SMM Morning Comments (Apr 11): Base Metals Closed Mixed on Market Cautiousness and Still Severe Pandemic

SHANGHAI, Apr 11 (SMM) - Shanghai and LME base metals closed mixed last Friday in the face of hawkish signals from the US Fed that indicated both interest rate hike and balance sheet reduction in May, as well as lingering COVID pandemic in China that impacts multiple facets including transportation, demand and so on.

LME copper rose 0.43%, aluminium fell 0.82%, lead added 1.64%, and zinc rose 3.21%.

SHFE copper rose 0.16%, aluminium fell 0.3%, lead fell 0.32%, zinc rose 1.61%, and nickel dropped 1.08%.

Copper: LME copper opened at $10,371/mt yesterday, and once fell to the lowest price of $10,308/mt after rising to the highest price of $10,397.5/mt. At last, the prices closed at $10,344/mt, up 0.43%. Trading volume was 8,370 lots, and open interest stood at 265,000 lots.

SHFE 2205 copper contract opened at 73,690 yuan/mt, and it hit the lowest price of 73,520 yuan/mt. At last, the prices closed at 73,640 yuan/mt, up 0.16%. Trading volume was 15,000 lots, and open interest stood at 157,000 lots.

On the macro front, the minutes of the US Fed meeting last week showed that the raising of interest rate and the shrinking of the balance sheet may be carried out at the same time in May. Copper prices dropped in the cautious market.

In the spot market, last Friday, prices in Shanghai, Jiangsu and Zhejiang diverged. Quotes in Jiangsu and Zhejiang continued to rise, with the premiums climbing to over 400 yuan/mt, and the supply was tight. Accordingly, quotes in Shanghai were supported. Some traders lowered the prices to purchase, and their willingness to trade improved significantly. As is approaching the delivery of the 2204 contract, the spread between the front-month and next-month contracts expanded to more than 100 yuan/mt in a backwardation structure. Against the background of low inventory, the willingness to trade in the Shanghai market may continue to increase.

SHFE copper prices are expected to move between 73,300-73,900 yuan/mt today, and LME copper will trade between $10,270-10,360/mt; spot premiums are likely to fluctuate between 120-220 yuan/mt.

Aluminium: The most-traded SHFE 2205 aluminium contract opened at 21,810 yuan/mt during last Friday’s night session and rose to 21,855 yuan/mt before closing at 21,730 yuan/mt, down 65 yuan/mt or 0.3%.

LME aluminium opened at $3,392/mt last Friday and closed at $3,372/mt, down $28/mt or 0.82%.

Smelters in Yunnan, Guangxi and other regions have resumed production or put new capacity into operation. The operating aluminium capacity in China is expected to reach around 40.3 million mt by the end of April, and the output is expected to reach 3.32 million mt, a year-on-year increase of 1.9%. In the short term, the domestic pandemic will remain severe. Transportation restrictions have eased, but have not returned to normal. Downstream operating rates continued to decline. Overseas geopolitical conflicts still exist, but the impact on the Chinese market has weakened. The short-term aluminium prices will continue to fluctuate weakly.

Lead: On April 8, LME lead opened at $2,377/mt, falling after soaring high. It reached a low $2,377/mt during the Asian session and then moved above the daily moving average. LME lead rushed up to $2,425/mt during the European session and finally closed at $2,410/mt, up $39/mt or 1.64%.

The most-active SHFE 2205 lead contract dropped 50 yuan/mt or 0.32% to close at 15,450 yuan/mt in the overnight trading on April 8.

Zinc: Three-month LME zinc gained $133.5/mt or 3.21% to close at $4,298/mt last Friday. The open interest fell 2,739 lots to 231,000 lots. Overnight LME zinc inventory lost another 2,000 mt to 125,675 mt Friday, down 1.57. The greatly falling LME zinc gives strong support to the longs. LME zinc is expected to move between $4,250-4,300/mt.

The most traded SHFE 2205 zinc contract closed at 27,490 yuan/mt, up 435 yuan/mt or 1.61% last Friday. The open interest rose 6,918 lots to 116,119 lots. SHFE zinc is expected to move between 27,200-27,700 yuan/mt, and 0# Shuangyan zinc in discounts of 30-50 yuan/mt over SHFE 2205. On the fundamentals, the supply and demand were both weak. And the market shall watch the possibility of short squeeze amid steeply falling LME zinc inventory and high concentration of long positions.

Tin: The most-traded SHFE tin contract rallied after a sharp fall and then traded sideways during last Friday’s night session. The contract still hovered around 340,000 yuan/mt. More capital flowed out of the market amid intensified wait-and-see sentiment among longs and shorts. The domestic tin social inventory accumulated slightly, while LME tin inventory stabilised after a sharp increase. The domestic spot market performed relatively strongly, and the mainstream spot prices remained above 340,000 yuan/mt, while spot premiums rose sharply. SHFE tin is expected to hover at highs amid stable supply-demand relationship.

Nickel: Nickel futures opened at 217,700 yuan/mt in overnight trading and hovered around 215,000 yuan/mt after falling to the lowest price of 214,280 yuan/mt. At last, the prices closed at 215,810 yuan/mt, 2,360 yuan/mt lower than the previous trading day, down 1.08%. Trading volume was 45,000 lots, and open interest decreased by 1,055 lots to 48,354 lots.

High LME nickel prices supported the SHFE nickel, and the nickel prices have not returned to the fundamentals. Fundamentally, the supply of nickel sulphate was tight, so the output of high-grade nickel matte is of utmost concern, which will influence the supply of raw materials used in new energy and the shortage of nickel briquette, thus affecting nickel prices. The import window remained closed, and the nickel products priced according to LME were difficult to enter China, so the supply was tight. There was also a shortage of raw materials in stainless steel, and the price of NPI remained firm. Besides, smelting and transportation of raw materials and finished products were affected by the pandemic to varying degrees. In general, the fundamentals also supported nickel prices. SMM expects that nickel prices will hover at high levels in the short term.

[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.]