SMM Morning Comments (Mar 20): Base Metals Closed Mostly with Gains as Banking Crisis Stoked Concerns over Economic Recession

SHANGHAI, Mar 20 (SMM) – LME and SHFE base metals closed mostly with gains last Friday night. On the macro front, the stock prices of Credit Suisse in Europe and the First Republic Bank of the United States fell further. The market still has concerns about the banking crisis and is more worried about an economic recession caused by the tightening monetary policy.

Copper: LME copper prices closed at $8613/mt last Friday evening, up 0.93%. Trading volume was 16,000 lots and open interest stood at 246,000 lots. The most active SHFE 2305 copper contract finished at 66,910 yuan/mt last Friday evening, up 0.33%. Trading volume was 33,000 lots, and open stood at 146,000 lots.

On the macro front, the stock prices of Credit Suisse in Europe and the First Republic Bank of the United States fell further. The market still has concerns about the banking crisis and is more worried about an economic recession caused by the tightening monetary policy.

On the fundamentals, as of Friday March 17, SMM copper inventories in major Chinese markets decreased 36,200 mt from last Monday to 226,200 mt, down 44,900 mt from the two Fridays ago. This is up 29,600 mt from pre-CNY level. Specifically, compared with last Monday, inventories in most of the regions were destocked, mainly due to the sharp drop in copper prices last week, which significantly boosted the enthusiasm for downstream procurement. This resulted in an increase in outbound volumes. In addition, the import window opened last week, and it is expected that some goods will flow into the domestic market from the bonded area this week, which will grew spot cargoes market. In terms of prices, Europe and the United States are urgently combating the banking crisis, and market concerns eased. Copper prices have been restored due to the impact of macroeconomics. It is expected copper prices will move narrowly.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,200 yuan/mt at last Friday’s night session, with its high and low at 18,230 yuan/mt and 18,115 yuan/mt before closing at 18,125 yuan/mt, down 105 yuan/mt, or 0.58%. LME aluminium opened at $2,280.5/mt last Friday, with its high and low at $2,314/mt and $2,262/mt respectively before closing at $2,278/mt, a drop of $2/mt or 0.09%.

Macro factors dominated the movement of aluminium prices last week. Recent strong US economic data raised the risk of the Fed raising interest rates, but fears of US interest rate hike eased following the collapse of Silicon Valley Bank, sending the US dollar index lower. Downstream consumption improved, and social inventories of aluminium ingots fell sharply. As improving fundamentals counteracted the shock from macro headwinds, aluminium prices were somehow resilient to decline. Aluminium prices may go up this week, driven by falling inventories and improving spot transactions.

Lead: Last Friday, LME Lead opened at $2,066.5/mt and rose 1.11% to close at $2,089/mt after hitting the lowest point at $2,064/mt and the highest point at $2,099/mt. The open interest rose 1,739 lots to 105,000 lots, and trading volume increased 642 lots to 4,717 lots.

The most-traded SHFE 2304 lead contract opened at 15,405 yuan/mt and rose 0.39% to 15,305 yuan/m, after briefly hitting the highest point at 15,450 yuan/mt and the lowest point at 15,375 yuan/mt. Open interest fell 1,880 lots to 41,676 lots, and trading volume declined 42,153 lots to 23,377 lots.

Zinc: LME zinc opened at $2,864/mt last Friday night and closed up $70.5/mt or 2.46% at $2,933/mt. The trading volume was 8,016 lots, and open interest lost 573 lots to 184,000 lots. 上LME inventory declined by 50 mt to 37,725 mt. Despite the small decline, the LME zinc inventory generally showed an upward trend. Last week, the European Central Bank continued to raise interest rates by 50 basis points. Against the background of high interest rates, it is less likely that the overseas zinc demand will continue to strengthen, which suggests that the fundamental support for LME zinc will be limited.

The most-traded SHFE 2305 zinc contract opened at 22,400 yuan/mt last Friday night and rallied to close at 22,350 yuan/mt, up 150 yuan/mt or 0.68%. Trading volume stood at 35,000 lots, and open interest gained by 6,253 lots to 84,318 lots. At present, the domestic zinc smelters are runing at full capacity and plan to maintain so in the next two months. The potential of sufficient supply will provide limited support for zinc prices. On the consumer side, the downstream consumption of zinc has been mediocre in March with no sign of a significant increase. Therefore, the change will mainly occur on the supply side. In a word, the fundamental support for SHFE zinc prices will be constrained.

Tin: SHFE 2304 tin contract hovered sideways last Friday night and close at 183,320 yuan/mt, up 1.87%.

On the fundamentals, the warrants fell sharply and the spot market improved amid falling tin prices. In the spot market, the discounts of small brands maintained high. The supply of imported tin was scarce.

SHFE 2304 tin contract hovered sideways and close at 183,320 yuan/mt, up 1.87%.

To sum up, the current tin prices were still suppressed by the weak demand from downstream enterprises. Downstream processing companies cannot actually digest inventory by stocking up at low prices, and they still need to pay close attention to the progress of consumer confidence restoration.

Nickel: Last week, overseas banking crisis aroused panic in the market and sent nickel prices into a nosedive. In detail, the US Fed’s rate hikes resulted in liquidity risks in banks. On March 11, the Silicon Valley Bank collapsed suddenly. The US Treasury Department stated on the evening of March 13 that it would address the crisis. On March 15, Credit Suisse also crashed due to liquidity risks. The Swiss National Bank later claimed to provide liquidity support to Credit Suisse. The banking meltdown led to panic in the financial market, and risky assets such as stocks and futures were sold off. Meanwhile, prices of precious metals and other investment products with a value-preserving function rebounded. According to CME Fed Watch Tool, the probability that the US Fed will continue to raise interest rates at the March meeting is less than 50%, and the chance that interest rates will stay unchanged is 59.4%. The probability of a rate hike of 25 basis points is 40.6%, while that of a 50-basis point hike remains at 0%. On the supply side, SHFE nickel once reached a new low last week. The spot premiums bottomed out, while the quotes remained low. NPI quotations temporarily stabilised. Some traders held their prices firm. On the demand side, according to SMM research, the spot stainless steel was quoted at highs, which failed to boost market trading. The agents were less willing to pick up cargoes and mainly focused on shipping the high-priced goods that were stored previously. Alloy manufacturers with poor orders in their hands purchased pure nickel on rigid demand. To sum up, the pure nickel sector faced weak supply and demand, and the risky assets were sold off amid the banking crisis in Europe and the US, weighing on nickel prices. The market shall not be overly pessimistic about the nickel prices since the pure nickel stocks stand low and that the US Fed is less likely to raise the interest rates sharply at March meeting.

[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.]