SMM Morning Comments (Apr 3): Base Metals Closed Mostly with Losses amid Hopes for a Slowdown in Rate Hikes

SHANGHAI, Apr 3 (SMM) - LME and SHFE base metals closed mostly with losses last Friday night. On the macro front, the growth of U.S. consumer spending has slowed down, and inflation has shown signs of cooling, which has boosted market expectations for a slowdown in Fed rate hikes.

Copper: LME copper closed with a drop of 0.08% at $8,993.5/mt last Friday evening. Trading volume stood at 16,000 lots. Open interest stood at 254,000 lots. The most active SHFE 2305 copper contract finished at 69,520 yuan/mt overnight, up 0.12%. Trading volume was 171,000 lots and open interest stood at 30,000 lots.

On the fundamentals, as of Friday March 31, SMM copper inventories in major Chinese markets increased 9,600 mt from last Monday to 201,900 mt, up 1,900 mt from two Fridays ago. This is up 5,300 mt from pre-CNY level and snapped the previous inventory growth of four consecutive weeks. Cash crunch at the month-end combined with continuous rise of copper prices weakened downstream buying interest, driving up inventories. Some imported copper flowed into the Shanghai market last week, and it is expected that the customs clearance of imported copper will further increase this week. The current copper price has returned to fundamentals, and the traditional peak season of consumption will form a bottom support for copper prices.

Aluminium: At last Friday’s night session, the most-traded SHFE 2305 aluminium contract opened at 18,730 yuan/mt, with its lowest and highest at 18,645 yuan/mt and 18,800 yuan/mt before closing at 18,785 yuan/mt, up 50 yuan/mt or 0.27%. LME aluminium opened at $2,389/mt last Friday, with its high and low at $2,420/mt and $2,368.5/mt respectively before closing at $2,417/mt, an increase of $25/mt or 1.05%.

On the macro level, the domestic manufacturing PMI data continued to improve, which strengthened market confidence. On the supply side, aluminium smelters in Sichuan and Guizhou have resumed production, but the 780,000 mt of aluminium capacity in Yunnan that was previously curtailed has not yet resumed production. On the demand side, downstream operating rates improved. Social inventory of aluminium ingots continued to drop. With little disruption to supply and demand, overseas crude oil production cuts may provide upward momentum to aluminium prices some in the short term. Factors to watch: power supply situation in Yunnan; sustainability of downstream demand recovery.

Lead: Last Friday, LME lead opened at $2,135/mt and fluctuated at $2,130-3,140/mt, but LME lead plummeted to $2,102.5/mt and fell 1.45% to close at $2,106.5/mt as the US dollar index rebounded.

The most-traded SHFE 2305 lead contract opened at 15,265 yuan/mt. Even with the declining inventory, SHFE lead prices fell to 15,200 yuan/mt affected by the decline of LME lead, but then rebounded and closed at 15,235 yuan/mt, a decrease of 0.39%, as the long-short game intensified. The open interest reached 53,241 lots, a decrease of 323 lots from the previous trading day.

Zinc: Last Friday night, LME zinc opened at $2,932/mt and closed down $20/mt or 0.68% at $2,907/mt. Transaction volume stood at 9,622 lots, and open interest rose by 637 lots to 185,000 lots. LME zinc inventory added by 5,950 mt to 39,325 mt. Generally speaking, LME zinc reversed the upward course.

The most-traded SHFE 2305 zinc contract opened lower at 22,615 yuan/mt last Friday night and fluctuated upwards before closing at 22,675 yuan/mt, down 90 yuan/mt or 0.4%. Trading volume was down to 48,412 lots, and open interest fell 384 lots to 96,029 lots.

On the macro front, the market expected the Fed to pause rate hikes with the release of personal consumption expenditure (PCE) data and consumer expectations index. On the fundamentals, the operating rates of zinc ingot downstream sectors all dropped slightly, among which the average operating rate of zinc oxide enterprises fell 1.3 percentage points to 62.5% last week. The sluggish end-user consumption weakened its support for zinc prices, which trended lower and will remain rangebound.

Nickel：Nickel prices dropped on subsided bullish macro factors last week. LME nickel trading during Asian hours resumed on March 27, but the trading volume and open interest stood at lows, which showed that investors still lacked confidence in market stability. In order to improve market liquidity, on the evening of March 30, LME announced to provide a “fast-track” listing approach and fee reductions to new Class I nickel brands. In addition, LME considered coarse nickel powder as a deliverable Class I form and planned to launch Class II spot nickel products. On the whole, concerns about the shortage of forward deliverable products have eased, which has a direct negative effect on nickel prices.

On the fundamentals, SHFE nickel prices once fell after surging last Thursday. The spot prices hovered at lows, and the transactions were poor. In terms of NPI, stainless steel mills reduced production in March intensively, which was bearish for NPI prices, and they are less likely to ramp up production in April. The mills were less willing to restock amid the poor stainless steel consumption, and they lowered their purchase prices.

On the demand side, according to SMM research, there have been more inquiries and transactions for NPI recently, and the prices trended lower. Tsingshan Group disclosed the bid prices. The cost support also declined greatly. News said that a stainless steel mill in east China had partially resumed production, thus the futures prices hovered at lows. Alloy companies’ purchasing volume of pure nickel grew amid the falling nickel prices. To sum up, the recent macro situation remains stable, but the implementation of the new LME regulations may suppress the prices to a certain extent. SHFE nickel prices are expected to be 168,700-183,700 yuan/mt this week.

[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.]