SMM Morning Comments (Mar 3): Base Metals Closed Mostly with Losses on Strong US Labour Market

SHANGHAI, Mar 3 (SMM) – SHFE and LME base metals closed mostly with losses overnight. On the macro front, the US jobless claims data showed that the US job market is still strong, but there are also data showing that labour costs are still increasing. The market expects the Fed will continue to raise interest rates to curb inflation, and the US dollar index is higher.

Copper: LME copper closed at $8,926/mt in overnight trading, a drop of 2.21%. Trading volume was 21,000 lots and open interest stood at 248,000 lots.

The most active SHFE 2304 copper contract finished at 69,410 yuan/mt overnight, down 0.8%. Trading volume was 47,000 lots, and open interest stood at 150,000 lots.

On the macro front, the US jobless claims data showed that the US job market is still strong, but there are also data showing that labour costs are still increasing. The market expects the Fed will continue to raise interest rates to curb inflation, and the US dollar index is higher, weighing down copper prices.

In terms of fundamentals, import losses were around 1,000 yuan/mt, and smelters were exporting cargoes. As a result, the supply of tradable goods in the spot market in east China is slightly tight, and prices have risen accordingly. Due to the market's concerns about the tight supply, buying interest has increased. When the copper price fell at the beginning of the week, many downstream buyers replenished their stocks, and the transaction became light as the copper price rebounded. In terms of consumption, according to some copper rod factories, downstream demand has recovered slightly. Copper prices fell due to expectations over interest rate hike by the Fed.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,600 yuan/mt overnight and closed at 18,605 yuan/mt, down 60 yuan/mt or 0.32%.

LME aluminium opened at $2,441.5/mt on Thursday and closed at $2,395.5/mt, down $48.5/mt or 1.98%.

On the macro level, driven by strong US job market data, the US dollar index strengthened, putting pressure on the metals market. In terms of fundamentals, aluminium smelters in Yunnan have completed their production reduction, while the resumption of aluminium production in Sichuan, Guizhou and other places is relatively slow, thus the pressure on the short-term supply side has eased. The pace of accumulation of aluminium ingots has slowed down during the week. On the demand side, the operating rates of aluminium processing enterprises has risen steadily amid consumption recovery, but the overall increase was limited. It is necessary to continue to pay attention to the impact of interest rate hikes, the pace of demand recovery, and the trend of inventory changes. In the short term, aluminium prices will remain rangebound.

Lead: LME cash to three month lead contract fell slowly after opening and then rebounded slightly, but finally declined and hit the lowest point at $2,098/mt. It closed at $2,128/mt, down 0.63%.

SHFE 2304 lead contract fluctuated sideways and closed at 15,290 yuan/mt, up 0.2%.

Zinc: Overnight, the Ministry of Human Resources and Social Security in China stated that according to favourable policy for personal pension system, the current payment cap is 12,000 yuan/year, which may be adjusted in due course in the future. Some senior Fed officials said that rate hikes may be suspended this summer, resulting a significant rebound in US stock market. European Central Bank (ECB) President Lagarde said rate cuts were unlikely unless the inflation rate stood at 2% at least. According to ECB minutes, it is too early to worry about the risks of excessive interest rate hikes. The core inflation rate in the eurozone rose more than expected in February, hitting a record high at 5.6%. 

LME zinc dropped sharply in overnight trading and closed at $3,046.5/mt, down 2.79% or $87.5/mt. LME zinc inventory gained by 2,525mt to 35,750 mt.

SHFE zinc opened lower overnight and continued to fall before finishing at 23,170 yuan/mt. Affected by the strong employment data, the US dollar was still firm, and in turn zinc prices continued to be weighed down. In China, the market still had strong expectations robust consumption before the Two Session completed. Market players are suggested to wait and see.

Tin: The SHFE 2304 tin contract fell and once fell below 200,000 yuan/mt, and closed at 200,490 yuan/mt, down 3.03%.

The domestic tin inventory under warrants increased further. The spot discounts of deliverable brands remained stable while that of small brands were still low. The market supply of imported goods were still insufficient.

The SHFE 2304 tin contract fell and once fell below 200,000 yuan/mt, and closed at 200,490 yuan/mt, down 3.03%.

To sum up, the trading volume and open interest of the most-traded SHFE tin contract increased significantly yesterday, implying an unstable market. The spot market was sluggish, reflecting that the raw material inventory of downstream enterprises was still sufficient. The demand is unlikely to pick up in the short term. In the follow-up stage, the market needs to pay attention to the changes in social inventory and the introduction of relevant policies during the Two Sessions.

Nickel: Affected by the news concerning NORNICKEL Nickel yesterday, the spot premiums and SHFE nickel prices fell sharply, and the intraday spot transactions showed an improvement. NPI traders got high in-plant stocks, and some were eager to dump their goods. On the demand side, according to SMM research, recent stainless steel transactions have been slack, and the traders were less willing to pick up goods, pushing up the market spot supply. In general, nickel prices trended lower owing to the news front, and the spot trading picked up. SMM believes that the nickel prices will move rangebound with occasional falls.

[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.]