SMM Morning Comments (Mar 30): Base Metals Closed Mostly Closed with Losses on Subsiding Risk Aversion

SHANGHAI, Mar 30 (SMM) - Shanghai and LME base metals mostly closed with losses as risk aversion sentiment subsided with progressing Russia-Ukraine talks as Russia says it will significantly reduce military operations near Kiev and Chernihiv.

LME copper lost 0.09%, aluminium dropped 4.33%, lead added 0.87%, and zinc fell 1.02%.

SHFE copper lost 0.39%, aluminium dropped 1.52%, lead added 0.1%, zinc fell 0.81%, nickel declined 3.16%.

Copper: The most-traded SHFE 2205 copper contract fluctuated within a narrow range in overnight trading and born pressure around the daily moving average. At last, the prices closed at 73,250 yuan/mt, 290 yuan/mt lower than the previous trading day, down 0.39%. The open interest decreased by 4,164 lots to 155,710 lots, which was mainly contributed by the reduction of positions of longs.

LME copper hovered around the daily moving average and rose slightly to $10,340/mt in the late session. At last, the prices closed at $10,351/mt, down 0.09%.

On the macro front, the Russia-Ukraine talks failed to reach a ceasefire agreement, but both sides made concessions. Russia indicated that it would significantly reduce military operations near Kyiv and Chernigov. In addition, the president of the Federal Reserve Bank of Philadelphia was open-minded about raising interest rates faster by 50 basis points in May. The energy crisis caused by the war has weakened somewhat, the market risk sentiment has further decreased. What’s more, the market sentiment began to shift to the expectation of raising interest rates.

On fundamentals, due to the pandemic related prevention and control, the circulation of goods in warehouses across China declined. Because of the unimproved SHFE/LME price ratio, the customs clearance of imported copper was small. However, some smelters actively exported due to the export profits, and the low inventory and high premiums in China remained unchanged. The downstream demand was also hindered by the pandemic to a certain extent. But in the short term, the influence of COVID-19 on the supply side is still greater than that on the demand side.

SHFE copper prices are expected to move between 73,500-74,000 yuan/mt today, and LME copper will trade between $10,350-10,430/mt; spot premiums are likely to fluctuate between 300-400 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 22,410 yuan/mt, with the highest and lowest prices at 22,700 yuan/mt and 22,360 yuan/mt before closing at 22,610 yuan/mt, down 350 yuan/mt or 1.52%.

LME aluminium opened at $3,607/mt on Tuesday and closed at $3,449/mt, down $156/mt or 4.33%.

On the supply side, domestic aluminium capacity accelerated their resumption of production, but the combined output in Q1 is unlikely to outperform that in the same period last year, coupled with the restricted transport on aluminium ingot. On the demand side, the social inventory dropped more slowly, while LME inventory dropped 7,800 mt yesterday. To sum up, rising social inventory will be bearish of aluminium prices, and easing Russia-Ukraine situation will also offer less support to the contract.

Lead: Overnight, LME Lead opened at $2,358.5/mt. Dragged by geopolitical influences, energy issues remained unsolved. LME lead stepped up as its platform gradually moved up until it fell during the European session, but it did not change its upward trend, which was up to $2,390/mt, closing at $2,389.5/mt, up 0.87%.

Overnight, the most-traded SHFE 2205 lead opened at 15,575 yuan/mt. The destocking of domestic lead ingots expanded the hedge with spot discounts. The long and short continued the game. The beginning of the prices fell slightly to 15,550 yuan/mt, then moved around 15,600 yuan/mt and finally closed at 15,590 yuan/mt, up 0.1%. The open interest stood at 49,342 lots, down 263 lots from the previous trading day.

Zinc: Three-month LME zinc lost $42/mt or 1.02% to close at $4,056/mt. The open interest dropped 1,625 lots to 235,000 lots. LME zinc inventory lost 225 mt to 142,205 mt yesterday. On the macro front, the market was slightly boosted by the Russia-Ukraine talks. LME zinc is expected to move between $4,050-4,100/mt.

The most traded SHFE 2205 zinc contract closed at 26,365 yuan/mt, down 215 yuan/mt or 0.81%. The open interest lost 2,710 lots to 103,000 lots. SHFE zinc is expected to move between 26,200-26,700 yuan/mt, and 0# Shuangyan zinc flat over SHFE 2205. On the fundamentals, the adverse impact of the COVID on the consumption has materialized, and market transactions have been weak as a whole recently, keeping zinc prices rangebound.

Overnight, the National Energy Administration issued Guidance on Energy Work in 2022, saying that it will orderly promote the construction of major hydropower and nuclear power projects. Russian Deputy Defense Minister suggested to reduce military operations in Kiev and Chernigov several times. Russia-Ukraine negotiations today were quite constructive and Ukraine renounced joining any military alliance. Zelensky will continue negotiations with Russia and the sovereignty and territorial integrity of Ukraine must be guaranteed. Advisor to the Office of the President of Ukraine said that negotiations will continue and hope to reach an agreement within two weeks.

Tin: SHFE tin remained rangebound, with slight movements of capitals. In terms of the fundamentals, domestic inventories remained flat, while overseas inventories fell slightly. The fluctuations of spot prices were less than futures price movements, with mainstream transaction prices below 350,000 yuan/mt. In terms of futures movement, SHFE tin fell slightly last night after opening, which was affected by the overall declining movement in the market, but then rebounded and stayed congested. A small amount of capitals withdrew from the market, with little movement in total.

Nickel: The most-traded SHFE nickel 2204 contract continued to weaken and fluctuate in overnight trading, while LME nickel had been pulled back for three consecutive days. Nickel futures opened at 220,960 yuan/mt in overnight trading and then fluctuated weakly. At last, the prices closed at 216,420 yuan/mt, 7,060 yuan/mt lower than the previous trading day, down 3.16%. Open interest fell 5,816 lots to 10,700 lots, and trading volume was 17,000 lots.

Longs and shorts reduced their positions to different degrees, resulting in a lack of capital motivation. In the spot market, delivery was postponed because of the large fluctuations of nickel futures and the influence of the pandemic. On fundamentals, nickel sulphate is expected to reduce production due to high cost, and steel mills also plan to cut production due to pandemic and high raw material costs. On the whole, the demand for pure nickel may weaken, and the Indonesian nickel matte may have an incremental expectation. It is expected that the SHFE nickel will still run weakly.

[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.]