• 03/05/2022 7:42 am

SMM Morning Comments (Apr 25): Base Metals Closed Mostly with Losses as Players Worried about Accelerated Monetary Tightening

SHANGHAI, Apr 25 (SMM) – Shanghai and LME base metals closed mostly with losses last Friday as the market players began to worry about accelerated monetary tightening across the world, especially US Fed Chair Powell said that a 50-basis point rate hike would be on the table at the Fed’s policy meeting in May.

LME copper fell 2.22%, aluminium dropped 1.76%, lead declined 0.25%, zinc lost 0.87%.

SHFE copper fell 1.26%, aluminium dropped 1.62%, lead declined 0.47%, zinc lost 1.86%.

Copper: Last Friday, LME copper opened at $10,202/mt, and fell to $10,060/mt after rising to $10,265/mt. At last, the prices closed at $10,069/mt, down 2.22%. Trading volume was 15,000 lots, and open interest stood at 264,000 lots.

Last Friday, SHFE 2206 copper contract opened at 74,980 yuan/mt, and dropped to 73,680 yuan/mt after rising to 75,150 yuan/mt. At last, the prices closed at 73,900 yuan/mt, down 1.26%. Trading volume was 61,000 lots, and open interest stood at 146,000 lots.

On the macro front, last week, the hawkish signals released by several US Fed officials strengthened the market’s expectation for the Fed to raise interest rates. The US dollar index hit a high of 101.34 last Friday. At present, it is widely expected that the US Fed will raise interest rates by 50 basis points in May, and it will continue to do so in June and July. Therefore, the global stock market generally closed down last Friday, dragging down the international crude oil futures. Both Brent Crude and US oil closed down, and copper futures fell sharply.

In the spot market, in late April, the circulation of traders’ long-term orders boosted the market transactions and pushed up the premiums. The pandemic prevention and control in Jiangsu and Zhejiang province, especially the city of Yixing and other mainstream areas of copper consumption became stricter. The market was worried that the logistics would be greatly affected again, which led to the simultaneous rise of premiums in these areas and Shanghai. It is expected that at the beginning of this week, the premiums are unlikely to fall because of the trading of long-term orders.

LME copper will trade between $10,050-10,150/mt today; SHFE copper prices are expected to move between 73,800-74,400 yuan/mt. Spot premiums are likely to trade between 260-350 yuan/mt.

Aluminium: The most-traded SHFE 2206 aluminium contract opened at 21,845 yuan/mt during last Friday’s night session and rose to 21,860 yuan/mt before closing at 21,530 yuan/mt, down 355 yuan/mt or 1.62%.

LME aluminium opened at $3,301/mt last Friday and closed at $3,244.5/mt, down $58/mt or 1.76%.

From the perspective of supply, domestic aluminium smelters are actively resuming production, and the overall supply has increased year-on-year. On the demand side, the downstream producers’ willingness to stock up picked up, and inventory of aluminium ingots and aluminium billets continued to fall, giving support to aluminium prices. SHFE aluminium is expected to fluctuate slightly in the short term. It is necessary to continue to pay attention to the impact of the pandemic on consumption and destocking.

Lead: LME lead opened at $2,393.5/mt and fluctuated higher to $2,375/mt, after rebounding to hit a high of $2,416.5/mt on April 22. LME lead closed at $2,375/mt, down 0.25%. The open interest increased by 467 lots to 114,000 lots from the previous day.

The most-traded SHFE 2206 lead contract fell 0.47% to end at 15,725 yuan/mt on April 22, after briefly hitting 15,830 yuan/mt and dropping to a low of 15,675 yuan/mt. The open interest increased by 2,582 lots from the previous day to 61,558 lots.

Zinc: LME zinc closed at $4,393/mt, down $38.5/mt or 0.87% last Friday. The open interest rose 1,092 lots to 225,000 lots. LME zinc is expected to move between $4,370-4,420/mt today. LME inventory fell 2,875 mt to 103,250 mt last Friday, down 2.71%. And LME zinc momentum was contained by the worries over accelerated monetary tightening.

The most traded SHFE 2206 zinc contract closed at 28,035 yuan/mt, down 530 yuan/mt or 1.86% overnight. The open interest dropped 2,588 lots to 135,000 lots. SHFE zinc is expected to move between 28,000-28,500 yuan/mt, and 0# domestic zinc in premiums of 10 yuan/mt over SHFE 2205. On the supply side, European electricity prices were again as high as EUR 200/MkW, and there were no news that overseas smelters would resume the production. Meanwhile, the operating rates of zinc oxide enterprises were low due to sluggish demand owing to spreading COVID as well as environmental protection requirements.

Last Friday, Macron defeated Le Pen to be re-elected as President of France. The US Secretaries of State and Defence arrived in Kiev for talks with U.S. President Zelensky. China’s central bank says it will further increase support for the real economy and maintain market stability; major Chinese state-owned banks are reported to cut their deposit rate caps on Monday. The COVID has ‘spread stealthily’ in Beijing for a week, and Chaoyang District will conduct regular nucleic acid tests from today. China’s Internet Information Office launches a special campaign to control Internet violence.

Tin: SHFE tin fell sharply due to bearish sentiment during last Friday’s night session, but then rebounded and closed at above 330,000 yuan/mt. A large amount of capital entered the market, and the open interest of the 2206 tin contract increased significantly. The domestic weekly social inventory of tin ingots declined, while LME tin inventory remained stable. The spot prices of domestic brands were still at 340,000 yuan/mt, and imported products were cheaper than domestic brands. The current supply-demand relationship of the tin industry chain is relatively stable, and the market capital is mainly for speculation. Therefore, SHFE tin may continue to hover sideways at highs.

Nickel: Last week, LME nickel prices moved between $32,000-35,100/mt and had little liquidity. The daily traded volume was maintained at 1,000 lots to 2,000 lots. At present, the liquidity of LME nickel is still poor, and extreme price moves will probably appear. As for SHFE nickel, the prices have been fluctuating upward since last week.

As of last Wednesday, the prices pulled down slightly but were still fluctuating at high levels. In addition, the shortage of nickel tightened the supply of nickel sulphate. If the output of high-grade nickel matte can increase substantially, the supply tightness of new energy products and nickel briquette will be alleviated. However, the production of high-grade nickel matte could not meet expectations last week. To sum up, the SHFE nickel was weak in both supply and demand. The shortage of pure nickel supported SHFE nickel prices to rise to improve the SHFE/LME price ratio. It is expected that the SHFE nickel prices may fall after the import window opens and the supply shortage is improved.

[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.]

 

 

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