SMM Morning Comments (Apr 6): Base Metals Closed Mostly with Gains amid Economic Slowdown Worries Induced by Weak Economic Data

HANGHAI, Apr 6 (SMM) - LME and SHFE base metals closed mostly with gains last night. On the macro front, the US dollar rose yesterday, mainly as the market trimmed short positions ahead of Friday's important US non-farm payrolls report. In addition, recent US economic data has heightened concerns about an economic slowdown as well as expectations that the US Federal Reserve may slow down rate hikes.

Copper: LME copper closed at $8,779/mt in overnight trading, a gain of 0.26%. Trading volume was 14,000 lots and open interest stood at 254,000 lots. SHFE 2305 copper contract finished at 69,080 yuan/mt last evening, up 0.1%. Trading volume was 71,000 lots, and open interest stood at 173,000 lots.

In terms of fundamentals, due to the Qingming Festival on Tuesday, some sellers sold at low prices due to the need for cash, but the consumer demand was not strong, and the actual transaction was relatively light. At the beginning of the month, the spot quotes rebounded, and some sellers were still optimistic about the market outlook, raising prices. Downstream processing companies remained cautious in purchasing.

In addition, the recent increase in the inflow of imported copper has had a certain impact on the spot market, and the impact of imported copper is expected to be unsustainable. In terms of price, the market is worried about economic development at home and abroad, but low inventory will limit the downward movement of copper prices.

Aluminium: LME aluminium moved all the way down to a low of $2,325/mt after opening at $2,372/mt on Wednesday, and closed the day at $2,340.5/mt, a drop of $34.5/mt or 1.45%.

The market is now worried about overseas economic recession. The tug-of-war between longs and shorts will escalate amid inflation expectations and recession fears. If the US Fed continues to raise interest rates, this will pose threat to aluminium prices in the long run. However, if interest rate hike slows down, high inflation will persist, which will accelerate economic recession. In the short term, aluminium prices will come under downward pressure amid overwhelming bearish factors.

Lead: Overnight, LME lead opened at $2,110/mt, and hit the lowest point as the US dollar index strengthened, the SHFE lead prices fell. In the European trading hours, the US dollar index fell back, and thus LME lead prices rebounded and finally closed at $2,112.5/mt, an increase of 0.28%.

Overnight, the most-traded SHFE 2305 lead contract opened at 15,240 yuan/mt and the inventory of lead ingots continued to decline. SHFE lead prices fluctuated at 15,225 yuan/mt and finally closed at 15,220 yua/mt, an increase of 0.03% with open interest rising 75 lots to 54,100 lots.

Zinc: LME zinc opened at $2,840.5/mt overnight, touching a low of $2,775/mt, and closed down $37.5/mt or 1.32% at $2,807/mt. Transaction volume stood at 7,315 lots, and open interest rose by 1,627 lots to 181,000 lots. LME zinc inventory shed by 150 mt to 44,900 mt. LME zinc prices posted a 5-day losing streak.

Shanghai Futures Exchange was closed yesterday due to the Qingming Festival, so there is no price data on SHFE zinc prices.

The ADP data showed that private employment increased by 145,000 jobs in the United States in March, which was lower than expected. The ISM’s non-manufacturing PMI fell short of expectations at 51.2 in March. Therefore, it is expected that interest rate hikes may slow down, but the poor economic outlook still pressure LME zinc prices.

Fundamentally, the profits of European smelters are gradually recovered, and the overseas zinc prices are heading downward. Similarly, the domestic supply also face pressure, and SHFE zinc prices are vulnerable to fluctuations brought by macro front and supply pressures.

Nickel：With regard to supply, the spot premiums of pure nickel were flat on April 4 but narrowed against futures prices. Upstream players were still active in making shipment. Stainless steel mills have purchased NPI intensively recently, but there is still a mass of inventory in the warehouses. It thus remains 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 SS contract prices continued to decline. The spot transactions were slack, and the prices further dropped. It is expected that the spot prices of stainless steel will decline further in the short term amid the falling costs. To sum up, the supply and demand of pure nickel are both weak, and the prices are likely to 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.]