SMM Morning Comments (Apr 1): Base Metals Closed Mostly Closed with Gains on Energy Complexity

SHANGHAI, Apr 1 (SMM) - Shanghai and LME base metals closed mixed in light of mixed energy issues. Germany rejects Russian request to settle gas in rubles, and insists on continuing to pay under contract though Putin has signed a decree to urge so. In the US, Biden is considering release emergency oil reserves to relief oil shortage.

LME copper fell 0.04%, aluminium fell 2.21%, lead lost 1.54%, and zinc gained 0.04%.

SHFE copper rose 0.19%, aluminium fell 0.26%, lead lost 1.11%, zinc gained 0.73%, nickel declined 1.37%.

Copper: LME copper opened at $10,374/mt yesterday, and once hit the lowest and highest price of $10,340/mt and $10,425/mt respectively. At last, the prices closed at 10,367 yuan/mt, down 0.04%. Trading volume was 7,090 lots, and open interest stood at 256,000 lots.

SHFE 2205 copper contract opened at 73,540 yuan/mt in overnight trading, and once hit the highest price of 73,700 yuan/mt after falling to 73,350 yuan/mt. At last, the prices closed at 73,680 yuan/mt, up 0.19%. Trading volume was 22,000 lots, and open interest stood at 156,000 lots.

On the macro level, the lack of progress in peace talks between Russia and Ukraine boosted the risk aversion of the US dollars. At the same time, the US announced the release of the largest round of oil reserves in history, and the international crude oil futures fell overnight under the pressure of the US plan.

In the spot market, the pandemic continues to influence the efficiency and cost of logistics and transportation. In addition, in April and May, some Chinese smelters will begin the centralised maintenance, while the inverted overseas copper cathode prices do not decrease, so the supply gap of the copper cathode will unlikely to be filled. In terms of consumption, some enterprises were not willing to replenish their products because of the close holidays. Besides, with the rising transportation costs in some areas, enterprises were forced to cut production and stop production. The overall demand was still weak.

SHFE copper prices are expected to move between 73,300-73,900 yuan/mt today, and LME copper will trade between $10,300-10,400/mt; spot premiums are likely to fluctuate between 0-80 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 22,740 yuan/mt, with the highest and lowest prices at 22,820 yuan/mt and 22,650 yuan/mt before closing at 22,740 yuan/mt, down 60 yuan/mt or 0.26%.

LME aluminium opened at $3,540/mt on Thursday and closed at $3,468/mt, down $78.5/mt or 2.21%.

On the supply side, the resumption of domestic aluminium production has accelerated, but the output in Q1 may hardly reach the level of the same period last year. The pandemic has continued to affect the transportation efficiency of aluminium ingots in some areas. On the demand side, the COVID outbreaks in many places in China disrupted downstream production, thus aluminium destocking slowed down. In the short term, the domestic aluminium ingot inventory is likely to rise slightly. There are still a large number of aluminium ingots that are in transit. The decrease in logistics efficiency directly leads to falling inflows and outflows of aluminium ingot and aluminium billets. As the transportation problems are unlikely to ease any time soon, aluminium prices will face downward pressure. 

Lead: Overnight, LME lead opened at $2,404/mt. In Asian session, LME lead moved between $2,400-2,420/mt, then in European session, LME lead moved in a strong upward trend affecting by the tight supply of energy, up to $2,434/mt. But after all the bullish factors paid off, LME lead fell back from the high level, reversing most of the gains in the late trading, and finally closed at $2,392/mt, down 1.54%.

Overnight, The most-traded SHFE 2205 lead contract opened at 15,855 yuan/mt, the highest up to 15,875 yuan/mt in the early trading. But the supply was affected by the pandemic, leading to the end of bullishness, and the spread between futures and spot expanded. The longs turned to take short positions. SHFE lead fell straightly to as low as 15,605 yuan/mt, making up for the previous decline in the late trading, and finally closed at 15,630 yuan/mt, down 1.11%. The open interest stood at 52,092 lots, down 2,399 lots from the previous trading day.

Zinc: Three-month LME zinc gained $1.5/mt or 0.04% to close at $4,175/mt. The open interest was flat from a day ago. LME zinc inventory lost 175 mt to 141,925 mt yesterday. On the macro front, Putin has signed a decree to settle natural gas trade in rubles, making European long sentiment stronger and pushing up zinc prices. LME zinc is expected to move between $4,160-4,210/mt.

The most traded SHFE 2205 zinc contract closed at 26,980 yuan/mt, up 195 yuan/mt or 0.73%. The open interest added 3,108 lots to 114,000 lots. SHFE zinc is expected to move between 26,700-27,200 yuan/mt, and 0# Shuangyan zinc in discounts of 50 yuan/mt over SHFE 2205. On the fundamentals, transportation restrictions contained the output of some smelters, and the market began to worry about supplies.

Overnight, Putin signs decree on gas trading rules, warns he will suspend contract if natural gas were not settled in rubles; Germany rejects Russian request to settle gas in rubles, and insists on continuing to pay under contract; NATO says Russian troops are redeploying and regrouping in Ukraine, and the Ukraine side says Russian troops have completely withdrawn from the Chernobyl isolation zone; inflation accelerates again! US core PCE price index jumped 5.4% in February, continuing to hit a nearly 40-year high.

Tin: Overnight, SHFE tin still fluctuated rangebound, with a small amount of capital flowing out of the market.

The domestic tin inventory under warrants rebounded slightly, while the overseas inventory remained stable. The mainstream transaction prices in the spot market did not change much, and imported products still dominated the transaction due to lower prices. Some capital may flow out of the market today due to risk aversion before the upcoming Qingming Festival. SHFE tin is expected to hover at highs in the short term amid stable supply and demand.

Nickel: The most-traded SHFE 2205 nickel contract dropped along with the falling LME nickel. Nickel futures opened at 220,000 yuan/mt in overnight trading and then fluctuated weakly. At last, the prices closed at 218,950 yuan/mt, 3,050 yuan/mt lower than the previous trading day, down 1.37%. Open interest fell 8,043 lots to 50,700 lots, and trading volume was 73,500 lots.

Overall, nickel prices fluctuated within a narrow range this week. The price trend of nickel still follows that of LME nickel. At present, the spot market is still in short supply due to the large fluctuation of nickel futures and the huge import losses. On fundamentals, downstream demand for nickel sulphate became better regardless of the fluctuation of nickel prices. However, steel mills planned to cut production due to the pandemic and high raw material costs. On the whole, the demand for pure nickel has improved, but it is still weak. Under the weak supply and demand, SHFE nickel is strongly influenced by LME nickel and the capital game. It is expected that SHFE nickel will fluctuate during the day.

[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.]