SMM Morning Comments (Apr 7): Base Metals Closed Mostly Closed with Losses on Firm Hawkish Signals from US Federal Reserve

SHANGHAI, Apr 7 (SMM) - Shanghai and LME base metals mostly closed with losses as the Federal Reserve sent firm hawkish signals in terms of heavy reduction of balance sheet as well as more aggressive rate hike.

LME copper fell 1.24%, aluminium added 0.35%, lead rose 0.44%, and zinc lost 0.51%.

SHFE copper fell 0.22%, aluminium fell 1.55%, lead dropped 0.76%, zinc lost 0.26%.

Copper: LME copper opened at $10,391/mt yesterday, and once fell to the lowest price of $10,270/mt after rising to the highest price of $10,434/mt. At last, the prices closed at $10,302.5/mt, down 1.24%. Trading volume was 12,000 lots, and open interest stood at 260,000 lots.

SHFE 2205 copper contract opened at 73,720 yuan/mt in overnight trading and hovered around the daily moving average. The prices once hit the high and the low at 73,950 yuan/mt and 73,350 yuan/mt respectively. At last, the prices closed at 73,550 yuan/mt, down 0.22%. Trading volume was 25,000 lots, and open interest stood at 154,000 lots.

On the macro front, International Energy Agency (IEA) member countries will release 120 million barrels of oil, of which 60 million barrels will come from the US and the other half from other member countries. 60 million barrels are included in the 180 million barrels previously announced by the US, that is, the oil released by the US independently is 120 million barrels, by which time the total amount of oil released worldwide will reach 240 million barrels. Affected by this news, crude oil prices fell sharply, arousing a bearish outlook for copper prices. In addition, the minutes of the monetary policy meeting in March showed that the US Fed was considering a monthly shrinking of the balance sheet of up to $95 billion, and officials supported a rate hike of at least 50 basis points in the future.

In the spot market, on the first trading day after Tomb-Sweeping Day, Shanghai was still under pandemic control. Under the closed-loop management of the city, trading in Shanghai dropped to the freezing point. Only a small number of trades took the initiative to adjust prices for sale and cash. Due to the pandemic, the social inventory in Shanghai remains low. In the short term, if the pandemic is difficult to be quickly eased, the market will remain slack. SHFE copper prices are expected to move between 73,200-73,800 yuan/mt today, and LME copper will trade between $10,270-10,370/mt; spot premiums are likely to fluctuate between 150-280 yuan/mt.

Aluminium: The most-traded SHFE 2205 aluminium contract opened at 22,580 yuan/mt overnight and fell to 22,120 yuan/mt before closing at 22,190 yuan/mt, down 350 yuan/mt or 1.55%.

LME aluminium opened at $3,436/mt on Wednesday and closed at $3,443.5/mt, an increase of $12/mt or 0.35%.

The unresolved overseas energy crisis and the continuous destocking of LME inventories have given strong support to LME aluminium. It is expected that overseas aluminium prices will continue to fluctuate at highs. In China, the resumed aluminium capacity will be releasing output on a large scale in the second quarter. However, the domestic demand has declined due to the impact of the pandemic and high aluminium prices, and the overall consumption is weak. Weak consumption and high supply will continue to put pressure on domestic aluminium prices.

Lead: LME lead opened at $2,402/mt on April 6, slightly climbing up during Asian session. At European session, it advanced 0.44% to settle at $2,414/mt after hitting the highest point at $2,422/mt. The US dollar index stabilised at a high level after a streak of gains in anticipation of a Fed rate hike, putting pressure on the non-ferrous metals. LME lead fell into positive range with prices stabilising at $2,400/mt.

SHFE lead opened at 15,875 yuan/mt overnight, then fell sharply to a low of 15,605 yuan/mt, moving rangebound around the moving average after slight gains. SHFE lead shed 0.76% to close at 15,640 yuan/mt.

Zinc: Three-month LME zinc lost $22/mt or 0.51% to close at $4,264.5/mt. The open interest fell 753 lots to 236,000 lots. Overnight LME zinc inventory lost another 3,700 mt to 130,425 mt yesterday. On the macro front, US dollar strengthened as the market worries the accelerated US rate hike as well as contained economy development. LME zinc is expected to move between $4,250-4,300/mt.

The most traded SHFE 2205 zinc contract closed at 27,335 yuan/mt, down 70 yuan/mt or 0.26%. The open interest declined 423 lots to 112,226 lots. SHFE zinc is expected to move between 27,200-27,700 yuan/mt, and 0# Shuangyan zinc in discounts of 50 yuan/mt over SHFE 2205. On the fundamentals, some downstream enterprises were forced to be shut down due to lack of raw materials and high finished product inventory on the backdrop of restricted transportation amid spreading pandemic. In addition, the downstream purchased only on rigid demand in light of high zinc prices, and the social inventory rose again. Overseas energy crisis will still be the major concern that influences futures market transactions.

Overnight, the minutes show that the US Fed is considering tapering the balance sheet by up to $95 billion per month, officials support accelerating interest rate hikes if necessary; the U.S. will impose sanctions on Russia's largest banks and Putin's daughter, the possibility of default on Russian debt within the year is close to 100%; the China State Council requires the timely and flexible use of a variety of monetary policy tools to increase support for the real economy; China will set up a financial stability guarantee fund.

Tin: Overnight, SHFE tin fell again with a small amount of capital flowing out of the market. The most-traded SHFE tin contract has been hovering narrowly above 340,000 yuan/mt recently. Market wait-and-see sentiment was still strong. The domestic tin inventory under warrants increased slightly, while LME tin inventory in European warehouses accumulated significantly. Sales and prices in the domestic spot market were relatively stable. The current domestic market does not show a real supply and demand relationship due to logistics constraints, thus it is more likely that SHFE tin will still hover sideways at highs until the market returns to normal.

Nickel: On the supply side, due to the continuous impact of the pandemic, the production of refined nickel manufacturers decreased slightly in March. Besides, the import was at a loss. Thus the supply of pure nickel remained tight. The pandemic in China has not been eased, so the transportation problem still exists. The spot trade of pure nickel is mainly based on the consumption of warehouse inventory. In terms of NPI, the nickel prices are consolidating at a high level, and the mainstream prices of upstream and downstream need further discussion. On the demand side, the high prices of pure nickel and the scarcity of nickel briquette supported the prices of nickel sulphate. The acceptable prices between upstream and downstream are varied, and nickel sulphate manufacturers are reluctant to purchase raw materials. In terms of stainless steel, affected by the pandemic, the spot market in Wuxi is closed, and the logistics and delivery continue to be limited. On the whole, the supply and demand of the upstream and downstream of nickel are both weak.

[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.]