SMM Morning Comments (Mar 31): Base Metals Closed Mostly Closed with Gains on Echoing Energy Issue

SHANGHAI, Mar 31 (SMM) - Shanghai and LME base metals mostly closed with gains as the energy issue came back amid extensive doubts on Russia-Ukraine talks, pushing up natural gas prices by more than 10%.

LME copper rose 0.19%, aluminium added 2.83%, lead added 1.67%, and zinc fell 0.14%.

SHFE copper rose 0.11%, aluminium added 1.01%, lead added 1.28%, zinc rose 0.97%, nickel jumped 2.31%.

Copper: LME copper opened at $10,441/mt yesterday and then fell to $10,350/mt. At last, the prices closed at 10,371 yuan/mt, up 0.19%. Trading volume was 11,000 lots, and open interest stood at 256,000 lots.

The most-traded SHFE 2205 copper contract opened at 73,710 yuan/mt in overnight trading, and once rose to the highest price of 73,870 yuan/mt. At last, the prices closed at 73,750 yuan/mt, up 0.11%. Trading volume was 32,000 lots, and open interest stood at 160,000 lots.

On the macro front, due to the Russia-Ukraine conflict, copper prices continued to fluctuate at a high level. At the same time, the strong growth of ADP employment in the US in March attracted the market’s attention to the US Fed's interest rate hike.

In the spot market, the copper cathode trading in Shanghai was basically at a standstill in the last two trading days due to the COVID-19 outbreak. Under the demand for cash exchange of some traders, the premiums dropped rapidly. Shanghai Puxi will begin the closed-loop management tomorrow, and most of Shanghai's warehouses are located in Puxi, which leads to the widespread expectation that trading in Shanghai will pick up after March 5. During this period, the goods will stagnate both in and out of the warehouses and in and out of Shanghai. It is expected that premiums will fall. On the last two trading days of this week, there will be almost no transaction in the market.

SHFE copper prices are expected to move between 73,300-73,900 yuan/mt today, and LME copper will trade between $10,300-10,400/mt; spot premiums are likely to fluctuate between 220-400 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 22,970 yuan/mt, with the highest and lowest prices at 23,030 yuan/mt and 22,830 yuan/mt before closing at 22,910 yuan/mt, up 230 yuan/mt or 1.01%.

LME aluminium opened at $3,470.5/mt on Wednesday and closed at $3,546.5/mt, an increase of $97.5/mt or 2.83%.

On the supply side, the resumption of domestic aluminium production has accelerated, but the output has not reached the level of the same period last year. The pandemic has continued to affect the transportation efficiency of aluminium ingots in some areas. On the demand side, the COVID outbreaks in many places in China disrupted downstream production, causing aluminium ingot social inventory to grow. In the short term, the domestic market will face more negative factors, which are primarily reflected in the accumulation of social inventory in what should have been the peak consumption season and the impact of the pandemic on downstream sectors and logistics.

Lead: Overnight, LME Lead opened at $2,379.5/mt. Dragged on by energy crisis as a result of geopolitical influences, natural gas prices rose. LME lead rose as the broad metals market went up as a whole. The contract closed at $ 2429.5/mt, up 1.67%.

Overnight, the most-traded SHFE 2205 lead opened at 15,680 yuan/mt. The longs intensively entered the market boosted by the energy issue as well as supply difference across different regions in early trade, and the contract once hit a high of 15,840 yuan/mt. It finally closed at 15,835 yuan/mt, up 1.28%. The open interest stood at 51,286 lots, up 3,061 lots from the previous trading day.

Zinc: Three-month LME zinc lost $6/mt or 0.14% to close at $4,176/mt. The open interest was flat from a day ago. LME zinc inventory lost 150 mt to 142,100 mt yesterday. On the macro front, Russia-Ukraine situation added to the mystery, and natural gas prices rose by about 10%; while Germany said to prepare for the Russian "cut-off" of energy supply and started the level I emergency plan. LME zinc is expected to move between $4,160-4,210/mt.

The most traded SHFE 2205 zinc contract closed at 27,035 yuan/mt, up 260 yuan/mt or 0.97%. The open interest added 464 lots to 113,000 lots. SHFE zinc is expected to move between 26,600-27,100 yuan/mt, and 0# Shuangyan zinc flat over SHFE 2205. On the fundamentals, the production curtailment and suspension across smelters fermented, and the longs took the lead amid expanding supply void.

Overnight, doubts about the situation in Russia and Ukraine dragged down European and US stocks, while oil, gas and metals rebounded across the board. European natural gas rose nearly 10%, LME nickel rose over $1,000/mt in one day, Russian stock indexes rebounded before the short selling ban was lifted on Thursday. Germany prepared for Russian "supply cuts", and launched a level I emergency plan for natural gas and called on consumers to "save gas". Putin and the German chancellor agreed that experts from both sides discuss the purchase of natural gas in rubles. U.S. fourth-quarter real GDP annualized final value stood at 6.9% on a quarterly basis, slightly lower than market expectations. March ADP employment numbers slightly exceeded expectations. Shanghai maintained strict pandemic control policies in place.

Tin: SHFE tin stabilised after a slight drop in the overnight trading, and remained at highs. Market wait-and-see sentiment was strong. The domestic tin inventory under warrants did not change much, while the overseas inventory continued to drop. The mainstream spot transaction prices were still concentrated around 350,000 yuan/mt, but the market transaction declined. SHFE tin will hover at highs amid stable supply and demand.

Nickel: The most-traded SHFE 2205 nickel contract continued to fluctuate in overnight trading, while LME nickel rose after falling for three consecutive days. Nickel futures opened at 227,600 yuan/mt in overnight trading and then fluctuated weakly. At last, the prices closed at 225,050 yuan/mt, 5,080 yuan/mt higher than the previous trading day, up 2.31%. Open interest fell 7,049 lots to 53,000 lots, and trading volume was 89,000 lots.

On the whole, nickel futures rebounded. The trend of SHFE nickel is closely related to LME nickel futures. The spot market is still in short supply due to the large fluctuation of nickel futures and the huge import losses. On fundamentals, nickel sulphate is expected to reduce production due to high cost, and steel mills also plan to cut production due to pandemic and high raw material costs. On the whole, the demand for pure nickel may weaken, and the Indonesian nickel matte may have an incremental expectation. Under the weak supply and demand, SHFE nickel is strongly influenced by LME nickel and the capital game. It is expected that SHFE nickel will fluctuate during the day.

[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.]