SMM Evening Comments (Apr 8): Shanghai Nonferrous Metals Mostly Closed with Losses on Supply and Demand Imbalance

SHANGHAI, Apr 8 (SMM) – Shanghai nonferrous metals mostly closed with losses as market supply and demand mismatched under deteriorating pandemic in some places in China.

Shanghai copper rose 0.27%, aluminium lost 1.38%, lead dropped 1.21%, zinc declined 0.69%, tin slid 0.14%, and nickel shed 0.14%.

Copper: The most-traded SHFE 2205 copper closed up 0.27% or 200 yuan/mt at 73,760 yuan/mt, with open interest up 4,193 lots to 158,724 lots.

SHFE copper prices were underpinned by low spot market inventory. In terms of overseas spots, LME copper was in premiums today. In China, in-plant inventory of downstream processing companies in Zhejiang and Jiangsu has been falling, and had to purchase from smelters in surrounding areas and delivery warehouses in order to maintain production. In addition, spot premiums surged amid rising demand and booming transport cost, and some was as high as 500 yuan/mt, a complete opposite to the freezing Shanghai market.

Looking forward, copper prices are supported by high overseas inflation and easing domestic policies. However, worsening domestic pandemic situation and hawkish US Fed stance may pressure copper prices.

Aluminium: The most-traded SHFE 2205 aluminium closed down 1.38% or 305 yuan/mt to 21,825 yuan/mt, with open interest down 8,151 lots to 186,416 lots.

The “zero-COVID” target is unlikely to be achieved in the short term, and difficulties in transportation also disturbed the normal production. Domestic aluminium was in mismatch between supply and demand. Social aluminium inventory may keep rising in early April, and aluminium prices are likely to fall coupled with accelerated production resumption in Yunnan.

Lead: The most-traded SHFE 2205 lead closed down 1.21% or 190 yuan/mt at 15,455 yuan/mt, with open interest down 988 lots to 47,843 lots.

Operating rates of primary lead stood high, and secondary lead production was affected by lead-acid battery scrap supply shortage. Secondary lead supply is likely to pick up after scrap supply improves. Seasonal low is coming for lead-acid battery sector. Oversupply could be expected in the mid-term.  

Zinc: The most-traded SHFE 2205 zinc closed down 0.69% or 190 yuan/mt at 27,150 yuan/mt, with open interest down 2,484 lots to 109,201 lots.

On the supply side, domestic refined zinc output totalled 501,300 mt in March, and is estimated at 503,600 mt in April due to maintenance of some smelters. The output in the first three months of 2022 fell 2.19% YoY. On the consumption side, zinc prices rebounded today, which suppressed downstream demand. The social inventory across seven markets in China stood at 278,000 mt, largely flat from Wednesday as some sources have been exported.

Tin: The most-traded SHFE 2205 tin closed down 0.14% or 480 yuan/mt at 340,770 yuan/mt, with open interest down 754 lots to 28,290 lots.

In the spot market, downstream demand was boosted by falling SHFE tin prices in morning trade, and spot transaction improved to some extent. SHFE warrants dropped 118 mt to 1,956 mt, and fell 74 mt in the past week. LME tin inventory rose 200 mt on April 7.

According to SMM research, the average operating rate in Yunnan and Jiangxi stood at 61.63%, down 1.16% from the previous week. Domestic refined tin output totalled 15,196 mt in March, up 24.92% MoM and 5.26% YoY.

Nickel: The most-traded SHFE 2205 nickel closed down 0.14% or 310 yuan/mt at 218,170 yuan/mt, with open interest down 6,327 lots to 49,409 lots.

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.]