SMM Morning Comments (Mar 29): Base Metals Closed Mostly Closed with Gains as Market Watches Escalating Pandemic Control in China

SHANGHAI, Mar 29 (SMM) - Shanghai and LME base metals mostly closed with gains as market watches escalating pandemic control in China, and the repeating COVID globally may again aggravate energy crisis.  

LME copper rose 0.81%, aluminium dropped 0.55%, lead added 1.59%, and zinc jumped 0.31%.

SHFE copper rose 0.81%, aluminium dropped 0.13%, lead added 0.74%, zinc jumped 0.25%, nickel fell 6.51%.

Copper: LME copper opened at $10,221.5/mt yesterday and once reached the high level of $10,369/mt. At last, the prices closed at $10,360/mt, up 0.81%. Trading volume was 8,890 lots, and open interest stood at 255,000 lots.

SHFE 2205 copper contract opened at 73,250 yuan/mt in overnight trading and once hit the lowest level and the highest level of 73,100 yuan/mt and 73,680 yuan/mt respectively. At last, the contract closed at 73,630 yuan/mt, up 0. 81%. Trading volume was 31,000 lots, and open interest stood at 156,000 lots.

On the macro front, COVID-19 has raised concerns about the energy demand. Moreover, the hope of Russia-Ukraine peace talks and the news of Iran's support for the Yemen truce eased some tensions. On Monday, WTI and Brent oil futures closed down sharply. Last night, the released manufacturing activity index, output index and order index of the Federal Reserve Bank of Dallas in March declined, which restrained the US dollar from rising, and copper futures rebounded and closed up. In the spot market, the social inventory in China was still decreasing. Due to the COVID-19 outbreak in some areas of China, the warehouse stocks were reduced, and the market participants declined, resulting in the extremely sluggish spot market. In the short term, as long as the geopolitical influence has not been eliminated, the support for the copper prices will be stronger, and the copper prices will remain rangebound at high levels.

LME copper is expected to move between $10,300-10,400/mt today, SHFE copper between 73,300-73,900 yuan/mt, and spot premiums between 200-300 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 22,960 yuan/mt, with the highest and lowest prices at 23,095 yuan/mt and 22,940 yuan/mt before closing at 22,980 yuan/mt, down 30 yuan/mt or 0.13%.

LME aluminium opened at $3,616.5/mt on Monday and closed at $3,605/mt, down $20/mt or 0.55%.

Factors such as energy and geopolitics have sustained expectations for overseas aluminium production reduction. The domestic aluminium production resumption has accelerated, but the output is still lower than a year ago. The sudden outbreak of the pandemic in many places in China disrupted the downstream construction, and some downstream companies delayed the delivery time. Shipments of aluminium ingots and aluminium billets were significantly delayed. In the short term, the small accumulation of domestic aluminium social inventories and the pandemic are bearish factors for aluminium prices. However, as the global supply gap is expected to still exist, aluminium prices will fluctuate widely in the future.

Lead: LME lead opened at $2,344/mt overnight. The contract moved around $2,335/mt during the Asian session, while in the European session, the long added positions and LME Lead surged twice in an attempt to break through the upper edge, up to $2,371.5/mt and finally closed at $2,369/mt, up 1.59%.

Overnight, the domestic lead ingot inventory continued to destock. The most-traded SHFE 2205 lead contract opened at 15,515 yuan/mt then increased, up to 15,600 yuan/mt, and moved above all the averages, ending with profit taking of some longs in the late trading. SHFE lead reversed some of the gains and fell back around 15,550 yuan/mt, and finally closed at 15,565 yuan/mt, up 0.74%. The open interest stood at 51,307 lots, down 747 lots from the previous trading day.

Zinc: Three-month LME zinc opened at $4,040/mt Monday, and gained $12.5/mt or 0.31% to close at $4,092.5/mt. The open interest dropped 1,652 lots to 237,000 lots. LME zinc inventory lost 150 mt to 142,475 mt yesterday. On the macro front, the energy issue has not fully ebbed, and rebound energy prices boosted the confidence of longs. LME zinc is expected to move between $4,050-4,100/mt.

The most traded SHFE 2205 zinc contract closed at 26,445 yuan/mt, up 65 yuan/mt or 0.25%. The open interest added 3,499 lots to 105,000 lots. SHFE zinc is expected to move between 26,100-26,600 yuan/mt, and 0# Shuangyan zinc in premiums of 30 yuan/mt over SHFE 2205. On the fundamentals, the pandemic prevention and control policy in China kept impacting the market, including both logistics and consumption.

Overnight, a new round of Russia-Ukraine face-to-face talks will be held in Turkey on Tuesday, and US foreign minister says the biggest goal of new talks is to reach a ceasefire. G7 refuses to buy Russian gas in rubles, and Russian lawmakers warn gas supply disruption. Russian foreign minister visits India this week to discuss trade and payment methods. As Russia-Ukraine talks imminent, US stocks turn alarmingly higher. Tesla, which plans to split its shares, went up 8%, China outperformed the broader market, European gas jumped over 10%, and crude oil fell 8% in a single day. Biden unveiled $5.8 trillion annual budget with 20% minimum income tax on the mega-rich, with tax hikes on corporations and $31 billion in new defense spending.

Tin: Overnight, SHFE tin traded rangebound after rebounding slightly. Domestic and overseas tin inventories were little changed. The import profit window remained open, resulting in continuous quotations of imported products in the market, and the transaction in the spot market was stable. SHFE tin is expected to continue to hover sideways at highs amid stable fundamentals.

Nickel: The most-traded SHFE 2204 nickel contact opened at a low price but rebounded again with the range exceeding 10%. Nickel futures opened at 226,000 yuan/mt in overnight trading and then fluctuated slightly. At last, the prices closed at 221,870 yuan/mt, down 15,450 yuan/mt from the previous trading day, down 6.51%. The open interest decreased by 9,388 lots to 19,800 lots, trading volume stood at 35,400 lots. LME nickel was pulled back sharply. In the spot market, due to the large fluctuation of nickel futures and the high transaction risks, the trading was slack, with both upstream and downstream taking a wait-and-see attitude, thus SHFE nickel prices were running weakly. It is expected that the SHFE nickel will remain rangebound during the day. On the fundamentals, the spot prices of stainless steel continued to weaken, and the trading was slack. Due to the high prices of nickel sulphate, there was still no trading in upstream and downstream, and the procurement was delayed, which may affect the delivery. At present, the nickel prices are gradually returning to the fundamentals, and it is expected that the prices will remain weak in the following days.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]