SMM Evening Comments (Apr 25): Shanghai Nonferrous Metals All Closed with Losses as the Market Weighs Hawkish Rhetoric of US Fed

SHANGHAI, Apr 25 (SMM) – Shanghai nonferrous metals all closed with losses as the market priced in the hawkish rhetoric of the US Fed, with a 50-basis point rate hike in May quite likely. And the COVID in China also dented the market confidence.

Shanghai copper lost 1.68%, aluminium fell 5.48%, lead dropped 0.45%, zinc shed 3.2%, tin slid 3.15%, and nickel declined 7.47%.

Copper: The most-traded SHFE 2205 copper closed down 1.68% or 1,260 yuan/mt at 73,660 yuan/mt, with open interest down 25,467 lots to 96,933 lots.

It is now widely expected that the Fed would raise interest rates by 50 basis points in May, and may raise rates in June and July consecutively. As a result, global stock markets generally closed with losses and crude oil futures were also dragged down, with Brent and WTI closing lower and copper futures falling sharply.

In the spot market, market transactions were active as the month-end is approaching, and spot premiums kept rising. The pandemic in Jiangsu and Zhejiang were still spreading, and the premiums rose as the pandemic prevention and control measures in major consuming areas like Yixing city were strict, which aroused market concerns for further transportation restrictions. The premiums are unlikely to fall recently as the long-term orders are about to end.

Aluminium: The most-traded SHFE 2206 aluminium closed down 5.48% or 1,200 yuan/mt to 20,700 yuan/mt, with open interest up 24,880 lots to 209,981 lots.

On the whole, the futures market dropped as a whole as the market was dented by US Fed’s signalled faster interest rate hike and still spreading COVID in China. But the bright side is that falling aluminium prices could encourage the downstream to restock ahead of the Labour Day holiday. The market shall watch if aluminium would fall below the strong support at 20,000 yuan/mt.

Lead: The most-traded SHFE 2206 lead closed down 0.45% or 70 yuan/mt at 15,650 yuan/mt, with open interest up 1,225 lots to 60,201 lots.

The futures market fell as a whole today. The cost of primary and secondary lead, however, offered some support to lead prices. The traders were also less confident about downstream consumption in sectors like automobile and electric vehicles. Hence the wait-and-see sentiment was high.

Zinc: The most-traded SHFE 2206 zinc closed down 3.2% or 915 yuan/mt at 27,650 yuan/mt, with open interest down 8,745 lots to 129,186 lots.

The Fed’s frequent hawkish signals were the major reason for the broad declines today. In addition, the capitals fled from the market for risk aversion demand in light of approaching Labour Day holiday. On the other hand, imported ore turned loss-making again amid falling zinc prices and RMB exchange rate, and the TCs of domestic zinc concentrate were also low. The exports, however, have been profitable, offering opportunities for future exports.

Tin: The most-traded SHFE 2205 tin closed down 3.15% or 10,620 yuan/mt at 326,330 yuan/mt, with open interest up 1,109 lots to 22,024 lots.

In the spot market, there were few quotations in the market in morning trade, and the transactions were stable as a whole. The market cooled down in the afternoon after futures prices dropped. SHFE warrants fell 665 mt to 1,680 mt, a drop of nearly 28%.

Nickel: The most-traded SHFE 2205 nickel closed down 7.47% or 17,850 yuan/mt at 221,030 yuan/mt, with open interest down 3,914 lots to 41,563 lots.

SHFE nickel lacked upside momentum on spreading COVID and rising nickel prices. However, pure nickel supply was still tight due to low operating rates of refined nickel manufacturers, lingering imports losses and absence of palpable growth in social inventory. As such, through SHFE nickel dropped significantly today along with the broad market, SHFE nickel was underpinned by the fundamentals.

[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.]