SMM Evening Comments (Apr 21): Shanghai Nonferrous Metals Mostly Closed with Losses on Falling Real Estate Market

SHANGHAI, Apr 21 (SMM) – Shanghai nonferrous metals mostly closed with losses as the China real estate market did not perform well in the first quarter, in terms of new housing starts and completions as well as capital flow.  

Shanghai copper fell 0.04%, aluminium dropped 0.11%, lead gained 1.13%, zinc shed 0.75%, tin slid 1.17%, and nickel dipped 1.17%.

Copper: The most-traded SHFE 2205 copper closed down 0.04% or 30 yuan/mt at 74,480 yuan/mt, with open interest down 9,086 lots to 126,276 lots.

On the macro front, Brent crude futures stopped falling and stabilised, buoyed by a correcting US dollar index and a drop of US EIA crude reserves by 8.02 million barrels last week. High inflation overseas remains a market support for the commodity market. In China, domestic real estate continued its downward trend, with 298.38 million square metres of new housing starts from January to March, down 17.5% year-on-year. The floor areas of new housing completions were 169.29 million square metres, down 11.5% year-on-year. Real estate development enterprises had 3,815.9 billion yuan in capital in place, down 19.6% year-on-year. Among them, 552.5 billion yuan came from domestic loans, down 23.5% year-on-year; 1,239.5 billion yuan came from independent financing, down 4.8% year-on-year. On April 19, the central bank also proposed to enhance housing credit policy to meet the reasonable housing needs of home buyers, and to maintain a smooth and orderly real estate financing. In order to support the real economy, there is still a need to reduce the LPR in the future.

In the spot, market transactions were still sluggish in late April. And it will take time for the production to be fully resumed from the current wave of COVID. Spot premiums dropped on the expectation of imports. The premiums in Zhejiang and Jiangsu, however, stood at 250 – 400 yuan/mt, indicating rigid market demand.

In the future, high overseas inflation and low domestic inventory will underpin copper prices, but rising overseas inventory will pressure copper.

Aluminium: The most-traded SHFE 2206 aluminium closed down 0.11% or 25 yuan/mt to 21,775 yuan/mt, with open interest up 15,647 lots to 182,639 lots.

The contract rose rapidly after opening in the morning, and met resistance at 220,000 yuan/mt. The contract moved in the range of 21,800-21,900 yuan/mt. Aluminium prices are likely to move rangebound in the near future. And the market shall watch the recovery of consumption and changes of inventory.

Lead: The most-traded SHFE 2206 lead closed up 1.13% or 175 yuan/mt at 15,680 yuan/mt, with open interest up 6,755 lots to 48,194 lots.

The traders adjusted their offers according to the broad market, and the premiums/discounts did not change much. The downstream mainly purchased on demand, and favoured secondary lead in light of its widening discounts.

Zinc: The most-traded SHFE 2205 zinc closed down 0.75% or 215 yuan/mt at 28,370 yuan/mt, with open interest down 10,946 lots to 74,927 lots.

On the supply side, SHFE/LME price ratio dropped to 6.33, and import losses remained high of over 5,000 yuan/mt. The export window, on the other hand, has opened. On the consumption side, 70% zinc ingot was consumed by the galvanising sector, which is concentrated in the northern region including Hebei. However, the resurging COVID in Hebei pressured the transport of raw materials and finished products, and some orders flowed to south China like Guangdong which was less hit by the pandemic. The spot market was quiet on high zinc prices and the approaching end of long-term orders.

Tin: The most-traded SHFE 2205 tin closed down 1.17% or 3,980 yuan/mt at 336,870 yuan/mt, with open interest down 639 lots to 22,786 lots.

In the spot market, smelters and traders quoted around 343,500 yuan/mt down 2,500 yuan/mt from a day ago in morning trading. Some tin imports were sold at flat level. The market transactions picked up. SHFE warrants dropped 90 mt to 2,431 mt, with a combined drop of 499 mt this week. LME tin inventory fell 30 mt to 2,685 mt.

Nickel: The most-traded SHFE 2205 nickel closed down 1.17% or 2,800 yuan/mt at 235,930 yuan/mt, with open interest down 3,890 lots to 46,917 lots.

Nickel prices fluctuated at a high level, and the import window was still closed. The shortage of spot pure nickel in China has not yet been effectively resolved. Under the high prices of pure nickel, the market maintained purchases on rigid demand, and pure nickel inventory kept falling. The cost of nickel sulphate has recently increased along with the rising nickel prices, but the finished product prices have only risen slowly under depressed downstream demand. Some salt enterprises had to sell their raw materials to make up for the losses. The stainless steel segment has also shown a relatively weak market demand in recent days. Nickel prices continue to run at high prices, which, however, cannot be reflected in the terminal sectors. A deviation of the fundamentals from nickel futures prices has led to unhealthy development of nickel-based product market. But at present, nickel prices are unlikely to fall without an absolute accumulation of stocks. The prices are likely to hover at highs in the near future.

[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.]