SMM Morning Comment For SHFE Base Metals On February 21

SHANGHAI, Feb 21 (SMM) –

Copper

LME copper prices opened at $8,462.5/mt on Tuesday, and hiked to a high of $8,540.5/mt towards the closing session after dropping to a low of $8,437.5/mt in early session, and finally closed up 1.23% at $8,531/mt. Trading volumes were 19,000 lots, and open interest was 290,000 lots. The most-traded SHFE 2403 copper contract opened at 68,460 yuan/mt, and kept creeping up to a high of 68,880 yuan/mt after hitting a low of 68,460 yuan/mt, and finally closed up 0.69% at 68,840 yuan/mt. Trading volume was 16,000 lots and open interest was 107,000 lots.

On the macro front, the PBC announced the latest loan market quotation rate (LPR), seeing stable 1-year LPR at 3.45% and a drop by 25 basis points to 3.95% in the 5-year and above LPR, the largest drop in a month, which shored up confidence in the domestic economy. In addition, the lower US dollar index also lifted copper prices. In terms of fundamentals, on the supply side, refineries’ overstocking during the holidays made sellers more willing to lower prices, while downstream sectors not fully resumed production yet. Transactions were minimal. In terms of demand, most processing companies resumed production, but demand will take time to pick up. There was only rigid demand from some small factories. In terms of copper price, it will still take time for domestic market to recover fundamentally. Optimistic macro sentiment boosted market confidence. And there was continued overseas inventory slip. In a word, copper prices may remain high.

Aluminium

Overnight, the most-traded SHFE 2404 aluminium contract opened at 18,675 yuan/mt, with high and low at 19,070 yuan/t and 18,655 yuan/mt before closing at 19,070 yuan/mt, up 1.95%. LME aluminium opened at $2,195.5/mt on Tuesday, with its low and high at $2,180/mt and $2,236/mt respectively before closing at $2,223.5/mt, up 1.21%.

Summary: During the CNY holiday, on the macro front, the US economic data in January exceeded expectations, and Fed's interest rate cut expectations were postponed again. Market sentiment has not yet been fully digested, but new domestic policies have been implemented one after another. LPR dropped significantly amid loose financial market. The implementation of real estate financing projects has accelerated, boosting market confidence. In terms of fundamentals, upstream aluminium smelters continued to produce, pushing up aluminium ingot inventory accumulation after CNY. However, the accumulation of aluminium ingots during CNY was less than expected, with a significant YoY decrease and a historical low in the past six years. With work and production continuing to resume after CNY holiday, the demand is expected to pick up, supporting the aluminium prices.

Lead

LME lead opened at $2,036/mt on Tuesday, and increased after hitting a low of $2,031/mt, but rebounded amid falling US dollar index and overseas inventory erosion, and finally closed up 0.96% at $2,055.5/mt.

Overnight, the most-traded SHFE 2403 lead contract opened up to 15,890 yuan/mt, but fell to 15,810 yuan/mt, hitting a low of 15,800 yuan/mt, and finally closed down 0.22% at 15,810 yuan/mt.

Zinc

Overnight, LME zinc opened at $2,401.5/mt on Tuesday, and closed down $24.5/mt or 1.02% at $2,382/mt after hitting a low of $2,360/mt. Trading volume decreased to 9,063 lots. Open interests dipped by 3,527 lots to 245,000 lots. LME zinc prices gained supports from the 5-day moving average. Overnight LME zinc stocks dropped by 650 mt to 269,400 mt. The main reason for LME zinc price softness was a renewed interest in possible the Fed’s interest rate hike.

The most-traded SHFE zinc contract opened at a low of 20,140 yuan/mt on Tuesday, and closed down 35 yuan/mt or 0.17% at 20,265 yuan/mt after briefly hitting a low of 20,450 yuan/mt. Trading volume decreased to 39,682 lots. Open interests hiked by 6,914 lots to 103,000 lots. Weak macro market, higher social stocks than previous years added bearishness into SHFE zinc prices. Snowfall weather causing certain obstacles to transportation and production also explained for the price drop.

Tin

SHFE 2403 tin contract continued to rise to 219,000 yuan/mt before closing at 217,930 yuan/mt overnight, up 0.29%.
Yesterday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 100-500 yuan/mt against SHFE 2403 tin contract, versus discounts of 200 yuan/mt to premiums of 500 yuan/mt for delivery brands, premiums of 500-800 yuan/mt for Yunxi brand, and discounts of 600-1,000 yuan/mt for imported brand tin ingots. Tin prices fell slightly yesterday, and some downstream enterprises purchased at low prices.

Nickel

SHFE nickel opened at 126850 yuan/mt overnight and closed at 126570 yuan/mt, down 670 yuan per mt. Trading volume rose 45503 lots and open interest fell 3811 lots.
Due to slower than expected drop in US core CPI, expectations for rate cuts cooled. Spot market activities were still limited as many enterprises have not yet fully resumed production. Nickel prices may swing on a soft note.