SMM Morning Comments (Apr 17): Base Metals Closed Mostly with Gains on Better-than-expected US Retail Sales Data

SHANGHAI, Apr 17 (SMM) – LME and SHFE base metals closed mostly with gains last Friday night. On the macro front, some US retail sales data released in March were not as weak as some economists had feared, and the US economy remained resilient. A Fed policymaker warned that the Fed needs to continue raising interest rates to reduce inflation, and the US dollar index rose, weighing on copper prices.

Copper: LME copper prices closed at $9,044/mt last Friday evening, a decline of 0.3%. Trading volume was 22,000 lots and open stood at 257,000 lots. SHFE 2305 copper contract prices finished at 69,850 yuan/mt last Friday evening, down 0.3%. Trading volume was 51,000 lots, and open interest stood at 183,000 lots.

On the fundamentals, as of April 14, SMM copper inventories in major Chinese markets decreased 4,600 mt from last Monday to 190,100 mt, down 12,200 mt from two Fridays ago. Due to the expansion of import losses, the inflows of imported copper decreased last week, helping digest warehouse inventories. Among major Chinese markets, only Shanghai saw increased inventories due to the nearing of the delivery of the SHFE front-month contract. Inventories in other regions fell or remained unchanged. In terms of consumption, sluggish end-user demand combined with higher SHFE copper prices will prevent consumption from improving significantly in the short term. A barrage of US economic data has a strong guidance on copper prices, and the renewed expectations of US interest rate hikes will put pressure on copper prices.

Aluminium: The most-traded SHFE 2305 aluminium contract opened at 18,765 yuan/mt at last Friday’s night session and climbed to 18,830 yuan/mt, but then fell back to 18,700 yuan, closing up 5 yuan/mt or 0.03%. LME aluminium opened at $2,362/mt last Friday and closed at $2,390/mt, up $28/mt or 1.14%.

On the macro level, market was betting that the US Fed would pause interest rate hike amid growing fears of US economic recession, boosting the aluminium market. On fundamentals, domestic aluminium supply is growing slowly, and power supply situation in Yunnan deserves close attention. Aluminium ingots maintained the destocking cycle. In view of mixed macro front and slowing demand growth, aluminium prices should move rangebound in the short term. 

Lead: Last Friday, LME lead prices opened at $2,114/mt and stabilised after touching a low of $2,134/mt and finally closed at $2,157.5/mt, an increase of 0.63%. The open interest decreased 1,297 lots to 101,000 lots compared with the previous trading day, and the trading volume increased 1,029 lotss to 6,667 lots.

Last Friday night, the most-traded SHFE 2305 lead contract opened at 15,345 yuan/mt and touched a low of 15,325 yuan/mt, then rebounded and closed at 15,405 yuan/mt amid the rising LME lead prices, an increase of 0.82%. The open interest increased 176 lots to 43,334 lots, and its trading volume decreased 5,320 lots to 34,133 lots.

Zinc: LME zinc opened at $2,858.5/mt at last Friday night’s session and closed at $2,846/mt, down $4.5/mt or 0.16%. Trading volume rose to 6,983 lots, and open interest lost 1,799 lots to 175,000 lots. LME inventory rose to 44200 mt as of last Friday. On the macro front, the demand in Europe and the US continued to weaken, causing a rapid fall in premiums in Europe. The market should be alert to concentrated delivery.

Last Friday night, the most-traded SHFE zinc 2305 opened at 22,410 yuan/mt and finally settled at 22,385 yuan/mt, up 45 yuan/mt or 0.2%. The trading volume was 3,090 lots, and open interest decreased 648 lots to 91,000 lots.

On the supply side, except for Inner Mongolia, most other regions saw a decline in TCs for zinc concentrates, which suggests that the zinc smelters gained fewer profits. In terms of consumption, the galvanising companies maintained normal operation on average orders placed by end users, and they focused on shipping the in-plant inventories of finished products. In addition, the slump in zinc prices last week promoted on-dip purchases among downstream enterprises, allowing domestic social inventory to trend lower.

Tin: Last Friday night, the SHFE 2305 tin contract opened high and fell after reaching around 201,380 yuan/mt, and then gradually fell, but then rebounded slowly and closed at 200,760 yuan/mt, up 2.81%.

On the fundamentals, some downstream enterprises purchased as needed amid low prices, and the social inventory of tin ingot fell 397 mt to 10,488 mt. As SHFE tin prices rose sharply last Friday, most traders reported a cold market. Last week, the operating rates of smelting enterprises in Yunnan and Jiangxi stabilised at 55.31% as most smelters produced stable. A smelter in Yunnan shut down for maintenance last week, and the time for resumption of production is to be determined

Nickel：The spread between the SHFE 2304 and 2305 nickel narrowed slightly last week. Most traders have included the spot NORNICKEL nickel in sources for warrant delivery, and no cleared spots flowed into China, resulting in the firm premiums of NORNICKEL nickel. As for the domestic pure nickel, according to SMM research, profit margins of electrowinning nickel companies that produced with nickel sulphate or MHP grew despite the increase in nickel prices, but these companies still did not change their original plan of delaying the production.

In early April, 300-series stainless steel profits have improved somewhat. Orders received by the state-owned stainless steel mills were acceptable. Some mills even ramped up the production. Therefore, the overall output of 300-series stainless steel in April will grow. In addition, alloy manufacturers will increase production amid the better consumption in April, which will drive up pure nickel demand. The supply tightness and the improvement in demand beefed up nickel prices to a certain extent. However, the rate hikes have led to a slight economic recession, and the electrowinning nickel output is expected to increase, which may weigh on nickel prices.

[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.]