SMM Morning Comments (Mar 1): Base Metals Closed Mixed on Persisting High Inflation and Potentially Elevated Interest Rates

SHANGHAI, Mar 1 (SMM) - LME and SHFE base metals closed mixed overnight. On the macro front, US inflation was still high and the market expected the interest rates to remain elevated for some time. The US dollar index rallied slightly as a result.

Copper: LME copper opened at $8,859/mt, touching low and high at $8,850/mt and $8,987/mt respectively, and closed with a gain of 1.65% at $8,980/mt in overnight trading. Trading volume was 18,000 lots and open interest stood at 251,000 lots.

The most active SHFE 2304 copper contract opened lower at 69,140 yuan/mt and finished at 69,760 yuan/mt overnight, up 1.5%. Trading volume was 46,000 lots, and open interest stood at 153,000 lots.

On the macro front, US inflation remained high and the market expected the interest rates to remain elevated for some time. The US dollar index rallied slightly. In China, despite the poor copper demand in February, the market is looking forward to a strong recovery in March.

Fundamentally, domestic smelters and traders currently hold sufficient stocks, and the inventory in Guangdong already exceeded 70,000 mt and is still climbing. On Monday, traders lowered their quotes significantly to promote sales, and the tight cash flow at the end of the month was eased. Yesterday, they started to hold prices firm based on bullish sentiment, while downstream enterprises were cautious about purchasing.

In terms of consumption, the downstream buyers increased their purchases on falling copper prices, but the end demand had not picked up yet. It is expected that the consumption will improve after the Two Sessions are held this week. SMM estimates that copper prices will rebound on technical factors and a potential turnaround in domestic demand.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,450 yuan/mt overnight before closing at 18,435 yuan/mt, a drop of 25 yuan/mt or 0.14%. LME aluminium opened at $2,370/mt on Tuesday and closed at $2,372/mt, a decrease of $4.5/mt or 0.19%.

In terms of fundamentals, the resumption of aluminium production in Sichuan, Guizhou and other places is relatively slow, and there are few supply-side disturbances in the short term. Spot transactions have been weak in recent days. The continuous accumulation of social inventory weighed on aluminium prices. On the whole, rising inventory and expectations for interest rate hike will keep aluminium prices in check. Before consumption shows signs of substantial improvement, aluminium prices will remain rangebound.

Lead: LME cash to three month lead contract fell rapidly and hit the lowest point at $2,074/mt, then gradually rebounded and closed at $2,106.5/mt, down 0.28%.

SHFE 2304 lead contract gradually rose last night, but generally maintained a wide range of fluctuations. SHFE 2304 lead contract finally closed at 15,335 yuan/mt, down 0.16%.

Zinc: On the news front, the CPC Central Committee held a democratic consultative meeting, with President Xi Jinping presiding and delivering an important speech. China’s State-owned Assets Supervision & Administration Commission (SASAC) stressed on the efforts to promote smooth listings of state-owned enterprises. Chicago Fed President Goolsbee said in his first public speech after taking office that it was dangerous and wrong for policymakers to rely too much on market response. The unchangeable economic readings might prevent people from seeing what is actually happening in the real economy. In his opinion, in addition to traditional economic data, the US Fed should pay more attention to details in the real economy.

LME zinc rose in overnight trading and closed at $3,034.5/mt, up 1.12% or $33.5/mt. LME zinc inventory was unchanged at 33,350 mt.

The most active SHFE zinc contract opened higher overnight and tumbled afterwards before rallying and settling with gains at 23,190 yuan/mt. In China, the macro factors were basically digested, and the zinc prices will be mainly subject to fundamentals. The consumption shows a great potential to improve, and the supply is stable.

Tin: The SHFE 2304 tin contract fell and remained at 205,000 yuan/mt yesterday night, and closed at 204,940 yuan/mt, down 2.27%.

The domestic tin inventory under warrants increased slightly and the spot discounts remained stable, hence the imported goods were less cost-effective.

The SHFE 2304 tin contract fell 2.27% to close at 204,940 yuan/mt yesterday night.

To sum up, tin prices fluctuated widely in the past two days, and downstream enterprises were sensitive towards the price change, reflecting that downstream demand was still fragile. Tin prices fell again today, which may stimulate the demand. The upstream smelters has already fully recovered, and the overall demand in the spot market is still recovering, especially that from electronics sector. It is still necessary to pay further attention to the recovery of the spot market.

Nickel: Recently, SHFE nickel prices have bottomed out, but the upstream companies were active in shipping approaching the month-end. Some NPI sellers rejected offer quotes yesterday since they were confused about the market outlook. Spot NPI quotes offered by the rest of the sellers fell more following the traded price yesterday, and many traders with large stocks in their hands were eager to dump their goods. On the demand side, the spot prices of stainless steel in the Wuxi and Foshan markets edged lower following the falling futures prices. Pure nickel demand from alloy companies was small despite the declining nickel prices for several days. In general, pure nickel demand remained weak, and the supply did not grow palpably. SMM presumes that nickel prices will remain rangebound around low levels.

[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.]