SMM Evening Comments (Mar 23): Shanghai Nonferrous Metals All Closed with Gains amid Tight Supplies

SHANGHAI, Mar 23 (SMM) – Shanghai nonferrous metals all closed with gains as market supply has been tight as a whole in light of still strict transport restrictions. And downstream demand was also depressed to some extent due to the pandemic.

Shanghai copper edged up 0.07%, aluminium added 0.28%, lead gained 0.2%, zinc advanced 0.31%, tin rose 0.51%, and nickel jumped 2.7%.

Copper: The most-traded SHFE 2205 copper closed up 0.07% or 50 yuan/mt at 73,180 yuan/mt, with open interest up 1,972 lots to 146,263 lots.

On the macro front, US Fed Chair Powell suggested again that an interest rate hike of 0.5 percentage point could be expected at the next rate meeting, delivering more aggressive attitude on curbing inflation. The market turned cautious as a whole, and overnight copper futures prices dropped.

In the spot market, impact of the COVID-19 pandemic on the consumption side gradually materialised, and downstream interest in purchasing weakened further on still strict pandemic prevention and control that hindered logistics and warehousing. In addition, significant import losses have resulted in even less supplies in China, on the combination of low inventory compared with the same period last year. Spot premiums dropped quickly from highs on more acute demand issue.

Looking forward, US Markit manufacturing PMI for March due tomorrow may impact copper prices. However, as both longs and shorts are cautious on economic challenges in China, the futures market is expected to move rangebound. And LME copper has stabilised at around $10,000/mt after US dollar giving up previous gains. Hence, SHFE copper may remain weaker than LME copper in the short term.

Aluminium: The most-traded SHFE 2205 aluminium closed up 0.28% or 65 yuan/mt to 23,085 yuan/mt, with open interest down 139 lots to 238,252 lots.

On the supply side, aluminium capacities accelerated their resumption of production, but the output in Q1 is unlikely to surpass that last year, coupled with restricted logistics.

On the demand side, domestic aluminium social inventory dropped further, offering some support to aluminium prices.

Lead: The most-traded SHFE 2205 lead closed up 0.2% or 30 yuan/mt at 15,260 yuan/mt, with open interest down 2,771 lots to 56,797 lots.

In the spot market, sources circulating in the market were low. Primary lead smelters were firm in making offers in morning trade, but market transactions were mainly in small discounts. For secondary lead, the market was broadly affected by the pandemic, and local lead-acid battery scrap encountered difficulties in terms of cross-province transport. In addition, some secondary lead smelters will curtail their production, further tightening secondary refined lead supply. Furthermore, as secondary lead prices have surpassed that of primary lead, market favoured primary lead recently.

Zinc: The most-traded SHFE 2205 zinc closed up 0.31% or 80 yuan/mt at 25,750 yuan/mt, with open interest up 3,356 lots to 93,866 lots.

On the fundamentals, the import window was still closed, and ore supply remained tight. On the consumption side, the terminal demand was far less than expected, and downstream participants were generally bearish on zinc prices. And market transactions were subdued in light of rising futures prices.

In the spot market, though the transport restrictions in Shenzhen were lifted, most truck divers were unwilling to resume work, hence transport efficiency stood low.

On the whole, the consumption side remains as the key contradiction in the market, and the market shall keep an eye on this issue.

Tin: The most-traded SHFE 2205 tin closed up 0.51% or 1,710 yuan/mt at 339,430 yuan/mt, with open interest up 698 lots to 33,214 lots.

In the spot market, the quotations from upstream smelters and traders have been relatively stable as futures market changed little in the last two trading days. Downstream participants, on the other hand, mostly purchased refined tin on dips, and their demand has been slightly depressed by rising intraday futures prices. The market transactions weakened. Today, SHFE warrants inventory dropped 114 mot to 1,919 mt, a low in three months.

Nickel: The most-traded SHFE 2204 nickel closed up 2.7% or 5,580 yuan/mt at 212,000 yuan/mt, with open interest down 4,201 lots to 46,853 lots.

On the supply side, the traders lowered their premiums in order to liquidate their stocks with the purpose of mitigating risks brought about by shifting their hedge positions in the futures market approaching the end of the month, as the front-month and next-month spread is still relatively high. However, pure nickel transactions were muted as the market was generally bearish on nickel futures. In addition, market supply has been relatively tight for lack of imported goods for quite some time.

For NPI, though the cost efficiency of stainless steel scrap is relatively good, NPI could still gain support from high cost, price spread with stainless steel as well as market supply and demand, coupled with the fact that the market reservoir is expected to discharge.  

On the demand side, nickel briquette prices stood above 200,000 yuan/mt, and demand from nickel sulphate plants may contract.

In terms of stainless steel, there are already transactions in the market amid improving logistics this week. However, bearishness on nickel prices has affected the demand.

LME nickel has not touched limit down after opening yesterday with a limit of 15%, indicating the metal is returning to the fundamentals after extreme moves. In the near future, SHFE nickel may be subject to the fundamentals in China, and is expected to stay rangebound as the imported goods have not yet entered the China market when the import window is about to re-open.