SMM Morning Comment For SHFE Base Metals On Mar 18

SHANGHAI, Mar 18(SMM) –

Copper

LME copper prices opened at $8992.5/mt last Friday before reaching a low of $8992.5/mt and a high of $9098/mt, and closed at $9074/mt, a gain of 1.82%. Trading volumes were 32,000 lots and open interest stood at 306,000 lots. The most active SHFE 2405 copper contract prices opened at 72930 yuan/mt and finished at 73290 yuan/mt overnight, up 1.23%, with the low-end of 72700 yuan/mt and the high-end of 73440 yuan/mt. Trading volume was 90,000 lots and open interest stood at 233,000 lots. On the macro front, Japanese media stated that the Bank of Japan is making final arrangements to end the negative interest rate policy at this week’s policy-making meeting, and attention needs to be paid to its actual interest rate decision. The Federal Reserve's interest rate decision and dot plot will be released this week, which will affect market expectations for when the United States will start to cut interest rates. Domestically, the balance of broad money (M2) was 299.56 trillion yuan, a year-on-year increase of 8.7%, which has a certain boost to market sentiment. In terms of fundamentals, domestic inventories are still showing a continuous backlog and domestic supply is still relatively ample. However, under the influence of rising copper prices, the recovery of terminal demand has been dragged down. The inventories of processing companies are relatively high. It is expected that the oversupply pattern will further deepen. In terms of price, market sentiment is still affected by the joint production cuts. Before the Federal Reserve releases the dot plot, copper prices are expected to remain high.

Aluminum

At last Friday’s night session, the most-traded SHFE 2404 aluminum contract opened at 19,280 yuan/mt, with its lowest and highest at 19,225 yuan/mt and 19,300 yuan/mt before closing at 19,285 yuan/mt, down 10 yuan/mt or 0.05%. LME aluminum opened at $2,245/mt last Friday, with its high and low at $2281.5/mt and $2245/mt respectively before closing at $2,277/mt, up $21/mt or 0.93%.

On the macro level, State Council released favourable policies to boost demand. Attitude towards cutting interest rates swung in Europe and the US, which coupled with the US presidential election, bringing uncertainty to aluminum prices. The arrivals of peak season boosted downstream demand. Aluminum ingot social inventory rose at a slower pace and is likely to peak, supporting aluminum prices. We need to pay close attention to recovery in consumption during the peak season and the fluctuation of expectations for overseas interest rate cuts.

Lead

Last Friday, LME lead prices opened at US$2,152/ton, and dropped to a low of US$2,111/ton. At last, the contract closed at $2131/mt, down 1.04%.

The most active SHFE 2405 lead contract prices opened at 16245 yuan/mt last Friday and finally closed at 16255 yuan/mt, down 0.21%. Open interest increased 378 lots to 45139 lots.

Zinc

LME zinc opened at $2550.5/mt last Friday, touching a high and a low of $2591/mt and $2536.5/mt respectively. LME zinc rallied and closed up $6.5/mt or 0.25% to $2566/mt. The trading volume fell to 8474 lots. Open interest decreased by 957 lots to 230,000 lots. LME zinc inventory decreased by 1900 mt to 264125 mt, a drop of 0.71%. Affected by the increase in output of overseas smelters last Friday, LME zinc fell back from highs. But overseas macro optimism remained.

During last Friday’s night session, the most-traded 2405 zinc contract fell to 21255 yuan/mt after opening at 21440 yuan/mt, but then rallied before closing at 21385 yuan/mt, down 30 yuan/mt or 0.14%. Trading volume was 60777 lots, and open interest increased by 1312 lots to 97487 lots. The recent weak supply and demand pattern of zinc fundamentals has not changed, and with the high zinc price, spot transactions are weak, and the upward trend of zinc prices is weak.

Tin

SHFE 2404 tin contract rose to 229,770 yuan/mt last Friday night and closed at 228,270 yuan/mt, up 1.76%.

Last Friday, 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 400-1,300 yuan/mt for SHFE 2404 tin contract, versus discounts of 600 yuan/mt to premiums of 300 yuan/mt for delivery brands, premiums of 200-700 yuan/mt for Yunxi brand, and discounts of 1,500 yuan/mt for imported brand tin ingots. Tin prices continued to rise last Friday, leaving downstream and terminal companies on the sidelines. Few deals were heard among traders.

Nickel

Nickel prices continued to rise due to increased costs. Strong performance from MHP and nickel sulphate boosted the external sourcing costs for nickel producers. Slower-than-expected Indonesia RKAB approval pushed nickel ore prices higher, sparking concerns of supply shortages once more. SMM estimates that it costs about 142,000 yuan/mt to produce refined nickel via buying nickel sulphate externally, while it cost nearly 146,000 yuan/mt via buying MHP and high-grade nickel matte. The nickel price increase is also driven by both overall market sentiment and fundamentals. Domestically, policies talked about in the Two Sessions, especially the news about the National Development and Reform Commission pushing for large-scale equipment upgrades, are directly benefiting the non-ferrous metal industry. Globally, the Fed officials hinted at possibly cutting rates three times this year, possibly starting in June. These cuts are good for commodities since they prompt investors to chase better returns in markets instead of leaving money in low-interest bank accounts. Fundamentally, the downstream pure nickel demand is weak. Traders and smelters are hesitant to buy at high nickel prices when raw material costs go up but demand stays low. Alloy plants are turning over their nickel inventory every two months. This means they might not use up their own stock until April because of the current prices. Considering all this, nickel prices are expected to stay high this week.