SMM Morning Comments (Feb 23): Base Metals Closed Mostly with Losses on Slow Rate Hikes Suggested in Fed's Meeting Minutes

SHANGHAI, Feb 23 (SMM) – LME and SHFE base metals closed mostly with losses overnight. On the macro front, the Federal Reserve released the minutes of the meeting, saying that the United States will raise interest rates in a slow and continuous manner to curb high inflation.

Copper: LME copper closed at $9,137/mt in overnight trading, a drop of 0.46%. Trading volume was 16,000 lots and open interest stood at 247,000 lots. The most active SHFE 2304 copper contract finished at 70,190 yuan/mt overnight, down 0.41%. Trading volume was 24,000 lots, and open interest stood at 162,000 lots. On the macro front, the Federal Reserve released the minutes of the meeting, saying that the United States will raise interest rates in a slow and continuous manner to curb high inflation.

In terms of fundamentals, the import loss has expanded to 1,000 yuan/mt, creating export opportunities for smelters, and some smelters have planned to export copper in March. In addition, the copper price has risen to above 70,000 yuan/mt in recent days, and smelters were reluctant to sell at large discounts. Traders and downstream buyers also lacked buying interest for high-priced copper. The advantage of the price spread prompted more downstream buyers to purchase copper scrap over copper cathode, muting trading of copper cathode market.

Due to the impact of macroeconomics, copper prices are expected to run at a high level.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,785 yuan/mt overnight and closed at 18,765 yuan/mt, a drop of 30 yuan/mt or 0.16%. LME aluminium opened at $2,458.5/mt last night and closed at $2,413/mt, down $46/mt or 1.87%.

On the supply side, the news of production cuts in Yunnan was gradually digested by the market. On the demand side, aluminium prices retreated slightly in recent two days, while the supply available in the spot market was sufficient, thus downstream buyers were not keen on picking up cargoes amid price decline. In general, there has been no signs of a peak reason according to current purchasing demand in the spot market and the aluminium inventory data. Therefore, aluminium prices are expected to remain rangebound before the consumption really picks up.

Lead: Overnight, LME lead opened at $2,147/mt and fell slowly during the Asian trading hours. During the European trading hours, LME lead rose slightly to $2,152.5/mt, but then fell to $2,090/mt as the US Federal Reserve released the minutes of the FOMC meeting and a few participants agreed to raise the interest rate by 50 basis points. LME lead prices finally closed at $2,091.5/mt, a decrease of 2.56%. Open interest increased 324 lots to 103,000 lots, and trading volume declined 890 lots to 4,229 lots.

The most-traded SHFE 2304 lead contract opened at 15,445 yuan/mt and closed at 15,440 yuan/mt, up 0.16%, after briefly hitting the highest point at 15,500 yuan/mt and the lowest point at 15,415 yuan/mt. Open interest increased 28,425 lots to 56,288 lots, and trading volume declined 24,462 lots to 20,587 lots.

Zinc: On the news front, the minutes of Fed’s interest rate meeting showed that the vast majority of Fed policymakers agreed to slow down the overnight interest rate hikes to 25 basis points at the policy meeting from January 31 to February 1, while it was also stressed that high inflation risk remained a "key factor" in monetary policy. US Treasury yields rose after the minutes were released, so did the US dollar index. During a meeting with Russian Foreign Minister Sergei Lavrov, Wang Yi, director of China's International Communication Office of the Central Committee, said that China was willing to maintain the sound development of the "new type of major-power relationship" with Russia regardless of the changing international situation.

Overnight, LME zinc opened at $3,113.5/mt and closed down $33.5/mt or 1.08% at $3,073/mt. The trading volume was 6,456 lots, and open interest added 1,429 lots to 198,000 lots. LME inventory declined by 425 mt to 31,025 mt. The expectations for supply increase brought by the production resumption of smelters overseas, together with the forecast for consumption downturn, were the culprit for the rapid decline in LME zinc prices.

The most-traded SHFE 2304 zinc contract opened at 23,560 yuan/mt overnight and was weighed down by falling LME zinc. It eventually settled at 23,460 yuan/mt, down 95 yuan/mt or 0.4%. The trading volume stood at 45,000 lots, and open interest gained 3,617 lots to 89,000 lots. 

Both LME zinc and SHFE zinc dropped overnight, but the decline of the latter was slower than the former, lifting the SHFE/LME zinc price ratio.

Although the growing galvanised zinc product consumption has driven the consumption of zinc ingots, the overall end consumption recovery still remains to be seen. Market players are warned against possible pullback of futures prices due to capital factors.

Tin: The SHFE 2303 tin contract fell last night and closed at 216,990 yuan/mt, down 1.58%. The open interest decreased 6,501 lots to 47,803 lots.

The domestic tin inventory under warrants increased slightly. The spot discounts decreased slightly while the imported goods were less cost-effective.

The SHFE 2303 tin contract rebounded after falling, and closed at 216,990 yuan/mt, down 1.58%. The open interest decreased 6,501 lots to 47,803 lots.

To sum up, the rebound in futures prices slowed down the increase in warrant inventory, reflecting that downstream enterprises were still sensitive about the prices amid the fragile demand support. The upstream smelters has fully recovered, and downstream enterprises restocked to a certain extent.

The overall demand in the spot market is still recovering, and it is still necessary to pay further attention to the recovery of the spot market.

Nickel: On the supply side, recently, the nickel futures prices have hovered around high levels, which seriously curbed the downstream demand. The upstream companies were more willing to ship, thus the spot premiums plunged into a free fall yesterday. Stainless steel market boosted the NPI prices. On the demand side, the transactions of #304 cold rolled coils were mostly concentrated in traders. Orders of the plate producers were good, but the processing plants still restocked cautiously to control their in-plant inventory. It is expected that in the short term, the spot prices of stainless steel may rise steadily and slightly following the futures prices. Alloy companies’ inquiries were less than expected since the high nickel prices suppressed downstream demand. In general, pure nickel demand grew slightly. SMM presumes that nickel prices will remain rangebound.

[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.]