SMM Morning Comments (Mar 24): Base Metals Closed with Gains amid Returning European Energy Crisis

SHANGHAI, Mar 24 (SMM) - Shanghai and LME base metals all closed with gains in light of returning European energy crisis after Russia plans to require European countries to pay in roubles for gas purchases, a move that could exacerbate Europe's worst energy crunch since the 1970s and raise market fears of supply shortages.

LME copper gained 1.41%, aluminium added 5.12%, lead rose 4.39%, and zinc jumped 6.41%, nickel surged 13.67%.

SHFE copper gained 0.97%, aluminium advanced 1.68%, lead added 0.49%, zinc rose 2.57%, nickel hit limit up.

Copper: LME copper opened at $10,353/mt yesterday and fell to $10,318/mt before reaching the high level of $10,450/mt. At last, the prices closed at $10,425/mt, up 1.41%. Trading volume was around 10,000 lots, and open interest stood at 240,000 lots.

SHFE 2205 copper contract opened at 73,500 yuan/mt in overnight trading and once rose to the high of 73,920 yuan/mt. At last, the contract closed at 73,860 yuan/mt, up 0.97%. Trading volume was 35,000 lots, and open interest stood at 152,000 lots.

On the macro front, the market was increasingly worried about global supply disruption due to Russia-Ukraine tensions, and oil prices were boosted by low inventory of US crude, gasoline and refined oil. Meanwhile, Russia plans to require European countries to pay in roubles for gas purchases, a move that could exacerbate Europe's worst energy crunch since the 1970s and raise market fears of supply shortages.

In the spot market, the confirmed COVID cases in Shanghai have been on the rise, and surrounding areas in Jiangsu are also seeing greater influence from COVID, which severely suppressed downstream consumption. Meanwhile, as it approaches the delivery of March long-term orders at the end of the month, goods holders actively made shipments for exchange of cash, and the premiums slumped in the past two trading days, and are expected to keep falling this week.

LME copper is expected to move between $10,400-10,500/mt, SHFE copper between 73,600-74,200 yuan/mt, and spot premiums between 150-230 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 23,260 yuan/mt, with the highest and lowest prices at 23,435 yuan/mt and 23,130 yuan/mt before closing at 23,365 yuan/mt, up 385 yuan/mt or 1.68%.

LME aluminium opened at $3,417/mt on Wednesday and closed at $3,685/mt, an increase of $179/mt or 5.12%.

On the supply side, the resumption of domestic aluminium production has accelerated, but the output has not reached the level of the same period last year; overseas energy prices have risen again, exacerbating market concerns about output cuts by aluminium smelters. The domestic aluminium ingot social inventory continued to decline this week, providing certain support to aluminium prices. It is expected that the short-term aluminium price will remain at a high level. The market still needs to pay attention to how the overseas energy crisis will evolve, inventory changes and the impact of the pandemic on transportation of upstream and downstream enterprises.

Lead: Three-month LME lead opened at $2,272/mt Wednesday, and closed at $2,377/mt after hitting intraday high of $2,380/mt, a gain of 4.39%.

The most-traded SHFE lead opened at 15,360 yuan/mt, and then hit the lowest and highest at 15,305 yuan/mt and 15,405 yuan/mt before closing at 15,375 yuan/mt, up 0.49%.

Zinc: Three-month LME zinc opened at $3,905/mt Wednesday, and gained $250.5/mt or 6.41% to close at $4,160/mt. The open interest added 1,741 lots to 236,000 lots. Overnight LME zinc inventory lost 150 mt to 143,175mt. LME zinc is expected to move between $4,150-4,200/mt.

The most traded SHFE 2205 zinc contract opened at 26,085yuan/mt last night, and rose by 660 yuan/mt or 2.57% to close at 26,340 yuan/mt. The trading volume was 98,000 lots, and the open interest increased by 6,938 lots to 101,000 lots. SHFE zinc is expected to move between 26000-26500 yuan/mt, and 0# Shuangyan zinc in discounts of 20 yuan/mt over SHFE 2204.

On the macro front, Russia plans to require European countries to settle their purchases of gas in roubles. The US is due to announce a new round of sanctions against Russian oligarchs and entities on Thursday. Trading of 33 stocks will resume on the Moscow exchange, but shorting is banned. US stocks fell over 1% as higher oil prices and the Russia-Ukraine conflict raised concerns.

On the supply side, import losses of zinc concentrate were as high as 2,242 yuan/mt, keeping the import window shut. On the consumption side, the pandemic continued to contain the consumption, and downstream production was further depressed by rising zinc prices. In the spot market, the transport was still not very smooth despite lifted transportation control. And zinc prices are likely to hover at a high level in the near future.

Tin: Overnight, SHFE tin moved up after opening higher under the influence of bullish market sentiment. Capital poured into SHFE tin market. The domestic tin inventory under warrants continued to decrease, while the overseas inventory remained stable. Demand in the spot market was relatively weak. Spot tin prices will probably follow SHFE tin up today, but this may suppress downstream demand.

Nickel: The most active SHFE nickel contract opened with high fluctuations overnight and hit limit up again, up as much as 15.92%. Nickel prices moved in a strong momentum. The trading volume of SHFE nickel overnight was 64,000 lots, with open interest decreasing by 2,803 lots to 44,050 lots. When LME nickel opened on March 23, it rushed high and close to limit up, up as much as 13.67%, driving SHFE nickel up at night. LME nickel market was still strongly influenced by capitals and fluctuated largely, thus LME promptly announced that the second floor trading on March 23 was deemed to be disturbed and all trading during that period was invalidated. It is expected that the movement of SHFE nickel market will maintain fluctuations today, or may climb up slightly. In terms of fundamental, stainless steel plants had strong demand for nickel raw materials. Under the impact of the market reservoir, prices of ferronickel stood at 1,630 yuan/mtu (tax included, delivery to factory), with the follow-up prices in a upward trend. In terms of new energy, upstream and downstream took in caution with large difference in both intended prices. The mark traded flat before the nickel prices settled.