SMM Morning Comments (Apr 19): Base Metals Closed with Gains amid Constantly Rising Oil Prices

SHANGHAI, Apr 19 (SMM) - Shanghai base metals closed with gains Monday night on constantly rising oil prices as a number of issues have aggravated people's worries about the global energy supply shortage during the Ukrainian crisis.

SHFE copper rose 0.15%, aluminium advanced 1.37%, lead added 0.45%, zinc gained 1.6%, and nickel jumped 5.28%.

LME market was closed from April 15 (Friday) to 18 (Monday) for the Good Day and the Easter Holiday.

Copper: Yesterday, LME copper was closed on Easter. SHFE 2205 copper contract opened at 74,910 yuan/mt in overnight trading and dropped below the daily moving average after climbing to 75,500 yuan/mt. At last, the prices closed at 75,040 yuan/mt, up 0.15%. Trading volume was 25,000 lots, and open interest stood at 155,000 lots.

On the macro front, the data released on Monday showed that the decline of China's crude oil imports in March further expanded by 9.1 percentage points to 14%. However, the Russia-Ukraine conflict aroused supply concerns. Besides, east Libya has been blocked, affecting its crude oil production and exports. Such factors aggravated people's worries about the global supply shortage during the Ukrainian crisis. Driven by multiple factors, international crude oil futures rose to a new high in nearly 20 days since Monday, boosting copper futures.

In the spot market, the prices again stood at 75,000 yuan/mt. High premiums and high futures prices aroused fear in downstream markets. Jiangsu and Zhejiang adjusted the quotes first, with premiums standing at 500-600 yuan/mt, and the spread among Jiangsu, Zhejiang and Shanghai narrowed significantly. Premiums in the Yixing market were quoted at 400 yuan/mt due to the stricter pandemic control. In the Shanghai market, spot quotes remained firm in the active trading among traders. If the futures prices maintain at such a high level, the premiums will be hard to stand at 500 yuan/mt, and the backwardation structure of the 2205 and 2206 contracts of near 200 yuan/mt may guide the future market.

LME copper will trade between $10,420-10,520/mt today; SHFE copper prices are expected to move between 74,800-75,400 yuan/mt. Spot premiums are likely to trade between 350-450 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2205 aluminium contract opened at 21,895 yuan/mt, with the highest and lowest at 22,200 yuan/mt and 21,885 yuan/mt before closing at 22,140 yuan/mt, up 300 yuan/mt or 1.37%. The LME was closed yesterday due to the Easter holiday, but will open on Tuesday.

On the supply side, domestic aluminium production in April is expected to exceed the level of the same period last year, but the recent poor transportation has continued to disrupt the shipments of aluminium smelters. Aluminum ingot social inventory fell by 24,000 mt from last Thursday to 1.04 million mt on Monday, which may support aluminium prices. Downstream operating rates are gradually picking up. The RRR cuts and expected recovery of consumption will underpin SHFE aluminium prices at highs in the short term.

Lead: The most-traded SHFE 2205 contracted opened at 15,670 yuan/mt Monday night. The shorts quickly kept leaving the market after opening, and fled to SHFE 2206. Hence the contract once hit a high of 15,715 yuan/mt before closing at 15,670 yuan/mt, a gain of 0.45%. The open interest fell 1,029 lots to 32,596 lots.

Zinc: The most traded SHFE 2205 zinc contract closed at 28,855 yuan/mt, up 455 yuan/mt or 1.6% overnight. The open interest dropped 2,114 lots to 104,000 lots. SHFE zinc is expected to move between 28,700-29,200 yuan/mt, and 0# Shuangyan zinc flat over SHFE 2205. On the supply side, the mines in Manzhouli, Inner Mongolia were slow in recovering the production, and the smelters refused to purchase imported ore on falling SHFE/LME price ratio, resulting in tight ore supplies in China. On the consumption side, domestic demand has been sluggish constrained by the spreading COVID. The market shall watch the export market, which may offer some support to zinc prices.

Overnight, rising long-term Treasury yields depress US stocks, and US natural gas prices were at 13-year high; US dollar also recorded another two-year high. The People’s Bank of China and China Foreign Exchange Bureau launched 23 measures to fight the pandemic with full force, including: financial institutions can reasonably delay repayment and extend loan terms. China's first quarter GDP rose 4.8% year-on-year, March industrial value added above scale added 5% year-on-year, total retail sales of consumer goods fell 3.5% year-on-year, January-March national real estate development investment increased by 0.7%, sold area of commercial properties fell by 13.8%, national fixed asset investment increased by 9.3% year-on-year, manufacturing investment increased by 15.6%, the national urban survey unemployment rate in March was 5.8%, up 0.3 percentage points from the previous month.

Tin: Overnight, SHFE tin rebounded rapidly after opening and then moved rangebound. A small amount capital flowed out and wait-and-see sentiment dominated the market. The domestic tin inventory under warrants did not change much. In the spot market, shipments were stable and prices fluctuated little. In light of stable supply-demand relationship and spot prices, it is expected that SHFE tin will continue to fluctuate sideways in the short term.

Nickel: SHFE nickel opened at 234,470 yuan/mt and rose quickly to around 240,000 yuan/mt. At last, the prices closed at 244,100 yuan/mt, an increase of 12,250 yuan/mt, or 5.28%, from the previous trading day. Trading volume was 70,700 lots, and open interest decreased by 1,838 lots to 50,100 lots.

On the fundamentals, the supply of pure nickel was still relatively tight due to both internal and external influences. Pure nickel inventory continued to drop on rigid demand. The supply and demand of nickel used in new energy were both weak. Upstream salt plants actively cut their production due to losses, and the terminal consumption was weak, resulting in a sluggish market. NPI and stainless steel prices were relatively stable. With the end of the rainy season, NPI output is gradually increasing and the demand for NPI is temporarily stable. Nickel prices will remain rangebound at high levels in the short term, and the gap between supply and demand will support the game between upstream and downstream. LME nickel prices today are still of utmost concern.

[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.]