SMM Morning Comments (Feb 27): Base Metals Closed Mostly with Losses on Persistent Inflation

SHANGHAI, Feb 27 (SMM) – SHFE and LME base metals closed mostly with losses last Friday. On the macro front, the annualised US PCE in January exceeded expectations and the previous value, showing that US inflation is still high, which further strengthened the market’s strong expectations for the Fed to remain hawkish. The US index rose.

Copper: LME copper closed at $8,694.5/mt last Friday evening, a decline of 2.08%.Trading volume was 29,000 lots and open interest stood at 252,000 lots.

SHFE 2304 copper contract finished at 68,550 yuan/mt last Friday evening, down 1.44%. Trading volume was 64,000 lots, and open interest stood at 159,000 lots.

On the macro front, the annualised US PCE in January exceeded expectations and the previous value, showing that US inflation is still high, which further strengthened the market’s strong expectations for the Fed to remain hawkish. The US index rose, weighing down copper prices.

On the fundamentals, SMM data showed that copper inventories across mainstream areas in China decreased 4,500 mt on Friday February 24 from Monday February 20, flat from two Fridays ago. A small amount of shipments arrivals of imported copper in east China combined with a slight increase in downstream replenishment lowered inventory slightly. Inventories in Guangdong continued to accumulate due to poor consumption. In terms of consumption, due to the rise in copper prices this week, the downstream wait-and-see sentiment has increased, and it is expected that it will take time for demand to improve significantly. Copper prices fell due to the impact of US inflation data.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,570 yuan/mt at last Friday’s night session before closing at 18,365 yuan/mt, down 270 yuan/mt or 1.45%.

LME aluminium opened at $2,389.5/mt last Friday and closed at $2,642/mt, a decrease of $47.5/mt or 1.99%.

Macro data show that inflation in Europe and the United States is still high, thus expectations for interest rate hikes still exist. The US dollar index rose again, putting pressure on metal prices. The social inventory of aluminium ingot has not yet entered a destocking cycle. High inventory suppressed the confidence of bulls to a certain extent. Coal price rose rapidly, and the cost side is expected to rise. On the whole, growing inventory and unfavorable macro front dragged down aluminium prices. Until consumption shows signs of a substantial improvement, aluminium prices will remain weak.

Lead: Last Friday, the LME lead prices rose rapidly and remained high after opening, but then fell back and fluctuated widely. LME lead prices gradually rebounded and finally closed up 1.46%.

Last Friday night, SHFE 2303 lead contract rose rapidly after opening, but fell back soon after. SHFE lead prices generally increased afterwards.

Zinc: On the macro front, the second plenary meeting of the 20th Central Committee of the Communist Party of China began in Beijing last Friday.  The central bank’s fourth-quarter monetary policy operational report was released, noting that the financing costs have declined steadily and the balance sheets of high-quality leading real estate companies have been improved. In the short term, the inflation pressure is generally controllable, and China’s domestic consumption will pick up smoothly. The central bank and the China Banking and Insurance Regulatory Commission publicly solicit opinions on the "17 Financial Measures" of housing leasing, which support housing leasing companies with their own property rights by issuing loans for housing leasing. The US PCE price index released on Friday, the inflation indicator favoured by the Federal Reserve, did not slow down its year-on-year growth, and its MoM growth rate unexpectedly hit a five-month high.

Last Friday, LME zinc continued to weaken, and LME zinc inventory added by 2,750 mt to 33,400 mt. Expectations for overseas interest rate hikes pressured commodities as a whole. In addition, LME zinc was also weighed down by the production resumption of Auby smelters.

Last Friday, SHFE zinc fell below the 10-day moving average. On the supply side, due to power rationing in some areas, the domestic supply of zinc ingots in March may be about 13,000 mt lower than forecast. On the demand side, the recovery of domestic consumption is better than expected, therefore the fundamental support for zinc prices is still there. However, the bearish macro sentiment still dragged down SHEF zinc prices to close at 23095 yuan/mt.

Tin: SHFE 2303 tin contract fell slightly last Friday night and closed at 210,460 yuan/mt, down 0.93%. Open interest fell 11,031 lots to 24,615 lots. The most-traded SHFE tin contract changed to SHFE 2204 contract with more trading volume.

Domestic warrants remained stable last Friday. The spot discounts remained stable while the imported goods were less cost-effective.

The SHFE 2303 tin contract declined slightly last Friday night and closed at 210,460 yuan/mt, down 0.93%.

To sum up, tin prices fluctuated widely and downstream enterprises were sensitive towards the price change, reflecting that downstream demand was still fragile. The upstream smelters have fully recovered, and downstream enterprises restocked to a certain extent. The overall demand in the spot market is still recovering, especially that from electronics sector. It is still necessary to pay further attention to the recovery of the spot market.

Nickel: At the beginning of last week, owing to the subsided negative macro factors and pilot filing of private real estate investment funds issued by Asset Management Association of China on February 20, real estate financing has obtained favourable policies, and the market is optimistic about the macro front.  The domestic infrastructure and real estate markets have picked up, and the nonferrous metal market has been boosted. However, the shrinking demand caused a sluggish nickel trading. On the evening of February 23, LME issued a notice saying that Asian nickel trading would resume on March 20, and the risk aversion funds would be withdrawn, which led to a decrease in nickel prices. Previously, SHFE nickel prices moved rangebound with occasional ups supported by the macro factors, but the fundamentals failed to beef up the prices. Spot premiums also continued to decline as the delivery of SHFE 2303 nickel was approaching. As for NPI, spot stainless steel orders greatly picked up last week, but the overall market sentiment still weakened due to relatively low traded prices. On the demand side, according to SMM research, the #304 cold-rolled coil transactions were average, and the demand cannot be smoothly transmitted to the terminal sectors. Hot-rolled coil trading was acceptable. The market inventory fell thanks to the stainless steel mills’ reduction in shipments. Futures prices generally rose last week, and the spot quotes grew somewhat. But the traded prices remained almost unchanged. Nickel prices have moved rangebound recently, and will fluctuate in the next few trading days.

[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.]