SMM Morning Comment For SHFE Base Metals (Feb 21)

SHANGHAI, Feb 21 (SMM) –

Copper

Overnight, LME copper opened at $9,539/mt, fluctuated upward throughout the session, hitting a low of $9,510.5/mt during the fluctuations and a high of $9,575/mt near the close, finally settling at $9,558/mt, up 1.23%. Trading volume reached 18,000 lots, and open interest stood at 287,000 lots. Overnight, the most-traded SHFE copper 2504 contract opened higher at 77,940 yuan/mt, then shifted lower to a low of 77,560 yuan/mt, before fluctuating upward and closing at 77,670 yuan/mt, up 0.13%. Trading volume reached 20,000 lots, and open interest stood at 169,000 lots. Macro side, US initial jobless claims for the week ending February 15 slightly exceeded expectations, recording 219,000, higher than the expected 215,000. US Fed's Bostic stated that two interest rate cuts are still expected this year, but significant uncertainties remain. The US dollar index weakened noticeably. Meanwhile, the US announced on Wednesday that new tariffs would be introduced within the next month or sooner. Trump announced that lumber tariffs might be revealed on April 2. However, the US is currently negotiating a peace agreement with Russia, and the US has hinted that lifting sanctions could be part of the deal. Additionally, Trump stated that the likelihood of reaching a trade agreement with China is high, potentially easing trade dispute concerns in the short term. With the US dollar index weakening significantly, copper prices remained at relatively strong levels. Fundamentally, the contango structure widened, reducing suppliers' willingness to sell spot cargo. Meanwhile, as the export window opened, smelters began planning for exports, which is expected to support premiums in the future. As of Thursday, February 20, SMM data showed that copper inventories in major regions across China increased by 7,300 mt from Monday to 357,600 mt, up by 31,400 mt from last Thursday, and up by 191,800 mt compared to pre-Chinese New Year levels. The inventory buildup in the first two weeks after the holiday exceeded last year's levels by 54,400 mt, marking the highest inventory buildup in the past seven years. In summary, with the US dollar index weakening significantly, copper prices are expected to remain supported.

Aluminum

Yesterday, the SHFE aluminum 2504 contract opened at 20,865 yuan/mt, peaked at 20,895 yuan/mt, hit a low of 20,820 yuan/mt, and closed at 20,860 yuan/mt, up 70 yuan/mt or 0.34% from the previous day. LME aluminum opened at $2,687/mt, reached a high of $2,730/mt, a low of $2,686.5/mt, and closed at $2,730/mt, up $43/mt or 1.6%.

Summary: Recently, the aluminum market has been influenced by mixed bullish and bearish factors, presenting a "strong expectations, weak reality" pattern. On one hand, the current inventory buildup cycle has not ended, coupled with raw material price fluctuations weakening cost support, jointly limiting upward price space. On the other hand, macroeconomic easing expectations continue to ferment, combined with seasonal domestic consumption recovery expectations, gradually strengthening market bottom support. In the short term, aluminum prices may continue to fluctuate, but caution is needed against the spillover effects of global risk asset volatility triggered by unexpected shifts in US and European monetary policy. Fundamentals side, the pressure of resumed production in the aluminum supply side has re-emerged, with domestic aluminum operating capacity expected to rise slowly in February. Alumina average spot prices have continued to weaken, driving aluminum costs further downward, with cost-side support continuing to weaken. As both supply and demand show growth, and post-holiday demand recovery exceeds expectations, aluminum futures and spot prices remain strong despite the lack of cost support. Inventory-wise, current domestic aluminum ingot inventory buildup slightly exceeded expectations, with inventory likely to surpass last year's level by the end of February. Q1 inventory peak may be revised up to the 900,000-950,000 mt range, providing limited support for further short-term aluminum price increases. Demand side, last week, operating rates of leading domestic aluminum downstream processing enterprises continued to recover, up 4.1 percentage points WoW to 60.8%. This week, operating rates of leading domestic aluminum downstream processing enterprises continued to rise, but the growth rate slowed compared to the previous two weeks, up 0.8 percentage points WoW to 61.6%. Overall, downstream consumption remains in the recovery phase. In the short term, attention should be paid to the pace of peak season order fulfillment and the impact of aluminum prices on end-user purchase willingness. In the future, with increasing PV demand and full resumption of work and production by end-users, and limited supply-side increments, aluminum prices are expected to fluctuate at highs in the short term.

Lead

Overnight, LME lead opened at $1,993.5/mt, fluctuated upward during the Asian session, and continued to rise in the European session, reaching a high of $2,011/mt. It then pulled back under pressure to a low of $1,990/mt and finally closed at $2,004/mt, up $11.5/mt or 0.58%. Overnight, the most-traded SHFE lead 2503 contract opened at 17,120 yuan/mt, briefly touched a high of 17,230 yuan/mt during early trading, then fluctuated downward after a short consolidation, and finally closed at 17,135 yuan/mt, up 90 yuan/mt or 0.53%.

Macro side, the US dollar fell 0.78% overnight. Initial jobless claims in the US met expectations, while manufacturing output in the Mid-Atlantic region slowed in February. These reports had minimal impact on the forex market and did not alter expectations that the US Fed will keep interest rates unchanged in the coming months. The Communist Party Committee of the People's Bank of China conveyed the key points of President Xi Jinping's important speech at the symposium on private enterprises. The meeting emphasized the implementation of a moderately loose monetary policy and detailed the 25 measures to support private economic development. It also stressed the need to further streamline equity, debt, and loan financing channels, increase the allocation of various financial resources, and address the challenges of high financing costs and difficulties faced by private enterprises, providing robust financial support for the healthy development and growth of the private economy.

This week, upstream and downstream enterprises in the lead industry chain operated normally, with increased production particularly from secondary lead producers. In major lead-producing regions such as Henan and Anhui, supply remained stable to slightly rising. Additionally, new capacity in regions like Guizhou and Jiangxi has come online, leading to an overall increase in refined lead supply outpacing demand. The accumulation trend in lead ingot inventory remains unchanged. On the downstream side, due to the mediocre performance of end-use consumption in the lead-acid battery market, production and procurement enthusiasm remained low. After lead prices weakened, some enterprises became cautious about purchasing, fearing further price declines, leaving circulating refined lead cargoes largely unsold. As of February 20, the spread between futures and spot prices continued to widen, increasing suppliers' willingness to transfer to delivery warehouses. The movement of in-plant inventory to delivery warehouses by smelters has not ceased despite the conclusion of the previous delivery cycle. Social inventory of lead ingots is expected to continue rising in the short term.

Zinc

Overnight, LME zinc opened at $2,876/mt. At the beginning of the session, LME zinc briefly consolidated around the daily moving average before bulls increased positions, driving LME zinc upward. During European trading hours, the center shifted higher to fluctuate around $2,915/mt, reaching a high of $2,923/mt, and finally closed up at $2,923/mt, an increase of $48.5/mt or 1.69%. Trading volume decreased to 8,265 lots, while open interest increased by 3,560 lots to 227,000 lots. Overnight, LME zinc recorded a bullish candlestick, with support provided by the 40-day moving average. The US dollar index dropped significantly overnight, coupled with easing international disputes, leading to a broad rise in base metals, with LME zinc following the upward trend.

Overnight, the most-traded SHFE zinc 2504 contract opened at 24,170 yuan/mt. At the beginning of the session, bears increased positions, causing SHFE zinc to move downward below the upper edge of the daily moving average. The center shifted lower to 24,060 yuan/mt, hitting a low of 24,020 yuan/mt, and finally closed up at 24,075 yuan/mt, an increase of 100 yuan/mt or 0.42%. Trading volume decreased to 38,056 lots, while open interest increased by 1,886 lots to 74,466 lots. Overnight, SHFE zinc recorded a bearish candlestick, with support provided by the 5-day moving average. SMM social inventory increased to 137,100 mt, and rising TC may gradually transmit to the smelting end, strengthening expectations of increased supply, which is expected to limit its upward momentum.

Tin

US Fed's Mester on Thursday highlighted two major risks—rising inflation expectations and the challenge of addressing stagflation. These remarks underscored the potential tough choices facing the US Fed. Mester stated that while many of his colleagues believe inflation expectations are anchored, he is concerned that recent data suggests inflation expectations may be rising, which could force the Fed onto a more restrictive path. Mester did not provide his current view on this year's interest rate cut expectations in his speech. However, his warning indicates that the Fed's main narrative of declining inflation and eventual further interest rate cuts could become more complicated, even though this outlook remains the baseline forecast. Officials also acknowledged that new import tariffs and immigration rules under the Trump administration could impact prices. In the futures market, SHFE tin prices in yesterday's night session opened higher and slightly climbed before adjusting to around 264,800 yuan/mt before the close. Open interest in SHFE tin contracts increased overall. SHFE tin prices remained in a high-level consolidation, while the spot market was sluggish. A few downstream enterprises made purchases at later pricing points, but most downstream enterprises only maintained minimal just-in-time procurement or used inventory for production. Overall market transactions were weak, and if SHFE tin prices continue to hover around 265,000 yuan/mt, the spot market is likely to remain subdued.