SMM Morning Comments (Mar 9): Base Metals Closed Mostly with Gains with more Hawkish Rate Outlook

SHANGHAI, Mar 9 (SMM) – LME and SHFE base metals closed mostly with gains overnight. On the macro front, Federal Reserve Chairman Powell expressed the possibility of a faster and higher rate hike path. Investors paid more attention to Friday's employment data, and the dollar remained stable.

Copper: LME copper closed at $8,859.5/mt overnight, up 1.45%. Trading volume was 20,000 lots and open interest stood at 252,000 lots. The most active SHFE 2304 copper contract finished at 69,610 yuan/mt overnight, up 0.96%. Trading volume was 43,000 lots and open interest stood at 144,000 lots.

On the macro front, Federal Reserve Chairman Powell expressed the possibility of a faster and higher rate hike path. Investors paid more attention to Friday's employment data, and the dollar remained stable. In terms of fundamentals, the SHFE/LME copper price ratio rallied yesterday, and the import loss narrowed to around 390 yuan/mt. However, there was no large influx of cargoes into the domestic trade market. The supply of low-priced goods in east China was still relatively tight. Affected by the drop in copper prices yesterday, the transactions were relatively active. In south China, the inventory has dropped significantly due to the recovery of consumption, and the overall trading improved. In terms of consumption, there was aggressive buying on the dip as copper prices fluctuated at high levels. It is expected that demand will continue to show a slow recovery. The market is awaiting the US employment data. Under the background of China's continuous promotion of stable growth policies, copper prices rose slightly.

Aluminium: The most-traded SHFE 2304 aluminium contract opened at 18,550 yuan/mt overnight, with its low at 18,450 yuan/mt before closing at 18,530 yuan/mt, up 25 yuan/mt or 0.14%. LME aluminium fell sharply after opening at $2,351/mt on Wednesday, but then rallied and closed at $2,362/mt, up $12.5/mt or 0.53%.

After aluminium smelters in Yunnan have completed production cuts, the market attention will focus more on the recovery of domestic consumption and overseas interest rate hikes. Given the high social inventory, aluminium prices will hover sideways before the US Fed announces its interest rate decision. 

Lead: Overnight, LME lead opened at $2,090/mt. In recent days, economic events and data such as the US hearings, the Fed’s Beige Book and the number of ADP employment have been released. As the US dollar fell after surging, prices of base metals rebounded after hitting low. LME lead fell slowly after touching $2,070/mt, and finally closed at $2,089/mt, an increase of 0.12%.

The most traded SHFE 2304 lead contract opened at 15,210 yuan/mt overnight and fell to 15,155 yuan/mt. SHFE lead rebounded as the primary lead was more cost-effective. SHFE lead finally closed at 15,175 yuan/mt, down 0.07%, with the open interest up 3,461 lots to 66,946 lots.

Zinc: Overnight, LME zinc opened at $2,951.5/mt and closed up $28/mt or 0.95% at $2,975/mt. Transaction volume rose to 8,395 lots, and open interest decreased by 62 lots to 191,000 lots. LME zinc inventory shed by 50 mt to 39,075 mt.

Overnight, the most-traded SHFE 2304 zinc contract opened at 23,230 yuan/mt and closed at 23,310 yuan/mt, up 40 yuan/mt or 0.17%. Trading volume was reduced to 49,077 lots, and open interest lost 941 lots to 81,451 lots.

Fed Powell’s comment relatively softened last night, but the market’s expectations for a 50 basis-point interest rate hike in March were still high. Fundamentally, China’s refined zinc output in February stood at 501,400 mt according to SMM survey, which barely changed and was in line with forecast. In terms of capital factors, it is still uncertain whether the bullish news released during the Two Sessions will live up to market expectations. Therefore, zinc prices will still move sideways in the near term.

Tin: SHFE 2304 tin contract fell after opening but then bottomed out after hitting the lowest point at 191,800 yuan/mt yesterday night, and closed at 195,800 yuan/mt, down 1.20%.

Fundamentally, the warrants of SHFE decreased slightly yesterday, but the spot market improved slightly. The spot discounts of deliverable brands remained stable while that of small brands were still high. The market supply of imported goods were still insufficient.

To sum up, demand stimulus policies are expected to be released intensively during the recent "two sessions", but it will take time for the demand to improve. Tin prices may continue to fall.

Nickel: On the supply side, nickel prices remained weak, but the spot transactions have not improved recently, and the spot premiums continued to decrease. In terms of NPI, a stainless steel mill in east China bought thousands of metric tonnes of Indonesia NPI at 1,280 yuan/mtu (including tax, delivery to ports) yesterday. Although they may be goods for hedging operations, the prices still dropped palpably. On the demand side, according to SMM research, stainless steel mills have recently restricted the flow of low-priced spot resources. The overall quotation of #304 stainless steel remained stable. Pure nickel demand from the alloy manufacturers decreased since the spot prices rebounded. To sum up, the pure nickel sector faces weak supply and demand. Nickel prices will move rangebound in the short term. 

[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.]