SMM Morning Comment For SHFE Base Metals (Feb 17)

SHANGHAI, Feb 17 (SMM) –

Copper

Overnight, LME copper opened at $9,614.5/mt, initially rose slightly to a high of $9,684.5/mt, then declined all the way to a low of $9,448.5/mt near the session's end, followed by range-bound trading, and finally closed at $9,465/mt, down 0.12%. Trading volume reached 36,000 lots, and open interest stood at 295,000 lots. Overnight, the most-traded SHFE copper 2503 contract opened at 78,440 yuan/mt, hit a high of 78,580 yuan/mt early in the session, then fluctuated downward to a low of 76,980 yuan/mt near the session's end, followed by range-bound trading, and finally closed at 77,120 yuan/mt, down 0.89%. Trading volume reached 54,000 lots, and open interest stood at 178,000 lots. Macro side, the US January retail sales month-on-month recorded -0.9%, marking the largest decline since January 2024. The worse-than-expected "scary data" heightened concerns over a sharp economic slowdown, weighing on both the US dollar index and copper prices. Fundamentally, unreported inventory at copper rod enterprises has slightly decreased, but copper price centers remain elevated. If copper prices do not show a significant decline in the short term, downstream stocking sentiment is expected to remain weak, focusing on low-priced sources. In summary, although domestic downstream purchasing sentiment remains weak, production is still recovering. With the upcoming Two Sessions in China, copper prices are expected to have bottom support.

Aluminum

Last Friday, the SHFE aluminum 2504 contract opened at 20,845 yuan/mt, reached a high of 20,880 yuan/mt, a low of 20,770 yuan/mt, and closed at 20,725 yuan/mt, up 70 yuan/mt or 0.34% from the previous day. LME aluminum opened at $2,606/mt, peaked at $2,649.5/mt, bottomed at $2,606/mt, and settled at $2,635/mt, up $31.5/mt or 1.21%.

Summary: Recently, macro factors have been mixed. Domestically, efforts to boost consumption continue, while overseas trade barriers are intensifying. However, domestic enterprises and market sentiment have shown limited response to these developments. In the short term, the global aluminum market may undergo structural adjustments influenced by policies. Continuous attention is needed on changes in European and American trade policies and demand in major consumer markets. Fundamentals side, the pressure of resumed production in the aluminum supply chain has re-emerged, with domestic operating capacity expected to rise slowly in February. Alumina average spot prices have continued to weaken, driving aluminum costs downward and further weakening cost-side support. Despite both supply and demand increasing, post-holiday demand recovery has exceeded expectations. Even with reduced cost support, aluminum futures and spot prices remain strong. Inventory-wise, the post-holiday inventory buildup continues, with inventories expected to increase rapidly this week. Demand side, the operating rate of leading domestic downstream aluminum processing enterprises significantly rebounded this week, up 5.7 percentage points WoW to 56.8%, mainly driven by post-Chinese New Year resumption of production, though recovery varied across sectors. In the future, with increasing PV demand and full resumption of end-user production, coupled with limited supply growth, aluminum prices are expected to fluctuate at highs in the short term.

Lead

Last Friday night, LME lead opened at $1,992.5/mt. During the Asian session, it traded sideways around the intraday moving average. Entering the European session, it fluctuated downward after peaking at $2,002.5/mt, hitting a low of $1,972/mt, and finally closed at $1,982/mt, down $9.5/mt or 0.48%. Last Friday night, the most-traded SHFE lead 2503 contract opened at 17,130 yuan/mt. After dipping to 17,070 yuan/mt at the beginning of the session, it rebounded and climbed to a high of 17,240 yuan/mt. Subsequently, it pulled back under pressure and traded sideways near the intraday moving average, eventually closing at 17,135 yuan/mt, down 30 yuan/mt or 0.17%.

Ahead of the delivery of the SHFE lead 2502 contract, spot premiums/discounts slightly declined, and suppliers increased warehouse transfers for delivery, leading to a temporary drag on lead prices due to the accumulation of visible lead ingot inventory. After the Lantern Festival, most downstream lead enterprises resumed production, and workers gradually returned to their posts. This week, downstream battery production is expected to see a marginal increase. However, it should be noted that this incremental consumption may not quickly offset the existing lead ingot inventory, and the risk of a temporary pullback in lead prices should still be monitored.

Zinc

Last Friday, LME zinc opened at $2,842/mt. In early trading, bulls increased positions, driving LME zinc upward above the daily moving average. During European trading hours, it peaked at $2,900/mt. Subsequently, with shorts entering and longs closing positions, LME zinc broke below the daily moving average support and continued to decline, hitting a low of $2,838/mt by the session's end. It ultimately closed higher at $2,838.5/mt, up by $1/mt or 0.04%. Trading volume increased to 11,111 lots, and open interest rose by 1,566 lots to 227,000 lots. Last Friday, LME zinc formed a long upper shadow candlestick, with resistance from the 20-day moving average above and support from the 10-day moving average below. On the same day, US January retail sales plunged by 0.9%, marking the largest drop in nearly two years, leading to a jump initially and then pullback in LME zinc.

Last Friday, the most-traded SHFE zinc 2503 contract opened at 24,075 yuan/mt. In early trading, with bulls exiting, SHFE zinc moved downward in a stepwise manner. By the session's end, its center was around 23,720 yuan/mt, with an intraday low of 23,685 yuan/mt. It ultimately closed lower at 23,710 yuan/mt, down by 210 yuan/mt or 0.88%. Trading volume decreased to 90,813 lots, and open interest fell by 2,000 lots to 81,893 lots. Last Friday, SHFE zinc formed a large bearish candlestick, with resistance from the 40-day moving average above and a narrowing KDJ indicator. The jump initially and then pullback in LME zinc weighed on SHFE zinc. Meanwhile, on the fundamentals side, TC continued to rise, and expectations of ample ore supply further strengthened, exerting pressure on zinc prices at high levels.

Tin

Last week, the SHFE tin futures market fluctuated upward. At the beginning of the week, news of supply disruptions in tin ore from the DRC heightened market concerns over supply, pushing up SHFE tin prices. At this time, expectations of tight supply became the main driver of price increases. The most-traded contract closed with a slight rise, reflecting the market's heightened vigilance regarding uncertainties in future tin ore supply. As the weekend approached, a weakening US dollar exchange rate, coupled with optimistic expectations for domestic Two Sessions policies, injected new momentum into the market, providing an opportunity for accelerated price increases in SHFE tin. However, compared to the heated futures market, this week's spot trades appeared relatively subdued. Overall, downstream enterprises showed weak purchase willingness, with most preferring to consume existing inventory rather than increase new purchases. Traders generally reported that the current high tin prices have significantly dampened downstream enterprises' willingness to inquire, leading to a strong wait-and-see sentiment in the market. Even though some enterprises opted for necessary restocking during price corrections, overall trading volume remained limited. Most traders preferred to adopt post-pricing settlement methods during transactions.

Nickel

Last week, nickel prices continued to decline, with spot prices fluctuating between 124,100-129,150 yuan/mt, while SHFE nickel futures prices ranged from 123,000 yuan/mt to 127,950 yuan/mt.

Market reports indicated that Indonesia has approved a 2025 nickel ore quota of 290 million mt, but officials from the Ministry of Energy and Mineral Resources expect actual production to reach only 220 million mt, falling short of market expectations. Officials mentioned controlling nickel ore production to raise prices and ensure profitability for the domestic nickel industry, providing some support for nickel prices. Additionally, the Philippines is attempting to emulate Indonesia's "ore export ban" policy. Although the short-term impact is limited, it has raised concerns about future supply, leading to a brief increase in nickel prices at the beginning of this week.

Fundamentally, on the supply side, most plants are operating at partial capacity after the holiday, and February refined nickel production is expected to decline slightly MoM, though overall supply remains ample. On the demand side, although downstream demand is gradually recovering, overall transactions remain sluggish, and market procurement enthusiasm is low.

As of February 14, the premium for Jinchuan brand nickel ranged from 2,000-2,100 yuan/mt, with an average of 2,050 yuan/mt. With the Two Sessions approaching, market sentiment is expected to dominate premium trends next week, potentially causing slight fluctuations.

In summary, while policy uncertainties in Indonesia and the Philippines provide some support for prices, weak demand limits the upward potential for nickel prices, and the supply-demand surplus persists. In the short term, nickel prices are expected to continue fluctuating at low levels. Investors should monitor the implementation of Indonesian policies and the actual recovery of downstream demand. Spot nickel prices are expected to fluctuate between 124,400-130,100 yuan/mt, and futures prices are expected to range from 124,500-128,000 yuan/mt.