SMM Morning Comments (Mar 29): Base Metals Closed Mostly with Gains on Falling US Dollar amid Fading Banking Sector Fears

SHANGHAI, Mar 29 (SMM) - LME and SHFE base metals closed mostly with gains last night. On the macro front, the US dollar fell for a second day against a basket of currencies on Tuesday, near a seven-week low, as fears of a banking crisis eased and markets resumed their acceptance of riskier assets.

Copper: LME copper closed with a drop of 0.36% at $8,957/mt overnight. Trading volume stood at 12,000 lots. Open interest stood at 249,000 lots. The most active SHFE 2305 copper contract finished at 69,530 yuan/mt last night, up 0.14%. Trading volume stood at 27,000 lots and open interest stood at 171,000 lots.

In terms of fundamentals, due to the appreciation of the yuan yesterday, the import loss expanded to around 500-600 yuan/mt. In addition, near the end of the month, more downstream companies rely on long-term contract supply of goods. Combined with yesterday's surge in copper prices, there were few traders under small orders. Spot market transactions were not active. It is expected that copper prices will fluctuate within a narrow range above the support level under slow consumption improvement.

Aluminium: The most active SHFE 2305 aluminium contract closed at 18,705 yuan/mt in overnight trading, up 15 yuan/mt or 0.08%. LME aluminium prices finished the day at $2,382.5/mt, a gain of $17.5/mt or 0.74%.

On the macro level, the pace of Fed rate hikes seems to be slowing down, raising market uncertainties. On the fundamentals, although the supply has slightly improved, the continuous recovery of the downstream consumption led to the rapid destocking of social inventories, giving support to aluminium prices. In the short term, aluminium prices may fluctuate strongly under the support of fundamentals, but we still need to be vigilant on the macro events.

Lead: LME three-month lead trended lower yesterday. It once climbed to $2,149.5/mt during the session, and then it fluctuated downward and closed down by 0.75% at $2,121/mt.

SHFE 2305 lead crashed to around 15,295 yuan/mt after opening. During the session, the decline slowed down, and the contract closed at 15,260 yuan/mt, down 1.04%.

Zinc: LME zinc inched lower after opening last night but eventually rallied and closed up $6/mt or 0.21% at $2,917/mt after touching a high of $2,945/mt. LME zinc inventory shed by 100 mt to 39,550 mt. SHFE zinc jumped after opening in overnight trading and finished at 22,750 yuan/mt, a rise of 175 yuan/mt or 0.78%.

So far, the macro front has been relatively stable, and a weaker US dollar has caused zinc prices to strengthen. From a fundamental point of view, the domestic average operating rate of downstream enterprises, albeit slipping slightly, still stood high last week, a sign of good demand for zinc ingots. Although the domestic production is affected by power rationing, smelters across the country still maintain relatively high operating rates in pursuit of high profits. SMM estimates that SHFE zinc prices will be rangebound.

Nickel: On the supply side, nickel prices rebounded from lows. The spot premiums fell at the end of the month. In terms of NPI, market news cast a certain impact on participants’ sentiments. Although the NPI stocks trended lower, there is still a certain amount of goods that have not been released. It is still necessary to pay attention to whether there will be traders selling goods at lows to withdraw funds, which will drive down the prices. On the demand side, according to SMM research, the cold-rolled coil transactions have improved to a certain extent recently. The inventory dropped quickly as the downstream companies were more willing to restock. In general, the pure nickel sector faces weak supply and demand. SMM presumes the 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.]