SMM Morning Comments (Apr 21): Base Metals Closed Mostly with Losses on Reinforced Expectations for US Economic Recession and Rate Hike Pause

SHANGHAI, Apr 21 (SMM) – LME and SHFE base metals closed mostly with losses overnight. On the macro front, the number of initial jobless claims in the US increased last week. The weak data strengthened market expectations for a US recession and further supported the view that the Federal Reserve may pause in June after raising interest rates again next month. The US index went lower.

Copper: LME copper prices closed at $8,884/mt overnight, a decline of 0.96%. Trading volume was 16,000 lots and open interest stood at 252,000 lots. The most active SHFE 2305 copper contract finished at 68,900 yuan/mt overnight, down 0.83%. Trading volume was 32,000 lots, and open interest stood at 134,000 lots.

In terms of fundamentals, spot quotes fell sharply yesterday, mainly due to aggressive shipments and weak consumption. The overall supply of cargoes in the market was relatively ample. The market expected that there would be warrants being offered for sale after the delivery of the April contract. This, coupled with the inflows of imported copper, weighed on spot quotes. In terms of consumption, downstream processing companies only restocked as required, and this situation is unlikely to change in the short term under the high copper prices. The Fed's interest rate hike path is expected to guide copper prices, and some policymakers' hawkish speeches put pressure on copper prices.

Aluminium: Overnight, the most-traded SHFE 2305 aluminium contract opened at 19,125 yuan/mt and closed at 18,905 yuan/mt, down 195 yuan/mt or 1.02%. LME aluminium opened at $2,445/mt on Thursday and closed at $2,422/mt, down $23/mt or 1.12%.

As the Fed’s interest rate hike seems to be coming to an end, but the persistent high inflation still entails rate hikes provisionally. China’s policy in favour of automobile consumption to boost domestic demand will give a boost to aluminium prices.

On the fundamentals, the aluminium ingot social inventories across China’s eight major markets totalled 906,000 mt as of April 20, down 60,000 mt from a week ago and standing at almost a five-year low. The low aluminium ingot inventory has something to do with the growing proportion of molten aluminium in smelters’ total output. The domestic aluminium billet social inventory stood at 152,600 mt as of April 20, down 7,000 mt from a week ago. The transportation disruptions in Xinjiang still linger, and the arrivals after the May Day holiday deserve close attention.

Lead: Overnight, the LME lead prices opened at $2,149/mt and closed at $2,155/mt after hitting the lowest point at $2,134/mt and the highest point at $2,167.5/mt, an increase of 0.42%. The open interest increased 967 lots to 102,000 lots compared to the previous trading day, and trading volume decreased 797 lots to 4,453 lots.

Overnight, the most-traded SHFE 2306 lead contract opened at 15,430 yuan/mt and closed at 15,370 yuan/mt after hitting the highest point at 15,450 yuan/mt and the lowest point at 15,350 yuan/mt, down 0.16%. The open interest increased 3,510 lots to 71,201 lots compared to the previous trading day, and trading volume decreased 23,531 lots to 30,844 lots.

Zinc: Overnight, LME zinc opened at $2,783.5/mt, hitting an annual low at $2,731/mt, and closed at $2,769.5/mt, down $22/mt or 0.79%. Trading volume stood at 9,949 lots, and open interest added 951 lots to 173,000 lots. The overseas market is still processing the weaker consumption, and the pessimism on the consumption has weak support for LME zinc prices.

The most-traded SHFE zinc 2306 contract opened at 21,980 yuan/mt and finally settled at 22,010 yuan/mt, down 260 yuan/mt or 1.17%. The trading volume was 97,000 lots, and open interest was rose by 8,727 lots to 81,000 lots.

The overall zinc ingot output at zinc smelters in China is normal, but the spot supply diverges in different regions, with a shortage in east China. In terms consumption, downstream enterprises are not in a rush to purchase zinc ingots, so the consumption shows a downward trend. In this case, the support for SHFE zinc prices from consumption will be limited.

Tin: Overnight, SHFE 2305 tin contract fell and hit the lowest point at 217,940 yuan/mt after fluctuating upwards and then rebounded and finally closed at 216,050 yuan/mt, down 1.12%.

In the spot market, the discounts of small brands expanded significantly to 800-500 yuan/mt against the SHFE 2305 tin contract. However, few enterprises still quoted high. But the transactions were still thin.

As of the close of yesterday’s night trading, the import profits of the SHFE 2305 tin contract expanded to 955.04 yuan/mt and that of the SHFE 2309 tin contract were about 4,243.28 yuan/mt.

Nickel：Spot nickel trading remained sluggish since NORNICKEL nickel supply was tight, and the prices were flat from those of Jinchuan nickel. The NPI supply was slightly tight. The market supply of stainless steel scrap stood low, and arrivals of Indonesia NPI in Chinese market decreased. The spot stainless steel trades were slack, and the quotes varied greatly. The prices of 200-series stainless steel grew somewhat as the inventory dropped to a relatively low level. Short-term stainless steel spot prices will be stable with occasional falls. The spot nickel supply has tightened recently, and the demand has also weakened. SMM believes that nickel prices are unlikely to see momentum.

[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.]