SMM Morning Comments (Apr 24): Base Metals Closed with Losses on Widely-expected Interest Rate Hike in May

SHANGHAI, Apr 24 (SMM) – LME and SHFE base metals closed with losses last Friday night. On the macro front, data showed that US business activities are still resilient, enhancing expectations that the Federal Reserve will raise interest rates by another 25 basis points at its policy meeting next month. The US index fell after surging.

Copper: LME copper closed at $8,781/mt overnight, down 1.16%. Trading volume was 21,000 lots and open interest stood at 250,000 lots. The most active SHFE 2306 copper contract finished at 69,810 yuan/mt overnight, down 0.78%. Trading volume was 37,000 lots and open interest stood at 156,000 lots.

SMM data shows that as of April 21, SMM copper inventory across major Chinese markets stood at 183,500 mt, down 8,100 mt from April 17 and down 6,600 mt from a week earlier. Shanghai accounted for most of the inventory declines. Smelters' shipments to warehouses decreased after the delivery of the April contract was completed. Due to the decline in copper prices, the enthusiasm for downstream replenishment has increased.

In terms of consumption, the drop in copper prices may increase the enthusiasm for downstream stockpiling, but the increase is expected to be limited. The market has strong expectations for the Fed to raise interest rates, and the domestic economic growth momentum is relatively limited. In this scenario, there is still a lot of pressure on copper prices.

Aluminium: The most-traded SHFE 2306 aluminium contract opened at 18,960 yuan/mt at last Friday’s night session, with its low at 18,875 yuan/mt before closing at 18,955 yuan/mt, down 55 yuan/mt or 0.29%. LME aluminium opened at $2,422/mt last Friday and closed at $2,402/mt, a drop of 0.85%.

On the macro level, the recovery of the Chinese economy is in stark contrast to stubbornly high inflation in the US. There are growing supply concerns. Aluminium ingot social inventory remains in a state of destocking, with downstream consumption in the peak season. However, the decline in social inventory may slow down as downstream purchases may weaken after aluminium prices have climbed above 19,000 yuan/mt. Capital may flow out of the market due to risk aversion before the upcoming Labour Day holiday. Aluminium prices are expected to lose upward momentum. 

Lead: Last Friday, LME lead prices opened at $2,153.5/mt and closed at $2,151/mt after hitting the highest point at $2,171.5/mt, a decrease of 0.19%.

The most-traded SHFE 2306 lead contract opened at 15,325 yuan/mt and hovered sideways at 15,300 yuan/mt under the falling lead ingot stocks and expectations of secondary lead supply increase, and finally closed at 15,315 yuan/mt, a decrease of 0.2%. The open interest reached 66,836 lots, an increase of 626 lots from the previous trading day.

Zinc: Last Friday night, LME zinc closed at $2,718/mt, down $51.5/mt or 1.86%. The LME zinc inventory added 4,425 mt to 53,500 mt.

The most-traded SHFE zinc 2306 contract first surged and then slumped before finishing at 21,815 yuan/mt, down 65 yuan/mt or 0.3%.

Global consumption showed no clear signs of improvement, so zinc prices at home and abroad both weakened.

Tin: Last Friday night, the SHFE 2305 tin contract rebounded slightly after reaching the lowest point at 212,620 yuan/mt, and closed at 214,070 yuan/mt, down 1.04%.

In the spot market, although the SHFE tin prices fell, the transaction sentiment in the spot market was still weak. In March, the domestic tin ore imports stood at 21,929 mt, up 27.68% month-on-month but down 24.35% year-on-year. The cumulative import volume from January to March was 55,500 mt, down 37.45% year-on-year. Entering April, the import profits of tin ore and tin ingot dropped sharply, and thus the tin ingot imports may decrease.

Overall, the supply of domestic tin ore was still tight, and is unlikely to see a substantial improvement in the future. Affected by weak consumption, short-term tin prices may not have an obvious improvement. But the year-on-year decrease in the imports of tin ore and the shortage of ore supply may lead to an increase in tin prices.

Nickel: The hawkish Fed officials basically agreed that the current anti-inflation policy had not made significant progress. They insisted on continuing to raise the rates in the future. Some officials predicted that inflation would fall to 3.25% this year, and anti-inflation would still take some time. The successive hawkish speeches had a negative effect on commodity prices. Spot nickel trading remained sluggish since NORNICKEL nickel supply was tight and the prices were flat from those of Jinchuan nickel. 

The NPI supply was also slightly tight. The market supply of stainless steel scrap stood low, and arrivals of Indonesia NPI in the Chinese market decreased. The spot stainless steel trades were slack, and the quotes varied greatly. The prices of 200-series stainless steel grew somewhat as the inventory dropped to a relatively low level. Short-term stainless steel spot prices will be stable with occasional falls. The spot nickel supply has tightened recently, and the demand has also weakened. SMM believes that nickel prices are unlikely to see upward momentum.

[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.]