SMM Morning Comments (Feb 15): Base Metals Closed Mostly Mixed on Slowing US Inflation but Hawkish Fed

SHANGHAI, Feb 15 (SMM) – SHFE and LME base metals closed mixed overnight. On the macroeconomic front, January inflation data showed that the U.S. consumer price index (CPI) recorded the smallest year-on-year increase since October 2021, but Fed officials remained hawkish about raising interest rates, pushing up the U.S. dollar index.

Copper: LME copper closed with a gain of 0.65% $9,018/mt in overnight trading. Trading volume was 16,000 lots and open interest stood at 247,000 lots.

The most active SHFE 2303 copper contract finished at 68,810 yuan/mt overnight, up 0.41%. Trading volume was 59,000 lots, and open at 147,000 lots.

On the macroeconomic front, January inflation data showed that the U.S. consumer price index (CPI) recorded the smallest year-on-year increase since October 2021, but Fed officials remained hawkish about raising interest rates, pushing up the U.S. dollar index.

In terms of fundamentals, Guangdong's inventory has declined, mainly due to the lack of arrivals. Copper prices rose yesterday, and a big price spread between the front-month and next-month contract ahead of the delivery of the former kept most sellers from discounting their cargoes. With no obvious improvement in consumption, downstream replenishment was not strong, and spot market transactions were not very active. The current market demand is average, and the market participants stood on the sidelines, which still has a great impact on consumption. Although concerns over demand still exist, the market still has strong expectations for support from fundamentals, and copper prices are expected to remain rangebound.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,525 yuan/mt overnight before closing at 18,540 yuan/mt, a drop of 15 yuan/mt or 0.08%.

LME aluminium opened at $2,425/mt on Tuesday and closed at $2,409.5/mt, a decrease of $61.5/mt or 0.68%.

Macro headwinds weighed on base metals. On the fundamentals, the long-awaited output reduction has not been enforced. And the social inventory has kept rising. The market is waiting to see when the demand will show strong recovery. It is expected that aluminium prices will remain rangebound in the short term.

Lead: LME lead opened at $2,115/mt last night and fell 0.31% or $6.5/mt to close at $2,108/mt overnight after hitting the lowest point at $2,091/mt.

The most-traded SHFE 2303 lead contract opened at 15,220 yuan/mt and fell 35 yuan/mt or 0.23% to 15,230 yuan/mt overnight, after briefly hitting the highest point at 15,260 yuan/mt.

Zinc: On the news front, the high rents pushed up US consumer prices in January, but the increase on an annual basis was the smallest since October 2021. China said it supported Iran in safeguarding its legitimate rights and interests and in addressing the Iranian nuclear issue “in a proper manner as soon as possible”. OPEC upgraded its forecast for global oil demand growth rate for the first time over the past months citing the potential demand recovery in China.

Overnight, LME zinc opened at $3,111/mt, hitting a low and a high of $3,075/mt and $3,145/mt respectively, and closed at $3,097.5/mt, down $20/mt or 0.64%. Trading volume dropped to 7,800 lots, and open interest fell 395 lots to 199,000 lots.  LME zinc inventory decreased by 600 mt or 2.31% to 25,325 mt. The annualised US inflation rate was released at 6.4%, which was basically within expectations. However, the hawkish speeches of Fed officials put pressure on metal prices, and LME zinc thus trended lower.

The most-traded SHFE 2303 zinc contract opened at 23,175 yuan/mt overnight and touched a high of 23,290 yuan/mt before falling and closing at 23,110 yuan/mt, up 55 yuan/mt or 0.24%. Trading volume reduced to 57,597 lots, and open interest gained by 63 lots to 81,584 lots.  There is no major change in the fundamentals in the near term. The supply is confirmed to increase, while the demand is still picking up, allowing the accumulation of inventory to slow down. Zinc prices are expected to move sideways.

Tin: SHFE tin fell last night. The most-traded SHFE 2303 tin contract closed at 211,510 yuan/mt.

Fundamentally, affected by the intensive delivery of smelters, the domestic warrant inventory increased significantly yesterday. The spot premiums narrowed and the shipments remained flat from the previous day. The import window remained open.

SHFE tin prices fell after opening last night and the most-traded SHFE 2303 tin contract closed at 211,510 yuan/mt, with open interest increasing 165 lots. The open interest of SHFE 2304 and other forward-month contracts increased.

To sum up, SHFE tin prices continued to decline and the downstream raw material inventory was high. Imported tin continued to arrive, but imported goods were less cost-effective than the early stage. The overall demand for spot goods was weak, and the discounts were relatively stable.

Nickel: The growing US dollar has attracted the inflow of global safe-haven assets, and the prices of nonferrous metals declined. Nickel prices fluctuated at a low level after slumping yesterday. According to SMM research, the intraday spot transactions were average despite the falling prices. In terms of NPI, due to the weakening of stainless steel futures and spot prices, some NPI factories and traders have reduced their quotations. In particular, some traders who have hedging operations cut their prices sharply. On the demand side, according to SMM survey, the recent cold-rolled coil transactions have remained sluggish. The market held a high spot inventory, and the traders have to lower their prices to ship. In terms of #304 HRC, the rigid demand from the industrial sector still existed, thus the traders bore less inventory pressure and were not in a hurry to ship. And the prices were slightly higher than the CRC. Alloy manufacturers were more willing to inquire amid the crashing pure nickel prices, and they may buy raw materials on rigid demand. In general, the demand for pure nickel grew as the prices dropped yesterday. SMM believes that the nickel prices will move rangebound today.

[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.]