SMM Morning Comment For SHFE Base Metals January 29

SHANGHAI, January 29 (SMM) –
Copper
Copper prices moved at highs last Friday evening as market awaiting central bank meetings
LME copper prices opened at $8548/mt and closed at $8529/mt last Friday evening, a drop of 0.22%, with the low-end of $8518/mt and the high-end of $8587/mt. Trading volume was 18,000 lots, and open interest stood at 280,000 lots. The most active SHFE 2403 copper contract prices opened at 68910 yuan/mt and finished at 69010 yuan/mt last Friday evening, up 0.01%, with the low-end of 68990 yuan/mt and the high-end of 69280 yuan/mt. Trading volume was 21,000 lots and open interest stood at 153,000 lots. On the macro front, previous U.S. data showed that inflation has slowed down, and the market is more confident that the Federal Reserve will cut interest rates as soon as possible. In addition, the domestic reduction of the deposit reserve ratio also has a boosting effect on the market. This week we need to pay attention to the policy meetings of European and American central banks and the US non-farm payrolls report in January. In terms of fundamentals, from the supply side, a large amount of imported goods have recently flowed into the domestic trade market, which will have an impact on premiums and discounts. In terms of consumption, towards the end of the month, a large number of companies will start to take holidays. With copper prices running at high levels, it is expected that downstream willingness to stock up will be low. According to SMM research, as of Friday January 26, copper inventories in mainstream regions across China increased by 4,400 mt from last Monday to 85,200 mt. Overall, it is expected that the oversupply will further deepen this week. Copper prices are expected to remain rangebound narrowly.
Aluminum
The most-traded SHFE 2403 aluminum contract opened at 19,115 yuan/mt last Friday night, with its low and high at 19,080 yuan/mt and 19,250 yuan/mt before closing at 19,215 yuan/mt, up 160 yuan/mt or 0.84%. LME aluminum opened at $2,234.0/mt last Friday, with its high and low at $2,283.0/mt and $2,233.5/mt respectively before closing at $2,258.0/mt, up by $26.0/mt or 1.16%.
Summary: On the macro front, US macro data demonstrated the resilience of the economy, and expectations for interest rate cuts once again cooled; In China, the macroeconomic environment was positive. Real estate support policies and relaxation of purchase restrictions in Guangzhou greatly boosted domestic market sentiment. In terms of fundamentals, as CNY is drawing near, aluminium downstream industries slashed or halted their production, weakening demand, but industry inventories remained at low levels driven by a high aluminum liquid ratio and downstream stockpiling before the CNY holiday. SMM predicts that the total domestic inventory accumulation during the 2024 CNY holidays may be lower than levels for the same period of previous years. In the short term, amid low inventory and no obvious contradiction between supply and demand, aluminum prices may fluctuate along with macro sentiment before CNY holidays.
Lead
Last Friday, LME lead opened at $2146/mt, falling to as low as $2126/mt. After entering the European session, the US dollar fell and nonferrous metals rebounded. LME lead also stopped falling and rebounded, finally closing at $2,163/ton, an increase of 0.84%.
SHFE 2403 lead contract prices opened at 16275 yuan/mt last Friday evening and finally closed at 16280 yuan/mt, down 0.12%. Open interest decreased 88 lots to 75499 lots.
Zinc
Core PCE price index and personal expenditures in December in the United States reduced the market expectations of the Fed's interest rate cut [SMM zinc morning comment]
Last Friday, the annualised core PCE price index of the United States in December recorded 2.9%, which was a new low since March 2021. The monthly rate of personal expenditure recorded 0.7%, which is a new high since September 2023. After the data was released, traders reduced their bets on the Federal Reserve cutting interest rates. Interest rate futures show about an 80% chance of a first rate cut by the Fed in May and a little less than a 50% chance of a first rate cut in March.
LME zinc prices opened at $2583/mt and closed up $1/mt or 0.04% at $2588/mt last Friday evening, with the low-end of $2572.5/mt. The trading volume decreased to 6573 lots, and open interest added 574 lots to 216,000 lots. Last Friday, LME inventories decreased by 1,875 tons to 191,600 tons, a decrease of 0.97%. The U.S. core PCE price index released last Friday night recorded an annual rate of 2.9%, slightly lower than the expected value of 3%, and the monthly rate of personal expenditures recorded 0.7 %, 0.4% higher than the previous value and expected value. The market lowered expectations of the Federal Reserve's interest rate cut, and LME zinc fell slightly. However, as LME inventories continued to decrease, prices remained high.
The most-traded SHFE 2403 zinc contract opened at 21405 yuan/mt overnight and fell to 21355 yuan/mt before rallying to a peak of 21520 yuan/mt. It eventually settled at 21485 yuan/mt, up 55 yuan/mt or 0.26%. Trading volume decreased 49663 to 43029 lots, and open interest decreased by 386 lots to 90396 lots. The refined zinc import window was closed, and domestic social inventories remained low, keeping SHFE zinc strong.
Tin
SHFE 2402 tin contract moved rangebound last Friday night, closing at 220,860 yuan/mt, down 0.60%.
Last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 200-800 yuan/mt against SHFE 2403 tin contract, versus discounts of 300 yuan/mt to premiums of 600 yuan/mt for delivery brands, premiums of 300-1,000 yuan/mt for Yunxi brand, and discounts of 1000-1300 yuan/mt for imported brand tin ingots. Tin prices remained stable in early trading last week, but rose initially and then fell back in the afternoon. Traders reported weak demand from downstream companies.
Nickel
The SHFE nickel market showed strong resilience at a lower level and surpassed the 130,000 yuan/mt mark last Friday. Market sentiment received a boost from a series of favorable macro news, significantly lifting SHFE nickel prices. Foreign media first reported the closure of the Kambalda mine in Western Australia due to the prolonged slump in nickel prices, and according to SMM research, the mine is one of BHP's nickel raw material suppliers. At the same time, Canadian miner First Quantum Minerals has temporarily halted mining operations at its Ravensthorpe nickel mine in Western Australia. This could impact the company's raw material supply in the second quarter of this year. Additionally, the delayed Reserve Base Metal Quotas (RKAB) has provided support to nickel prices. On the macro front, the market focused on the US December core PCE price index last week, with GDP reports indicating a slight decrease in US inflation. The data reveals robust economic growth in the United States, with a year-on-year increase of 3.3% in the fourth quarter of 2023 compared to the previous year. Meanwhile, the week ending January 19 saw an increase in US initial jobless claims, reaching 214,000, indicating signs of weakness in the current employment market. Although market expectations for a potential interest rate cut by the Federal Reserve in March remain cautious, given the faster-than-expected economic growth and some alleviation of inflationary pressures, there is a widespread belief that the Fed might start cutting rates in the first half of this year. In terms of fundamentals, nickel inventories showed an accumulating trend last week. SMM discovered that a substantial part of the recently acquired inventories is made up of nickel briquettes. This is mainly due to a large influx of nickel briquettes arrivals, and the high nickel prices are suppressing downstream stocking sentiments. In terms of output, with the rise in nickel prices boosting the recovery of pure nickel production profits, some refining nickel producers that may have previously reduced production are still maintaining high operating rates last week. Coupled with the introduction of some new production capacity, it is expected that the supply of pure nickel will be relatively ample. On the demand side, as the Spring Festival holiday approaches, downstream enterprises are gradually entering holiday mode. Purchasing pace is slowing down, leading to a decrease in overall activity in the spot market. In summary, because mining output has decreased and there's anticipation of interest rate cuts, short-term nickel prices could rise. However, the potential is limited due to a mismatch in the fundamental supply and demand for pure nickel. The current SHFE nickel market reflects a mix of bullish and bearish sentiments, displaying some resilience prior to the holiday.