SMM Evening Comments (Jan 27): Shanghai Nonferrous Metals Closed Mixed on Fed’s Interest Rate Resolution

SHANGHAI, Jan 27 (SMM) – Shanghai nonferrous metals closed mixed today as the Fed’s resolution announced at its interest rate meeting overnight was in line with market estimate, including the unchanged interest rate and soon-to-end tapering of bond purchases.

Shanghai copper lost 0.46%, aluminium advanced 0.35%, lead dropped 0.36%, zinc was flat, tin added 2.29%, and nickel declined 0.55%.

Copper: The most-traded SHFE 2203 copper closed down 0.46% or 320 yuan/mt at 69780 yuan/mt, with open interest down 8330 lots to 129985 lots.

The US Fed decided to maintain the interest rate unchanged at 0-0.25%, and will finish tapering the debut purchase by March, which is in line with market estimate. Meanwhile, the Fed emphasised that it will hike the interest rate soon as the inflation rate is well above the targeted 2% and the labour market has been robust. The Fed fund futures implied four rate hikes in 2022. It is expected that the plan of reducing balance sheet will discussed in the FOC meeting in May-June. The Fed was hawkish as a whole, and it is almost a sure thing that the first rate hike will happen in March. Meanwhile, the current US CPI and core CPI stood at 7% and 5.5% respectively, new highs in nearly 40 years, according to the latest news.

US dollar index rose amid the expectation of an early interest rate hike, which will pressuring commodities denominated in US dollar. The market shall also be alert that the energy supply in Europe still faces risks arising from geopolitical tensions. There is also possibility of structural inflation.

On the whole, the macro front was bearish on the whole, but the structural strength is expected to underpin copper prices.

Aluminium: The most-traded SHFE 2203 aluminium closed up 0.35% or 75 yuan/mt to 21540 yuan/mt, with open interest down 11686 lots to 204722 lots.

The supply and demand of aluminium market was unchanged ahead of the CNY, featuring low aluminium operating rates and weakening demand that resulted in rising inventory in some places. It is expected that the post-CNY holiday is expected to record a peak below 1.2 million mt, lower than in the previous years.

Lead: The most-traded SHFE 2203 lead closed down 0.36% or 55 yuan/mt at 15395 yuan/mt, with open interest down 3245 lots to 50146 lots.

The spot market was extremely quiet as the logistics have been out of services. Most of the smelters have stopped making offers, and there were rarely any quotes heard in the trade market. The downstream was also sluggish in purchasing.

Zinc: The most-traded SHFE 2203 zinc closed up 0.08% or 20 yuan/mt at 24820 yuan/mt, with open interest down 3985 lots to 113555 lots.

Domestic refined zinc output rebounded slowly, but the TCs were still ow, which suppressed the output growth. The overseas supply was still tight. The downstream was already in the holiday mood, resulting in sluggish demand. The seasonal increase in zinc inventory will cap the price increase.

Tin: The most-traded SHFE 2203 tin closed up 2.29% or 7330 yuan/mt at 326760 yuan/mt, with open interest up 6998 lots to 41993 lots.

The spot transactions were lacklustre today, and the smelters barely made offers. The downstream demand was also low. SHFE warrants inventory rose 24 mt to 2,273 mt, evidencing a quiet market.

Nickel: The most-traded SHFE 2203 nickel closed down 0.55% or 910 yuan/mt to 163880 yuan/mt, with open interest down 11288 lots to 142091 lots.

The US Federal Reserve released the interest rate resolution for January, and signalled rate hike in March. The expected and real rate hike will influence the nickel demand, but the influence will be less severe when compared with other base metals including copper, aluminium, lead and zinc, because the growth in nickel demand is faster than other base metals. Hence the rate hike will only cap the upper limit of nickel prices.