SMM Morning Comments (Mar 18): Base Metals Mostly Closed with Gains after Fed Raised Interest Rate

SHANGHAI, Mar 18 (SMM) - Shanghai base metals closed flat or higher in the overnight trading on Thursday, after Fed announced to raise the interest rate to 0.25-0.5%. Meanwhile, their counterparts on LME rose across the boards.

LME copper rose 1.18%, aluminium increased 3.6%, lead gained 0.18%, and zinc won 0.95%.

SHFE copper increased 0.82%, aluminium rose 1.67%, and lead and zinc closed flat from the previous day.

Copper: LME copper opened at $10,113/mt yesterday and rose to $10,283/mt after falling to $10,081/mt. At last, the prices closed at $10,253.5/mt, up 1.18%. Trading volume was 11,000 lots, and open interest stood at 239,000 lots.

SHFE 2204 copper contract opened at 72,560 yuan/mt in overnight trading and rose to 72,900 yuan/mt. At last, the contract closed at 72,860 yuan/mt, up 0.82%. Trading volume was 17,000 lots, and open interest stood at 102,000 lots.

On the macro front, the market has achieved the expectation that the US Fed raised interest rates by 25 basis points. The three major indexes of the US stock market rose after opening at low levels yesterday, closing higher for the third consecutive day, which continued the strong gains this week. Overnight, the US dollar index pulled back for the second consecutive day, and the copper futures prices continued to increase. In the spot market, prices in China returned to around 72,000 yuan/mt again along with the rising prices in the overseas market on the second trading day after the delivery of 2203. The import losses expanded again to more than 1,000 yuan/mt, which hindered the imported copper flowing in China in the short term. Under the influence of the COVID-19, both supply and demand were limited. It is expected that the premium will remain at a high level in the short term as long as traders hold firm to their prices.

LME copper is expected to move between $10,200-10,300/mt today, SHFE copper between 72,500-73,100 yuan/mt, and spot premiums between 300-420 yuan/mt.

Aluminium: LME aluminium opened at $3,250/mt on Thursday, touching the highest and lowest at $3,409/mt and $3,250/mt respectively, and closed at $3,383/mt, up $117.5/mt or 3.6%.

Overnight, the most-traded SHFE 2205 aluminium contract opened at 22,225 yuan/mt, with the highest and lowest prices at 22,550 yuan/mt and 22,225 yuan/mt before closing at 22,480 yuan/mt, up 370 yuan/mt or 1.67%.

February CPI growth in eurozone was higher than expected, and European Central Bank President Christine Lagarde emphasised the importance of flexibility for policies as war could bring new inflation cycle. Sino-US head is scheduled to have a conference call on Friday evening Beijing time for the first time after the Russia-Ukraine war, and Blinken, American Secretary of State, said that President Joe Biden would make it clear that if China supports Russian “invasion” in any form, US will make Beijing pay the price.

On the fundamentals, SMM aluminium ingot social inventory stood at 1.09 million mt, down 53,000 mt from a week ago. And SMM aluminium billet inventory totaled 190,000 mt, down 35,000 mt week on week.

Lead: Three-month LME lead opened at $2,262/mt on Thursday. It hit the highest point at $2,278/mt in the European session and then fell to the lowest point at $2,245/mt. It closed at $2,254/mt, up 0.18%.

The most traded SHFE 2205 zinc contract opened at 15,195 yuan/mt overnight, hitting the highest and lowest points at 15,305 yuan/mt and 15,180 yuan/mt respectively. It closed at 15,195 yuan/mt, flat from the previous trading day.

Zinc: Three-month LME zinc opened at $3,799/mt, hitting the highest and lowest points at $3,939/mt and $3,730/mt respectively, before closing at $3,835/mt, up $36/mt or 0.95%. The trading volume fell to 5,389 lots, and the open interest increased by 147 lots to 235,000 lots. LME zinc inventory dropped by 175 mt or 0.12% to 144,025 lots. Nyrstar announced to resume the operation of Auby zinc smelter in France, which was shut down in October 2021 due to the rising electricity prices. However, the power costs remain high, and the production of Auby will not reach the full capacity in the next few weeks. LME zinc is expected to trade between $3,790-3,840/mt.

The most traded SHFE 2205 zinc contract opened at 25,240 yuan/mt. It hit the lowest level at 25,200 yuan/mt, and tested 25,515 yuan/mt a few times, before closing at 25,385 yuan/mt, flat from the previous day. The recurring COVID-19 pandemic in China impeded the logistics, which caused some enterprises to cut the production. In the spot market, the rising zinc prices suppressed the procurements, and the transactions were mainly made under long-term orders. SHFE zinc is expected to trade between 25,000-25,500 yuan/mt today, and the discounts of 0# domestic Shuangyan zinc may stand around 20 yuan/mt over the SHFE 2204 zinc contract.

Nickel: On the supply side, due to the large import losses, NORNICKEL nickel, Sumitomo, NIKKELVERK nickel and nickel briquettes were unable to clear customs, which led to the shortage of pure nickel in the market. NPI prices were strongly supported by the soaring nickel ore prices. On the demand side, pure nickel prices were still high, which aroused fear in downstream. Downstream participants including nickel sulphate plants and precursor manufacturers curtailed their production amid high pure nickel prices. In terms of stainless steel, transportation and spot transactions were limited because of the COVID-19. Generally, both supply and demand of nickel upstream and downstream were weak. Yesterday afternoon, LME nickel fell to the lower limit after opening, SHFE nickel will continue to fluctuate.

Tin: In terms of the fundamental, domestic inventories continued to fall due to the deliveries of SHFE 2203, while overseas inventories changed little with the import window still open. The spot market was tight in supply, and the fundamentals were weak with small shipments.

In terms of chart moves, SHFE tin fluctuated in narrow range. There was little change in the movement of capitals in and out and the overall trend appeared to be lacklustre.

The market continued to cool down, while the supply and demand remained weak, and the possibility of the futures moving rangebound increased.