

On the demand side, the operating rates of aluminium extraction and aluminium plate/sheet and foil have been picking up further, but the downstream is also constrained by the COVID.

It is expected that social inventory will keep falling amid low transport efficiency and slow arrival of goods. Meanwhile, low aluminium inventory in China and overseas will underpin aluminium prices.

Lead: The most-traded SHFE 2205 lead closed down 0.23% or 35 yuan/mt at 15,200 yuan/mt, with open interest up 1,556 lots to 59,371 lots.

In the spot market, primary lead smelters maintained small premiums, while traders held firm to the prices. In terms of secondary lead, the discounts of secondary refined lead shrank to around 50 yuan/mt amid tight supply of lead-acid battery scrap, resurging pandemic across the country that boomed the transport costs, etc. The downstream mainly restocked on rigid demand, and spot transactions were lacklustre.

Zinc: The most-traded SHFE 2205 zinc closed up 0.59% or 150 yuan/mt at 25,560 yuan/mt, with open interest up 4,352 lots to 88,623 lots.

On the fundamentals, domestic zinc ingot inventory across seven major markets in China totalled 276,900 mt as of Monday March 21, up 700 from last Friday March 18 and down 8,800 mt from last Monday March 14. The inventory dropped mainly due to hindered transportation.

Tin: The most-traded SHFE 2205 tin closed up 1.04% or 3,470 yuan/mt at 337,000 yuan/mt, with open interest up 985 lots to 33,598 lots.

On the fundamentals, upstream enterprises raised their offers in morning trade along with the rising futures prices, up around 6,250 yuan/mt from last Friday. However, the downstream mostly turned away from such price level. In the afternoon, the spot market transactions improved after futures prices corrected, but were still slack as a whole.

In addition, the downstream production in Pearl River Delta region is about to return to normal soon after the pandemic-based lockdown was lifted in Shenzhen.

The low refined tin social inventory will underpin tin prices to some extent.

Nickel: The most-traded SHFE 2204 nickel closed down 6.47% or 14,230 yuan/mt at 205,670 yuan/mt, with open interest up 789 lots to 53,799 lots.

Spot market has been smacked by the resurging pandemic across many places in China last week in terms of transport and transactions. And there were almost no transactions last week amid high futures prices and great uncertainties after LME nickel resumed market. The supply and demand in the spot market were both weak.

As far as SMM understands, nickel sulphate and precursor plants are considering production cuts due to excessively high raw material prices. In addition, tight raw material supply has tightened the supply of nickel sulphate. The output of nickel matte, which is still below expectation, is now a determining factor for new energy supply and a relief to nickel briquette shortage.

Last week, LME nickel slumped after resuming market, and SHFE nickel dropped slightly thanks to support from the fundamentals, narrowing the spread between LME and SHFE nickel. LME has set the daily limit up/down at 15%. The import losses are still great at present, and domestic supply of raw materials will remain tight for some time.

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