SMM Morning Comments (Mar 23): Base Metals Closed Mostly with Gains as Fed's Rate Hike fit Market Expectations

SHANGHAI, Mar 23 (SMM) - LME and SHFE base metals closed mostly with gains last night. On the macro front, the Federal Reserve raised its key interest rate by 25 basis points as expected and hinted that there will be only one more interest rate hike later this year. The US dollar index fell overnight.

Copper: LME copper opened at $8,841.5/mt on Wednesday and dipped to $8,823/mt, but then jumped to $8,983/mt before closing up 1.56% at $8,928.5/mt. Trading volume was 17,000 lots and open interest stood at 269,000 lots.

SHFE 2305 copper contract opened at 68,530 yuan/mt overnight, with its session low and high at 68,250 yuan/mt and 68,750 yuan/mt before closing up 0.78% at 68,580 yuan/mt. Trading volume was 47,000 lots and open interest stood at 159,000 lots.

On the macro front, the Federal Reserve raised its key interest rate by 25 basis points as expected and hinted that there will be only one more interest rate hike later this year. The US dollar index fell overnight, which lifted copper prices. In terms of fundamentals, copper prices rebounded yesterday, and downstream companies mostly restocked as needed, while traders bought goods at lower prices for delivery of long-term orders. Goods under warrants have been continuously flowing into the market recently, which has had a certain impact on spot premiums. On the whole, the rebound in copper prices has reduced the purchasing desire of some enterprises. Following the US interest rate hike and with fading impact from the banking crisis, movement of copper prices will be dominated by fundamentals. And it is expected that copper prices will still have room to rise.

Aluminium: Overnight, the most-traded SHFE 2305 aluminium contract opened at 18,210 yuan/mt, with its lowest and highest at 18,170 yuan/mt and 18,280 yuan/mt before closing at 18,260 yuan/mt, up 110 yuan/mt or 0.61%.

LME aluminium opened at $2,275/mt on Wednesday, with its high and low at $2,285/mt and $2,261/mt respectively before closing at $2,285/mt, an increase of $15.5/mt or 0.68%.

On the macro level, the 25 basis point rate hike by the Federal Reserve was in line with market expectations, but there is no expectation for interest rate cut within the year, thus the macro boost was not strong. On the fundamentals, the domestic supply side has recovered slightly. The improvement in downstream consumption has driven the rapid destocking of aluminium ingot stocks. The fundamentals are well supported, and the short-term aluminium prices are likely to fluctuate rangebound.

Lead: LME lead opened at $2,109/mt last night and fell 0.38% to $2,107.5/mt, with the highest and lowest price at $2,134.5/mt and $2,076/mt respectively. The open interest rose 3 lots to 105,000 lots from the previous trading day, and the trading volume added 2,149 lots to 5,817 lots.

SHFE 2305 lead gained 0.29% to 15,385 yuan/mt. The open interest added 3,288 lots to 56,776 lots from the previous trading day, and the trading volume dipped 19,041 lots to 19,983 lots.

Zinc: Overnight, LME zinc opened at $2,864.5/mt and closed up $4/mt or 0.14% at $2,877/mt. The trading volume was 5,477 lots, and open interest gained by 24,045 lots to 208,000 lots.  LME zinc inventory shed by 100 mt to 39,750 mt, but the overall inventory still climbed steadily as increases generally outweighed declines. SHFE/LME zinc price ratio stabilised at above 7.7, and SHFE zinc still outperformed LME zinc. The tightening of capital liquidity resulted in bearish sentiment overseas.

The most-traded SHFE 2305 zinc contract opened at 22,350 yuan/mt and closed at 22,320 yuan/mt, up 50 yuan/mt or 0.22%. Trading volume stood at 42,000 lots, and open interest gained by 4,020 lots to 102,000 lots.  The environmental pollution in north China disrupted the operation of galvanising plants in Hebei and Tianjin, which will limit the consumption of zinc ingots in the near term. In the spot market, the mediocre downstream demand and poor transactions will weaken the support for zinc prices.

Tin: On the fundamentals, SHFE tin warrants dropped slightly. Spot trading became slack with the rise in tin prices. The premiums of deliverable spots maintained stable, while those of small brands shrank slightly. The supply of imported tin was high.

SHFE 2304 tin contract opened high and moved rangebound yesterday. The contract closed at 180,320 yuan/mt, up 1.37%. The open interest decreased by 7,695 lots to 45,187 lots.

The US Fed slowed down the rate hike last night as expected and raised the rates by 25 basis points. But the hawkish Fed stated that there is no plan to cut interest rates in 2023. The current tin prices were still restricted by poor demand. Downstream processing enterprises only purchased on dips. Therefore, eyes should be focused on following recovery of consumer confidence and the operating rates of terminal companies.

Nickel: On the supply side, spot imports of pure nickel suffered losses, tightening the pure nickel supply in the market. In terms of NPI, frequent news of production reduction and shutdown of stainless steel mills were bearish for NPI prices. On the demand side, according to SMM research, many 200-series mainstream stainless steel mills have jointly raised prices, but downstream enterprises were less willing to inquire. The SS contract crashed in the early trading. The #304 stainless steel spot prices fell slightly. Nickel prices can gain support from supply tightness despite the poor downstream demand.

[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.]