SMM Morning Comments (Apr 22): Base Metals Closed Mostly with Gains on European Gas Prices that Rose Again

SHANGHAI, Apr 22 (SMM) - Shanghai and LME base metals closed mostly with gains Thursday after European natural gas prices rose more than 6% to hit the greatest three-week gain.

LME copper rose 0.52%, aluminium added 1.21%, lead lost 0.95%, zinc gained 0.36%.

SHFE copper jumped 0.75%, aluminium added 0.76%, lead rose 0.64%, zinc gained 0.97%, and nickel advanced 1.57%.

Copper: LME copper opened at $10,270/mt yesterday, and once hit the highest and lowest at $10,345/mt and $10,274/mt respectively. At last, the prices closed at $10,298/mt, up 0.52%. Trading volume was 12,000 lots, and open interest stood at 265,000 lots.

SHFE 2206 copper contract opened at 74,620 yuan/mt in overnight trading and hovered around the daily moving average. Within the range, the prices once hit the highest and lowest of 75,000 yuan/mt and 74,590 yuan/mt respectively. At last, the prices closed at 74,900 yuan/mt, up 0.75%. Trading volume was 20,000 lots, and open interest stood at 128,000 lots.

On the macro front, it is reported that the EU will announce a comprehensive embargo on Russian oil this weekend. In addition, the news that Libya's oil production has decreased and its exports have been blocked also supported the oil prices. On Thursday, the international crude oil futures rebounded, with Brent Crude and US oil both rising more than 2%.

On the fundamentals, the output of large copper ores such as Anglo-American Resources and Antofagasta PLC dropped sharply in the first quarter, and many protests in Peru forced Cuajone copper and Las Bambas copper to stop production and operation. All these disturbances on the supply side aroused a bullish outlook in the market, supporting the copper prices.

In the spot market, sources of copper cathode increased as the pandemic related transportation restriction in Shanghai was slightly eased. Premiums in Jiangsu dropped from 350 yuan/mt to 200-250 yuan/mt. The resumption of production in Shanghai and its surrounding areas will stimulate trading. Therefore, premiums of the copper cathode are likely to stop falling and stabilise.

LME copper will trade between $10,200-10,300/mt today; SHFE copper prices are expected to move between 74,600-75,200 yuan/mt. Spot premiums are likely to trade between 200-300 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 21,950 yuan/mt overnight and rose to 21,955 yuan/mt before closing at 21,940 yuan/mt, up 165 yuan/mt or 0.76%.

LME aluminium opened at $3,269/mt on Thursday and closed at $3,302.5/mt, an increase of $39.5/mt or 1.21%.

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 as the Labour Day holiday is drawing near. The social inventory of aluminium ingots in China’s eight major markets declined 42,000 mt from last Thursday to 1.02 million mt yesterday, 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 opened at $2,423/mt in the overnight trading with unchanged inventory and thin demand after Easter holidays. The contract was in a downward trend and moved between $2,420-2,435/mt during Asian session, while it hit a low of $2,393/mt during the European session and finally shed 0.95% to end at $2,393/mt.

The most-traded SHFE lead 2206 contract opened at 15,630 yuan/mt in the overnight trading. With tight supply of lead concentrate and the decrease of annual long-term TC of overseas mining enterprises, the longs added positions altogether, boosting the SHFE lead to 15,780 yuan/mt. But the supply of secondary lead has not recovered yet, SHFE lead fell after hitting high, and finally rose by 0.64% to close at 15,700 yuan/mt with open interest increasing by 7,428 lots to 55,622 lots from the previous trading day.

Zinc: LME zinc closed at $4,431.5/mt, up $16/mt or 0.36%. The open interest fell 1,714 lots to 224,000 lots. LME zinc is expected to move between $4,430-4,480/mt today. On the macro front, natural gas prices fluctuated on political risk factors, and risk exposure tightened. On the other hand, European inventory was still relatively low, and the premiums were also high, both of which will underpin zinc prices firmly.

The most traded SHFE 2205 zinc contract closed at 28,645 yuan/mt, up 275 yuan/mt or 0.97% overnight. The open interest dropped 3,133 lots to 71,794 lots. SHFE zinc is expected to move between 28,300-28,800 yuan/mt, and 0# domestic zinc up 20 yuan/mt. On the supply side, ore supply was still relatively tight. Zinc ore and concentrate imports in March dropped 29.25% YoY, which is unable to ease domestic supply tightness. On the consumption side, domestic demand was sluggish due to the pandemic. In the spot market, the downstream was unable to accept high zinc prices, hence the transactions were thin.

Overnight, Lagarde reiterated the rising risk of inflation in Europe, saying ECB policy is not monetary tightening, but normalisation; ECB senior officials voiced intensively that, the earliest possible rate hike will be in July; Powell unexpectedly put it hawkish that, they will discuss a 50 basis point rate hike at the May meeting, implying more than once in the year as the U.S. labor market is overheated, indicating that it will cool the job market; He also praised Volcker to beat inflation and strengthen the Fed's independence; Israel, for the first time, takes RMB as foreign exchange reserves; European natural gas prices rose more than 6% to hit the greatest three-week gain.

Tin: Overnight, SHFE tin traded rangebound after opening. Longs and shorts took a wait-and-see stance amid less volatility in SHFE tin prices. In terms of fundamentals, the domestic tin inventory under warrants fell further thanks to improved sales in the spot market, while LME tin inventory did not change much. The spot prices remained high at above 340,000 yuan/mt. SHFE tin will probably fluctuate sideways amid largely stable supply-demand dynamics.

Nickel: SHFE nickel opened at 235,930 yuan/mt in overnight trading and fluctuated upward. At last, the prices closed at 239,160 yuan/mt, an increase of 3,700 yuan/mt, or 1.57%, from the previous trading day. Trading volume was 24,400 lots, and open interest decreased by 4,382 lots to 42,500 lots.

The import window remained closed. However, the SHFE/LME price ratio narrowed again after SHFE nickel prices in Shanghai rose slightly yesterday. The supply is still tight in China, and the market should keep close attention to whether the price ratio can be improved later. On the demand side, raw materials of nickel salt rose along with the surging LME nickel prices, which led to serious losses of nickel salt plants and even reduction and shutdown of production regardless of the discounts offered by the upstream raw materials plants. Some nickel salt plants chose to sell their raw materials.  To sum up, the supply and demand of pure nickel are still weak, and the nickel prices are likely to rise when the inventory is not increased sharply.

[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.]