SMM Morning Comments (Mar 27): Base Metals Closed Mixed on Tumbling European Banking Stocks

SHANGHAI, Mar 27 (SMM) - LME and SHFE base metals closed mixed last Friday night. On the macro front, the euro and pound fell sharply, as the market is still worried about the banking crisis. European banking stocks tumbled, with banking giants Deutsche Bank and UBS crashing as the US dollar index rose on concerns that the worst problems for the sector since the 2008 financial crisis have yet to be contained.

Copper: LME copper prices closed at $8,945/mt in overnight trading, a decline of 0.49%. Trading volume was 20,000 lots and open interest stood at 246,000 lots. The most active SHFE 2305 copper contract finished at 69,080 yuan/mt overnight, down 0.06%. Trading volume was 53,000 lots, and open at 169,000 lots.

On the macro front, the euro and pound fell sharply, as the market is still worried about the banking crisis. European banking stocks tumbled, with banking giants Deutsche Bank and UBS crashing as the US dollar index rose on concerns that the worst problems for the sector since the 2008 financial crisis have yet to be contained. On the fundamentals, as of Friday March 24, SMM copper inventories in major Chinese markets decreased 18,700 mt from last Monday to 200,000 mt, down 26,100 mt from two Fridays ago. This is up 3,400 mt from pre-CNY level. Downstream stockpiling volume was relatively limited, and the total inventories dropped due to the small arrival volume. It is expected that the enthusiasm for downstream procurement will be low at the month-end. Copper prices are currently rebounding to high levels. As demand is weak, it is expected that copper prices will have support and fluctuate within a narrow range.

Aluminium: The most-traded SHFE 2305 aluminium contract opened at 18,405 yuan/mt at last Friday’s night session, with its high and low at 18,485 yuan/mt and 18,405 yuan/mt before closing at 18,435 yuan/mt, down 35 yuan/mt, or 0.19%. LME aluminium opened at $2,329/mt last Friday, with its high and low at $2,364.5/mt and $2,312.5/mt respectively before closing at $2,344/mt, an increase of $17.5/mt or 0.75%.

On the macro level, the pace of the Fed's interest rate hike seems to be slowing down, adding to market uncertainty. On the fundamentals, the resumption of production by aluminium smelters in Sichuan, Guizhou and other places has led to a slight recovery on the supply side. Downstream consumption continued to pick up, driving domestic aluminium ingot social inventory to fall rapidly. The short-term aluminium prices may rally slightly, driven by improving fundamentals. However, macro uncertainty should be closely watched.

Lead: Last Friday, the LME cash to three month lead contract opened at $2,124.5/mt and closed at $2,120.5/mt, up 0.05%. The SHFE 2305 lead contract rose slightly after opening, then hovered sideways and finally closed at 15,405 yuan/mt, up 0.2%.

Zinc: Last Friday, LME zinc dropped. LME inventory declined by 50 mt overnight to 39,650 mt. On the macro front, the US government is said to be considering enhancing the support to help regional banks such as the First Republic Bank weathered the difficulties. The emergency lending tool the Bank Term Funding Program (BTFP), launched by the Federal Reserve after the collapse of Silicon Valley Bank, may be expanded. At present, the overall market risk is reduced, and both longs and shorts are relatively cautious.

Last Friday night, SHFE zinc opened lower and closed at 22,505 yuan/mt, down 175 yuan/mt or 0.77%. The operating rates of galvanising plants in north China slipped slightly due to cold weather and environmental protection-related production restriction, but still stood high. Since the consumption is still resilient, it is expected that SHFE zinc prices will keep moving sideways.

Nickel: Last week, the US Fed's rate hike did not have a bullish effect on nickel prices, but the prices still ballooned 4.82%. In the early morning of March 23, the US Fed raised the benchmark rate by 25 basis points to 4.75%-5% as scheduled, which did not cast a bullish effect on nickel prices. 

Last Friday, non-ferrous metals prices rose since the market believed that the Fed’s rate hike might end. On the supply side, pure nickel imports bore losses, further tightening the spot supply in China. The premiums were stable near the month-end. News of stainless steel mills’ production cuts and suspension were bearish on NPI prices. On the demand side, stainless steel prices fell following the futures prices. Transactions of 300-series stainless steel were relatively slack, and the prices continued to drop. Pure nickel demand did not improve last week, while the supply tightened on the falling prices, which offered firm support to nickel prices.

[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.]