SMM Morning Comments (Mar 16): SHFE Base Metals Closed Mixed Overnight under COVID-19 Impact

SHANGHAI, Mar 16 (SMM) – Shanghai base metals closed mixed in the overnight trading on Tuesday as the demand weakened amid spreading COVID-19 pandemic. Their counterparts on LME mostly fell on Tuesday.

LME copper rose 0.05%, aluminium fell 0.48%, lead lost 0.35%, and zinc dropped 0.38%.

SHFE copper inched up 0.03%, aluminium lost 0.12%, lead rose 0.27%, and zinc fell 1.01%.

Copper: LME copper opened at $9,854/mt yesterday, then fell to $9,820/mt. At last, the contract closed at $9,892/mt, up 0.05%. Trading volume was 15,000 lots, and open interest stood at 247,000 lots.

SHFE 2204 copper contract opened at 71,200 yuan/mt in overnight trading and then dropped to the intraday low of 71,150 yuan/mt before touching the high of 71,500 yuan/mt. At last, the contract closed at 71,460 yuan/mt, up 0.03%. Trading volume was 23,000 lots, and open interest stood at 109,000 lots.

On the macro front, supply concerns over crude eased amid subsiding geopolitical tensions and progress of US-Iraq negotiations. Meanwhile, resurging COVID pandemic across the globe heightened worries over the demand side, hence overnight WTI and Brent crude both dropped for the second consecutive day. The mitigating Russia-Ukraine conflict comforted the risk aversion sentiment toward US dollar, and US PPI inflation released yesterday showed weaker momentum than expected, redirecting the market attention to US Fed’s policy that is about to be released.

In the spot market, front-month and next-month spread fluctuated wildly, and the traders usually become more active when the spread is huge. However, spreading pandemic has suppressed market shipments, and the hindered logistics also affected downstream demand.

LME copper is expected to move between $9,840-9,940/mt today, SHFE copper between 71,200-71,800 yuan/mt, and spot premiums between 200-260 yuan/mt.

Aluminium: LME aluminium opened at $3,315/mt on Tuesday and closed at $3,299/mt, down $16/mt or 0.48%.

Overnight, the most-traded SHFE 2204 aluminium contract opened at 21,235 yuan/mt, with the highest and lowest prices at 21,710 yuan/mt and 21,235 yuan/mt before closing at 21,700 yuan/mt, down 25 yuan/mt or 0.12%.

Ukraine and Russia will continue negotiations on Wednesday. Ukraine said the negotiations will be difficult, but added that there is room for compromise. Putin accused Ukrainian leaders of not being serious about resolving the conflict. According to China’s National Bureau of Statistics, the added value of industrial enterprises above designated size increased by 7.5% year-on-year from January to February, and the growth rate was 3.2 percentage points higher than that in December 2021.

Lead: LME lead opened at $2,263/mt yesterday, hitting the highest point at $2,291/mt and the lowest point at $2,230.5/mt, before closing at $2,260/mt, down 0.35%.

The most traded SHFE 2204 lead contract opened at 14,975 yuan/mt last night, reaching the highest level at 15,225 yuan/mt, and closed at 15,060 yuan/mt, up 0.27%.

Zinc: Three-month LME zinc opened at $3,792/mt last night, hitting the highest and lowest points at $3,824/mt and $3,736/mt respectively, and closed at $3,794/mt, down $14.5/mt and 0.38%. The trading volume rose to 6,617 lots, and the open interest fell by 4,194 lots to 244,000 lots. The prices met resistance at the 5-day moving average and gained support at 20-day moving average. The LME zinc stocks increased by 3,900 mt or 2.78% to 144,425 mt. The downstream demand is weakening amid easing Russia-Ukraine tension and recurring COVID-19 pandemic. The LME zinc is expected to trade between $3,730-3,780/mt today.

The most traded SHFE 2205 zinc contract opened at 25,150 yuan/mt last night, hitting the lowest and highest points at 24,815 yuan/mt and 25,000 yuan/mt respectively. It closed at 24,965 yuan/mt, down 255 yuan/mt or 1.01%. The zinc concentrate supply remained tight, so the domestic TCs are likely to drop further. The recurring pandemic in China impeded the logistics and increased the costs of downstream enterprises. The zinc spot prices dropped, but the downstream enterprises were wait-and-see, and the transactions were modest. The investors are expected to reduce their positions in the near term, and the zinc prices will keep rangebound. SHFE zinc is expected to trade between 24,800-25,300 yuan/mt, and the discounts of domestic 0# Shuangyan zinc will stand at 0 yuan/mt over the SHFE 2204 zinc contract.

Nickel: On the supply side, sources of NORNICKEL nickel, nickel briquette and NIKKELVERK nickel were all scarce mainly due to the great SHFE-LME spread, according to SMM research. In terms of NPI, there have been expansion plans in light of better cost efficiency for the production of stainless steel and falling imports of Indonesia NPI. On the demand side, downstream participants including nickel sulphate plants curtailed their production due to operation losses amid high pure nickel prices. For stainless steel, some mills are considering expanding their capacities, creating more demand for nickel. Currently, SHFE nickel will move rangebound before LME nickel resumes market.

Tin: Overnight, SHFE tin rallied slightly, but still hovered below 330,000 yuan/mt. Capital flowed out of SHFE tin market. SHFE tin warrants dropped significantly, the supply of goods in the spot market was still tight. The operating rates of solder companies in March are expected to increase significantly from the previous month. Supply and demand will remain weak. The signs of demand turning better are not yet clear. There is a high probability that SHFE tin will hover at highs.