SMM Morning Comments (Jan 27): Base Metals Mostly Went up on Unchanged Interest Rate

SHANGHAI, Jan 27 (SMM) - Shanghai base metals mostly closed with gains overnight after the Fed meeting announced to keep the benchmark interest rate unchanged. Their counterparts on LME performed similarly on Wednesday.

LME copper rose 0.6%, aluminium increased 0.16%, lead dipped 0.02%, and zinc gained 0.1%.

SHFE copper edged up 1.21%, aluminium increased 2.3%, lead fell 0.06%, zinc inched up 0.02%, and nickel gained 0.67%.

Copper: Three-month LME copper opened at $9,956/mt in the intraday trading yesterday and fell to $9,865/mt before rebounding to close at $9,905/mt, an increase of 0.6%. The trading volume was 15,000 lots, and the open interest reached 245,000 lots. Three-month LME copper is expected to trade between $9,830-9,930 yuan/mt today.

The most-traded SHFE 2203 copper contract opened at 70,910 yuan/mt and edged up 1.21% to close at 70,950 yuan/mt in overnight trading. The trading volume was 35,000, and the open interest was 136,000 lots. SHFE copper is expected to trade between $70,100-70,700/mt today, with spot premiums at 10-30 yuan/mt.

On the macro side, the Fed meeting announced that the benchmark interest rate remained unchanged. Investors believe that the Fed will not raise interest rates too soon. The copper futures fluctuated at high levels supported by the rising crude oil prices. But then Fed Powell's speech supported raising interest rates in March, and did not rule out the possibility of raising interest rates at each meeting in the future, which interfered with the market sentiments. Most market participants in the spot market have gradually taken the CNY holidays. A few enterprises with sufficient funds are still willing to make purchases at discounts, but the goods holders may refuse to lower the quotations on the low inventories.

Aluminium: Three-month LME aluminium opened at $3,090/mt and rose 0.16% to close at $3,100/mt on Wednesday.

The most-active SHFE 2203 aluminium contract opened at 21,460 yuan/mt and increased 0.23% to end at 21,515 yuan/mt last night.

The escalation of the tension between Ukraine and Russia combined with the energy shortage in Europe is intensifying the market's concerns about the reduction of production on the global aluminum supply side. The domestic supply of aluminium increased slightly but slowly. The spot trading is still gradually weakening. On Wednesday, the spot traded at discounts around 10 yuan/mt to the February contract. The transaction prices were around 21,570-21,610 yuan/mt. The discounts in central China expanded to 180 yuan/mt, and the transactions were light. In the short term, there are many overseas uncertainties in the aluminium market, and the increase in the inventory is slower than expected. The prices are expected to stand high before the CNY.

Lead: Three-month LME lead opened at $2,334.5/mt on Wednesday and dipped 0.02% to close at $2,332/mt.

The most-liquid SHFE 2203 lead contract fell 0.06% to end at 15,440 yuan/mt in the overnight trading, after briefly hitting the highest point at 15,530 yuan/mt and dropping to the lowest level at 15,425 yuan/mt.

Zinc: Three-month LME zinc opened at $3,581/mt and rose 1% to close at $3,623/mt on Wednesday, with open interest increasing 965 lots to 5,855 lots. It is expected to trade between $3,580-3,630 yuan/mt today.

The most-liquid SHFE 2203 zinc contract edged up 5 yuan/mt or 0.02% to settle at 24,805 yuan/mt in the overnight trading, with open interest up 2,783 lots to 248,700 lots.

 On the supply side, geopolitical instability and market concerns will affect the supply of natural gas in Europe, which will lead to the reduction of production by smelters in Europe. On the consumer side, the domestic downstream users have basically taken the CNY holiday, and the market demand has fallen sharply. The spot demand weakened further as some traders have taken holiday too. The domestic demand declines approaching the CNY, and the overseas inventory is falling, which will support the prices. But the macroeconomics may still disturb the market. The zinc prices are expected to fluctuate within a wide range in the short term. The most-traded zinc contract is expected to move between 24,400-24,900 yuan/mt today. 0# Domestic Shuangyan zinc will trade at premiums of 50-80 yuan/mt over the SHFE 2202 zinc contract.

Nickel: The most traded SHFE nickel contract hit 168,000 yuan/mt in the overnight trading, and fluctuated around 166,000 yuan/mt before closing at 165,890 yuan/mt, up 1,100 yuan/mt or 0.67%. The trading volume was 142,000 lots, and the open interest fell 13,580 lots to 139,799 lots. In the spot market, the shipments are scarce as most participants have entered the holidays, and they quote for the goods to be traded after the CNY holiday. A few downstream users purchased for restocking after the prices pulled back, but the transactions were thin. Most market participants have suspended their bookkeeping. The spot market is quiet, and the futures prices may be disturbed by the cash flow.

Tin: The SHFE 2203 tin rebounded significantly overnight as the investors entered the market again, but in small scale. On the fundamentals, the warrant inventory changed little, and the shipments of spots stood low approaching the CNY. The SHFE tin prices are expected to remain congesting before the CNY holiday.