SMM Morning Comments (Apr 8): Base Metals Closed Mostly Closed with Losses amid Constantly Rising US Dollar

SHANGHAI, Apr 8 (SMM) - Shanghai and LME base metals mostly closed with losses as the US dollar climbed to its highest level in the past two years on Thursday boosted by the hawkish voices of the US Fed officials, and the support brought by the fact that the number of first-time jobless claims in the US last week was lower than expected and the previous value.

LME copper shed 0.03%, aluminium fell 0.92%, lead slid 1.78%, and zinc lost 2.34%.

SHFE copper shed 0.39%, aluminium fell 1.58%, lead dropped 0.83%, zinc lost 1.34%.

Copper: LME copper opened at $10,290/mt yesterday, and reached $10,327.5/mt after falling to $10,238/mt. At last, the prices closed at $10,299.5/mt, down 0.03%. Trading volume was 11,000 lots, and open interest stood at 263,000 lots.

SHFE 2205 copper contract opened at 73,280 yuan/mt, and once rose to 73,460 yuan/mt. In the end, the prices returned to the daily moving average. At last, the prices closed at 73,270 yuan/mt, down 0.39%. Trading volume was 20,000 lots, and open interest stood at 154,000 lots.

On the macro level, boosted by the hawkish voices of the US Fed officials, and the support brought by the fact that the number of first-time jobless claims in the US last week was lower than expected and the previous value, on Thursday, the US dollar climbed to its highest level in the past two years, and copper prices dropped under pressure.

In the spot market, after Tomb-Sweeping Day, due to the closed-loop management in Shanghai, the trading in Shanghai dropped to a freezing point. The stock of raw materials in downstream processing enterprises in Jiangsu and Zhejiang decreased. To meet the needs of production, smelters were forced to turn to Jiangsu and Zhejiang to deliver a small number of related warehouses, which pushed up the spot premiums due to rising demand and logistics costs. Prices of some goods that arrive at the factory rose to about 500 yuan/mt, which was higher than the prices in Shanghai.

SHFE copper prices are expected to move between 73,000-73,600 yuan/mt today, and LME copper will trade between $10,250-10,350/mt; spot premiums are likely to fluctuate between 50-150 yuan/mt.

Aluminium: The most-traded SHFE 2205 aluminium contract opened at 21,450 yuan/mt overnight and rose to 21,850 yuan/mt before closing at 21,780 yuan/mt, down 350 yuan/mt or 1.58%.

LME aluminium opened at $3,436/mt on Thursday and closed at $3,400/mt, down $31.5/mt or 0.92%.

Since it is unlikely that the domestic pandemic will be completely wiped out in a short period of time, the pandemic-induced transportation problem will continue to disrupt the normal operations of the aluminium industry chain in the short term. Due to the regional mismatch between aluminium supply and demand, the domestic aluminium ingot social inventory may remain in a state of accumulation in the first 10 days of April. This, coupled with the accelerated resumption of production in Yunnan and other places, will make the domestic aluminium fundamentals even worse, and aluminium prices will remain under pressure. However, in the medium and long term, the market should not be overly pessimistic over aluminium prices. At present, downstream enterprises have a large backlog of orders. After the pandemic eases, downstream enterprises may step up production. The aluminium market will enter destocking cycle once the peak season of aluminium consumption, which has been postponed, arrives, thus offering support to aluminium prices.

Lead: On April 7, LME lead opened at $2,415.5/mt, moving rangebound around the daily average during the Asian session and stabilised within small fluctuations during the European session. The rising US dollar index dragged down LME non-ferrous metals before the late trading and the short funds of LME lead added positions again, pulling down the LME lead to $2,365/mt and dropped 1.78% to close at $2,371/mt.

The most-active SHFE 2205 lead contract opened at 15,570 yuan/mt last night, hitting the lowest point at 15,500 yuan/mt, and closed at 15,515 yuan/mt, down 0.83%, falling below the 5-day and 10-day moving averages.

Zinc: Three-month LME zinc lost $100/mt or 2.34% to close at $4,164.5/mt. The open interest fell 2,297 lots to 234,000 lots. Overnight LME zinc inventory lost another 2,750 mt to 127,675 mt yesterday. On the macro front, the hawkish Fed rhetoric and resurging pandemic in China dragged down zinc prices. LME zinc is expected to move between $4,140-4,190/mt.

The most traded SHFE 2205 zinc contract closed at 26,975 yuan/mt, down 365 yuan/mt or 1.34%. The open interest declined 2,442 lots to 109,243 lots. SHFE zinc is expected to move between 26,800-27,300 yuan/mt, and 0# Shuangyan zinc in discounts of 20-30 yuan/mt over SHFE 2205. On the consumption side, terminal orders were low amid high zinc prices. And domestic demand was further suppressed by restricted transportation and longer holidays taken by some die-casting zinc alloy companies.

Overnight, hawkish Fed official calls for rate hike to 3%-3.25% this year; EU agrees to ban Russian coal, but US-EU sanctions fail to cut Kremlin lifeline as Asian countries such as China and India buy Russian commodities; US House Speaker Pelosi tests positive for COVID and it is reported that his trip to Taiwan will be postponed as a result. Goldman Sachs expects pandemic and lockdown to hit China's March economic data hard; Beijing asks to do everything possible to stabilise and expand employment; China's central bank says it will strengthen payment business supervision of platform companies in accordance with the law.

Tin: Overnight, SHFE tin performed poorly and fell to below 340,000 yuan/mt with a small amount of capital flowing out of the market. The domestic tin inventory under warrants decreased slightly, while LME tin inventory continued to accumulate, contributed by European and US warehouses. The domestic spot market saw stable shipments, and the mainstream prices remained above 340,000 yuan/mt. There is no obvious contradiction between supply and demand at present. However, the market is severely affected by the pandemic-induced logistics issues. SHFE tin is expected to hover sideways at highs.

Nickel: On the supply side, the pandemic in Shanghai has not been alleviated, and the long-term import losses have aggravated the scarcity of supply. Recently, the pure nickel spot market in Shanghai maintained a weak supply and demand. In terms of NPI, the supply has been tight recently due to the pandemic, but the inventory of steel mills has reached a low level, and some manufacturers have started purchasing and restocking.

On the demand side, the prices of pure nickel and the prices of nickel sulphate were inverted, which reduced the purchasing of manufacturers in recent days. There were still differences in the acceptable prices of nickel sulphate upstream and downstream, thus the precursor factories reduced production. As for stainless steel, as the pandemic in Wuxi has eased, most of the stainless steel trading markets have been operating normally, but the risk of the pandemic in other areas is still high. To sum up, some downstream manufacturers have started to purchase in rigid demand due to low inventory. However, as nickel prices have not yet returned to the fundamentals, the actual supply and demand have not been improved.

[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.]