SMM Morning Comments (Apr 21): Base Metals Closed Mixed on Hawkish Rhetoric on US Rate Hike

SHANGHAI, Apr 21 (SMM) - Shanghai and LME base metals closed mixed Wednesday. Federal Reserve officials expressed support for a swift rate hike and the market expects the next two meetings to be back-to-back 50 basis point rate hikes.

LME copper rose 0.11%, aluminium added 0.34%, lead lost 1.37%, zinc lost 0.24%.

SHFE copper fell 0.27%, aluminium was flat, lead rose 0.74%, zinc lost 0.38%, and nickel fell 1.89%.

Copper: Overnight LME copper opened at $10,258/mt, and then fell to a low of $10,177/mt before closing at $10,245mt, up 0.11%. The open interest stood at 132,000 lots.

SHFE 2205 copper contract opened at 74,140 yuan/mt in overnight trading and rose to 74,490 yuan/mt. At last, the contract closed at 74,310 yuan/mt, down 0.27%. Trading volume was 27,000 lots, and open interest stood at 142,000 lots.

On the macro front, international crude oil futures recovered from losses to close almost flat, buoyed by a pullback in high US dollar index and drop pf EIA crude oil stocks by 8.02 million barrels last week. Broader market concerns about stagnant economic growth and oil demand were broadly offset by the impact of tighter supply. In addition, Federal Reserve officials expressed support for a swift rate hike and the market expects the next two meetings to be back-to-back 50 basis point rate hikes.

In the spot market, the market transactions were still slack entering late April. And it will take time for the production to be fully resumed from the current wave of COVID in Shanghai. In addition, spot premiums dropped palpably for two straight days amid expectations of future imports. Nonetheless, spot supplies were still relatively tight. Spot premiums in Zhejiang and Shanghai stood between 250-400 yuan/mt, indicating rigid market demand.

LME copper will trade between $10,200-10,300/mt today; SHFE copper prices are expected to move between 74,100-74,700 yuan/mt. Spot premiums are likely to trade between 200-320 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 21,710 yuan/mt overnight and rose to 21,870 yuan/mt before closing at 21,800 yuan/mt, flat from the previous day.

LME aluminium opened at $3,263/mt on Wednesday and closed at $3,263/mt, an increase of $11/mt or 0.34%.

On the supply side, domestic aluminium output in April is expected to exceed the level of the same period last year, but the pandemic has continued to disrupt the shipments of aluminium smelters. On the demand side, the downstream producers’ willingness to stock up has picked up after the pandemic situation improved slightly, and inventory of aluminium ingots and aluminium billets continued to fall, giving certain support to aluminium prices. On the whole, SHFE aluminium is expected to show a volatile trend in the short term, and it is necessary to continue to pay attention to the recovery of consumption and changes in inventory under the impact of the pandemic.

Lead: LME lead shed 1.37% to end at $2,416/mt in overnight trading.

The most-traded SHFE 2206 lead contract rose 0.74% to close at 15,620 yuan/mt in the overnight trading with open interest increasing by 3,140 lots to 44,579 lots from the previous trading day.

Zinc: LME zinc closed at $4,405/mt, down $0.24/mt or 0.31%. The open interest was relatively stable at 226,000 lots. LME zinc is expected to move between $4,380-4,430/mt today. On the macro front, a short squeeze is still possible in Europe despite falling European natural gas and electricity prices, because the regional inventory has been low.

The most traded SHFE 2205 zinc contract closed at 28,540 yuan/mt, down 110 yuan/mt or 0.38% overnight. The open interest dropped 4,550 lots to 81,293 lots. SHFE zinc is expected to move between 28,200-28,700 yuan/mt, and 0# Shuangyan zinc has no quotations for now. On the fundamentals, domestic ore supply was relatively tight, and zinc ore and concentrate imports in March dropped 29.25% YoY. On the consumption side, domestic consumption was still relatively tight. Refined zinc imports dropped 53.63% YoY in March, while the exports stood at 13,766 mt, up 25.9% MoM. The spot market was quiet as the downstream turned away from high prices.

Overnight, China's April LPR quotes was released: that for 1-year and 5-year remains unchanged; a symposium aiming at raising financial support for the real economy was held to increase financial support for pandemic prevention and control as well as economic and social development; Ministry of Finance: first quarter national general public budget revenue up 8.6% year-on-year, with stamp duty up 20.6%.

Tin: Overnight, SHFE tin traded rangebound after rebounding slightly. Capital continued to flow out of the market. The domestic tin inventory under warrants fell further, while LME tin inventory was little changed. The spot prices remained high, and trades were thin. SHFE tin will probably fluctuate sideways amid largely stable supply-demand dynamics.

Nickel: Overnight SHFE nickel closed at 234,210 yuan/mt, down 4,520 yuan/mt or 1.89%. The open interest dropped 5,185 lots to 45,600 lots.

The import window remained closed, and domestic market was still troubled with supply tightness. LME nickel also dropped, and the market shall watch of the SHFE/LME price ratio could be repaired. On the fundamentals, the market purchased pure nickel on rigid demand amid high prices in light of tight supply, and the inventory kept falling. The prices of nickel sulphate also rose on rising nickel prices, however, the prices of finished products rose slowly on sluggish downstream demand. Some slat companies that suffered operation losses had to sell their raw material stocks to make up for the losses. For stainless steel, market demand was also muted. The market prices are unlikely to remain high supported by the fundamentals.

[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.]