SMM Morning Comments (Apr 14): Base Metals Closed Mixed on New Record-High US Inflation

SHANGHAI, Apr 14 (SMM) - Shanghai and LME base metals mostly closed mixed the producer price index (PPI) of the US in March released yesterday increased by 1.4% MoM, the highest since August 2012, and increased by 11.2% YoY, the highest since 2010.

LME copper edged down 0.01%, aluminium fell 0.52%, lead added 1.01%, and zinc gained 1.23%.

SHFE copper fell 0.24%, aluminium rose 0.69%, lead shed 0.13%, zinc gained 0.23%, and nickel dropped 0.5%.

Copper: LME copper opened at $10,326.5/mt yesterday, and rose to $10,330/mt after dropping to $10,250/mt. At last, the prices closed at $10,301/mt, down 0.01%. Trading volume was 10,000 lots, and open interest stood at 266,000 lots.

The most-traded SHFE 2205 copper contract opened at 73,790 yuan/mt in overnight trading and hovered around the daily moving average. Within the range, the prices once fell to the lowest and highest of 73,620 yuan/mt and 73,890 yuan/mt respectively. At last, the prices closed at 73,850 yuan/mt, down 0.24%. Trading volume was 21,000 lots, and open interest stood at 153,000 lots.

On the macro front, the producer price index (PPI) of the US in March released yesterday increased by 1.4% MoM, the highest since August 2012, and increased by 11.2% YoY, the highest since 2010. The increase in core PPI and other major indicators has exceeded the Fed's annual inflation target of 2%. In addition, according to the minutes of the latest meeting of the US Fed and the speeches of its officials, the market participants expected that it is likely to raise interest rates by 50 basis points several times in the coming months.

In the spot market, there are only the last two trading days left before delivery of 2204, and the spread between the front-month and next-month contracts fluctuated widely and will expand further, thus the high premiums were under pressure. In Jiangsu, the premiums dropped by 50-100 yuan/mt from 500 yuan/mt, and the premiums in Shanghai returned to flat. Although the requirements for prevention and control in Shanghai have changed, the transportation controls in Jiangsu and Zhejiang become stricter, which has an impact on the shipment. Therefore, it will be difficult for the premiums to maintain flat in the last two trading days before delivery of 2204.

SHFE copper prices are expected to move between 73,500-74,100 yuan/mt today, and LME copper will trade between $10,260-10,360/mt; spot premiums are likely to fluctuate between -30-60 yuan/mt.

Aluminium: The most-traded SHFE 2205 aluminium contract opened at 21,215 yuan/mt overnight and rose to 21,365 yuan/mt before closing at 21,285 yuan/mt, up 145 yuan/mt or 0.69%.

LME aluminium opened at $3,280/mt on Wednesday and closed at $3,257/mt, down $17/mt or 0.52%.

In the short term, it is unlikely that there will no new confirmed COVID cases in China in a short period of time, and the transportation problem will continue to interfere with the normal operation of the industry chain. The current supply recovery is strong, while domestic consumption situation is sluggish. It is expected that SHFE aluminium prices will fluctuate widely today.

Lead: LME lead closed $24.5/mt or 1.01% higher at $2,444/mt in the trading yesterday. SHFE lead shed 0.13% or 20 yuan/mt to settle at 15,380 yuan/mt in overnight trading.

Zinc: Three-month LME zinc rose $54/mt or 1.23% to close at $4,454.5/mt Wednesday. The open interest fell 266 lots to 227,000 lots. Overnight LME zinc inventory lost 2,850 mt to 120,825 mt. The market shall watch the risk of short squeeze. LME zinc is expected to move between $4,400-4,450/mt.

The most traded SHFE 2205 zinc contract closed at 28,475 yuan/mt, up 65 yuan/mt or 0.23% overnight. The open interest dropped 731 lots to 127,000 lots. SHFE zinc is expected to move between 28,000-28,500 yuan/mt, and 0# Shuangyan zinc in premiums of 20-30 yuan/mt over SHFE 2204. On the consumption side, the pandemic control measures in Tangshan, which accommodates a large number of galvanizing companies, eased, reviving zinc consumption to some extent. However, the contradiction remains on the fundamentals, where consumption was suppressed by high zinc prices and COVID. In the spot market, though the export window has opened, export has not picked up yet on tight shipment capacity.

Overnight: US PPI rose to a record high in March and expectations that inflation may be nearing a peak pushed US stocks higher overnight. Ukraine warns of new Russian offensive as West pledges more military aid. Xi Jinping says pandemic prevention and control cannot be relaxed, but to minimise the impact of the pandemic on economic and social development. China's State Council says it will use tools such as RRR cuts to support the real economy at the right time and encourage bulk consumption such as cars and home appliances.

Tin: Overnight, SHFE tin rallied slightly as some shorts exited and then moved rangebound, with a small amount of capital flowing out of the market. Domestic and overseas tin inventory under warrants did not see significant change. The average price of domestic spot tin remained above 340,000 yuan/mt. SHFE tin is expected to move in a narrow range at highs.

Nickel: SHFE nickel opened at 221,000 yuan/mt in overnight trading At last, the prices closed at 219,950 yuan/mt, 1100 yuan/mt lower than the previous trading day, down 0.5%. Trading volume was 46,000 lots, and open interest decreased by 5,701 lots to 50,495 lots. Yesterday, SHFE nickel closely followed the trend of LME nickel and the SS 2205 contract.

On fundamentals, the reduction of pure nickel production and the reduction of imports aroused tight supply. Meanwhile, the pandemic and the high nickel prices weakened downstream demand. The downstream sectors of new energy and stainless steel reduced production because of the pandemic. In the case of weak supply and demand, upstream and downstream are eager to play a price game, so SHFE nickel will remain rangebound in the short term.

[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.]