SMM Morning Comments (Feb 20): Base Metals Closed Mixed on Hawkish US Fed and Improving Chinese Real Estate

SHANGHAI, Feb 20 (SMM) – SHFE and LME base metals closed mixed last Friday. On the macro front, U.S. inflation is slowing down but at a slower pace. The Fed is still sending out hawkish signals last week, and the market is concerned about its follow-up actions.

Copper: LME copper closed at $9,009/mt last Friday evening, a drop of 0.51%. Trading volume was 12,000 lots and open interest stood at 241,000 lots.

The most active SHFE 2303 copper contract finished at 69,090 yuan/mt last Friday evening, up 0.16%. Trading volume was 24,000 lots, and open interest stood at 129,000 lots.

On the macro front, U.S. inflation is slowing down but at a slower pace. The Fed is still sending out hawkish signals last week, and the market is concerned about its follow-up actions.

On fundamentals, SMM data showed that copper inventories across mainstream areas in China increased 9,100 mt on Friday February 17 from Monday February 13, 12,500 mt higher than a week earlier. Despite limited arrivals of imported copper, there were high shipments of domestic copper from smelters to warehouses due to delivery of the SHFE front-month contract. Downstream stockpiling was slow. Downstream demand has not seen a significant improvement and it is unlikely to pick up in the short term. It is expected that copper prices will remain rangebound at high levels due to market optimism over a rebound in the domestic economy.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,440 yuan/mt at last Friday’s night session before closing at 18,530 yuan/mt, up 50 yuan/mt or 0.27%.

LME aluminium opened at $2,413/mt last Friday and closed at $2,390/mt, a decrease of $28/mt or 1.16%.

Coal prices have stabilised, easing fears of cost collapse. Auminum smelters in Yunnan began to cut production, and aluminium ingot social inventory showed signs of destocking, boosting market sentiment. However, there are still many short-term uncertainties. Whether the US Fed’s stance over interest rate hike will turn hawkish again and whether the inventory of aluminium ingots will sustain decline are important factors that will affect the movement of aluminium prices. It is expected that short-term aluminium prices will remain volatile and relatively strong.

Lead: Last Friday, LME Lead opened at $2,047/mt and rose 0.68% to close at $2,071/mt after hitting the lowest point at $2,042.5/mt and the highest point at $2,078.5/mt. The open interest fell 583 lots to 104,000 lots, and trading volume declined 1,614 lots to 4,011 lots.

The most-traded SHFE 2303 lead contract opened at 15,170 yuan/mt and fell to 15,085 yuan/mt in the early stage, but then rebounded and closed at 15,115 yuan/mt amid the increase of LME lead, a decrease of 0.07%. Open interest fell 676 lots to 58,895 lots, and trading volume declined 26,131 lots to 15,353 lots.

Zinc: Last Friday, the United States planned to impose new export controls on critical industries in Russia, with sanctions targeting Russia's national defence department, energy department, financial institutions and some individuals. The 59th Munich Security Conference concluded without reaching a broad consensus on issues such as the Russia-Ukraine conflict. Russia said it would urge the United Nations to investigate the explosion of the "Nord Stream" pipeline.

China's one-year and five-year LPRs will be released today.

LME zinc opened at $3,025/mt last Friday and closed up $43.5/mt or 1.43% at $3,081/mt. The trading volume was 4,875 lots, and open interest lost 470 lots to 199,000 lots. Generally, LME zinc rose and consolidated around $3,000/mt. LME zinc inventory was flat at a low level of 29,850 mt.

During last Friday’s night session, the most-traded SHFE 2303 zinc contract opened at 22,860 yuan/mt and moved sideways around 23,000 yuan/mt before closing at 23,105 yuan/mt, up 245 yuan/mt or 1.07%. Trading volume stood at 39,000 lots, and open interest shed by 3,909 lots to 70,700 lots. Generally, SHFE zinc bottomed out and recorded an increase. The domestic production post the Chinese New Year holiday was smooth enough to secure the supply of zinc ingots, but it is worth noting that the consumption of galvanised zinc products was rather robust with the launch of housing and infrastructure construction projects, which still bolstered the zinc prices. Therefore, zinc prices may continue to fluctuate in the short term.

Tin: The SHFE 2303 tin contract fell sharply by 8,000 yuan/mt last Friday night and closed at 215,980 yuan/mt, down 3.74%. The open interest decreased 1,698 lots to 43,676 lots.

Fundamentally, amid the delivery period, the social inventory of tin ingots increased significantly last Friday. The spot premiums were still narrow. The import window remained open.

The SHFE 2303 tin contract fell sharply by 8,000 yuan/mt last Friday night and closed at 215,980 yuan/mt, down 3.74%. The open interest decreased 1,698 lots to 43,676 lots.

To sum up, the social inventory was high and increased sharply again last week, and thus SHFE tin prices continued to decline. The upstream smelters has not yet fully recovered, and the raw material stocks of downstream enterprises have been digested to a certain extent. Imported tin continued to arrive, but imported goods were less cost-effective than the early stage. The overall demand for spot goods was weak, and the discounts were relatively stable.

Nickel: Multiple macro indicators were released one after another last week. On February 14, the US Department of Labor announced that the seasonally adjusted CPI annual rate at the end of January was 6.4%, exceeding market expectations. On the evening of February 15, the US Department of Commerce announced that the monthly rate of retail sales in January was 3%, far exceeding the forecast value of 1.8%, and higher than the previous reading of -1.1%, which also indicated that the economic status and prospects of the US are relatively optimistic. On February 16, related department announced that the annual rate of PPI in January was 6%, which was higher than the forecast value. Both PPI and CPI surpassed market expectations, which also shows that the current US inflation is still high fever. On the evening of the same day, the US Fed officials delivered hawkish remarks, and the probability of the Fed raising interest rates by 50 basis points at the February meeting rose sharply. On the supply side, SHFE nickel prices fell affected by the higher-than-expected US retail sales in January. The spot premiums of pure nickel were raised, but the absolute price of spots dropped by nearly 3,500 yuan/mt. The spot transactions and inquiries were acceptable. NPI sellers generally lowered their quotations yesterday, and the panic began to spread across the market. In terms of NPI, due to the weakening stainless steel futures and spot prices, some NPI factories and traders have reduced their quotations. On the demand side, the spot quotations of stainless steel were stable with occasional drops. Some traders cut their prices to ship amid high inventories in the market, thus the traded price continued to decline. In general, the demand for pure nickel grew as the prices dropped in the past few days. SMM believes that the nickel prices will move between 197,400-207,000 yuan/mt this week. At present, the price of LME nickel has not yet returned to the fundamentals, and the nickel prices may fluctuate significantly amid poor transactions. SMM will resume the price forecast of LME nickel after the LME nickel return to the fundamentals.

[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.]