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SMM Morning Comments (Mar 22): Base Metals Mostly Closed with Gains, and Powell Signalled Aggressive Rate Hike

iconMar 22, 2022 10:00
Shanghai base metals mostly closed with gains, so were LME metals when US Fed Chair Powell suggested that the Fed would raise the interest rate by 50 basis points in May, which greatly suppressed US stocks and debts.

SHANGHAI, Mar 22 (SMM) - Shanghai base metals mostly closed with gains, so were LME metals when US Fed Chair Powell suggested that the Fed would raise the interest rate by 50 basis points in May, which greatly suppressed US stocks and debts.

LME copper fell 0.35%, aluminium increased 3.96%, lead rose 0.2%, and zinc gained 2.07%.

SHFE copper was flat, aluminium rose 0.56%, lead edged down 0.1%, zinc added 1.24%, nickel jumped 1.24%.

Copper: LME copper opened at $10,215/mt yesterday, and rose to $10,327.5/mt after falling to $10,183/mt. At last, the prices closed at $10,269.5/mt, down 0.35%. Trading volume was 6,563 lots, and open interest stood at 241,000 lots.

SHFE 2205 copper contract opened at 73,010 yuan/mt in overnight trading and once rose to the high level of 73,320 yuan/mt. At last, the contract closed at 73,120 yuan/mt, down 0.04%. Trading volume was 20,000 lots, and open interest stood at 140,000 lots.

On the macro front, the US Fed Chairman Powell said that action must be taken quickly to curb the excessive inflation, and the Fed will raise the interest rate which is higher than usual if necessary. The US Fed may implement a more aggressive monetary policy to strengthen the US dollar, and the market shall continue to pay attention to the speed and extent of the interest rate hike in the future. In the spot market, strict prevention and control are adopted in Shanghai where the COVID-19 outbreak is serious. The logistics warehouses were greatly influenced, which led to a decline in market trading. Besides, some smelters dumped goods for cash, and traders could no longer hold firm to the prices. Therefore, the premiums fell from high.

LME copper is expected to move between $10,210-10,310/mt today, SHFE copper between 72,800-73,500 yuan/mt, and spot premiums between 290-360 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 23,105 yuan/mt, with the highest and lowest prices at 23,210 yuan/mt and 23,060 yuan/mt before closing at 23,155 yuan/mt, up 130 yuan/mt or 0.56%.

LME aluminium opened at $3,417/mt on Monday and closed at $3,522/mt, an increase of $134/mt or 3.96%.

Spot discounts in east China expanded 20 yuan/mt from last Friday to 60 yuan/mt yesterday as downstream purchases slowed down due to logistics issues caused by the pandemic.

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. Aluminium ingot social inventory fell by 28,000 mt from a week ago to 1.06 million mt yesterday. It is expected that short-term aluminium prices will still trade at highs under the support of low inventories.

Lead: LME lead opened at $2,248.5/mt overnight. At Asian time, the contract reached the low prices of the day, and then moved around the daily average price. At European time, LME Lead touched a high of $ 2,272/mt then fell, and fluctuated around the daily average price in a wide range. The prices dropped at the end, reversing some of the gains, and closed at $2,250.5/mt, up 0.20%.

The most-traded 2205 contract of SHFE lead jumped at 15,240 yuan/mt when opened overnight. The contract reached a high of 15,265 yuan/mt then fell below the daily average. After the short reducing their positions, SHFE lead rose and overtook the daily average. When the short increased positions, SHFE lead fell again, reaching a low of 15,190 yuan/mt. The prices moved up at the end, making up for some of the losses, and closed at 15,235 yuan/mt, down 0.10%.

Zinc: Three-month LME zinc opened at $3,846/mt on Monday, and gained $79.5/mt or 2.07% to close at $3,918.5/mt. The open interest dropped 252 lots to 235,000 lots. Overnight LME zinc inventory fell 350 mt to 142,975 mt, falling for several consecutive sessions. LME zinc is expected to move between $3,950-4,000/mt.

The most traded SHFE 2205 zinc contract opened at 25,655 yuan/mt last night, and rose by 315 yuan/mt or 1.24% to close at 25,680 yuan/mt. The trading volume was 61,000 lots, and the open interest increased by 1,074 lots to 90,000 lots. SHFE contract moves were influenced by LME zinc, but the overall logic still falls into the fundamentals.

On the supply side, zinc concentrate import losses have been as much as 1,800 yuan/mt, and the concentrate supply was still tight. TCs for domestic concentrate showed signs of falling, and smelters cost was still high, underpinning zinc prices. The consumption end was still tepid.

In the spot market, the social inventory of zinc ingot across seven major markets recorded a high of 276,900 mt, up 8% YoY. The supply of ingot was comparatively sufficient, and a near-term pivot is unlikely. In addition, the pick-up of goods has been restricted due to the COVID-19 pandemic, which is a bearish factor for zinc prices. Nonetheless, zinc still carried support. SHFE zinc is expected to move between 25500-26000 yuan/mt, and 0# Shuangyan zinc in premiums of 20 yuan/mt over SHFE 2204.

On the macro front, US Fed Chair Powell indicated that the Fed may raise the rate by 50 basis points in May, and the hawkish speech greatly pulled back US stocks and debts. Ukraine rejected Russia’s ultimatum, while Russia accused that Biden’s words have put US-Russia relationship on the edge of corrupt. China State Council promised to enhance support to real economy through monetary policies. China's government deposits start the year with record growth of over a trillion yuan over the same period, fiscal policy has not yet come into play.

Tin: Overnight, SHFE tin still traded narrowly around 340,000 yuan/mt. Some capital flowed out of SHFE tin market. Domestic and overseas tin inventory under warrants did not change much. The supply of goods in the spot market was still tight. The demand was still driven by the NEV market. SHFE tin will probably hover at highs amid stable supply and demand.

Nickel: The most-traded nickel contract opened at low prices in overnight trading. Nickel futures opened at 202,000 yuan/mt, and once rose to the highest traded price of 208,760 yuan/mt. At last, the prices closed at 208,230 yuan/mt, up 2,560 yuan/mt from the previous closing price, up 1.24%. Trading volume decreased by 10,382 lots to 57,000 lots, and open interest dropped by 3,806 lots to 49,993 lots.

LME nickel prices hit the limit down for four consecutive times and closed at $31,380/mt yesterday. The spread between LME nickel and SHFE nickel was narrowed again. At present, the import losses are around 25,000 yuan/mt, and the spread is still huge. In the spot market, downstream actions were hindered by the high price. The blocked nickel briquette imports made the output of nickel sulphate decline. The precursors still had a certain amount of inventory, which prevented the higher cost from transmitting to downstream. Due to the pandemic, arrivals at the stainless steel market were delayed, and the transaction was slack. In the short term, it is expected that driven by LME, the sentiment in the SHFE nickel market will be weak and volatile.

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