SMM Morning Comments (Feb 8): Based Metals Closed Mixed amid A Cautious Market

SHANGHAI, Feb 8 (SMM) – Overnight Shanghai and LME base metals closed mixed as the market was still cautious in the first trading week post the Chinese New Year when the demand side is still recovering slowly. The better-than-expected job market in the US also raised the market’s worries over inflation.

LME copper dropped 0.25%, aluminium rose 1.52%, lead dipped 0.36%, and zinc gained 0.69%.

SHFE copper dropped 0.82%, aluminium fell 0.25%, lead dipped 0.17%, zinc inched up 0.12%, and nickel gained 1.27%.

Copper: Three-month LME copper opened at $9785/mt last night and fell to $9,751.5/mt before rebounding to close at $9850/mt, a decrease of 0.25%. The trading volume was 9,138 lots, and the open interest reached 250,000 lots. Three-month LME copper is expected to trade between $9,800-9,900/mt today.

The most-traded SHFE 2203 copper contract opened at 70,630 yuan/mt and dropped 0.82% to close at 70,220 yuan/mt in overnight trading. The trading volume was 25,000, and the open interest was 125,000 lots. SHFE copper is expected to trade between $70,000-70,600/mt today, with spot premiums at 150-280 yuan/mt.

On the macro front, the market became more worried about inflations amid unexpectedly better-than-expected new payrolls in the US in January. Hence there is higher possibility that the first interest rate hike will happen in March at the Fed’s rate meeting. In the spot market in China, the market was still in the holiday mood in the first trading day post the Chinese New Year (CNY) holiday. And the futures prices were higher than the pre-holiday level, which dented the market participants. And there will not be large transactions as the downstream is still resuming their work.

Aluminium: Three-month LME aluminium opened at $3,090/mt and rose 1.52% to close at $3,134/mt on Monday.

The most-active SHFE 2203 aluminium contract opened at 22,250 yuan/mt and decreased 0.25% to end at 22,115 yuan/mt last night.

On the supply side, the aluminium capacities that were suspended in 2021 were slow in recovery. On the other hand, the domestic aluminium ingot inventory rose more slowly than expected as the import window was closed. Meanwhile, overseas production cuts of aluminium supported LME aluminium prices. Domestic aluminium supply saw a monthly reduction of more than 100,000 mt as the import window was closed. In other words, there is expectation that domestic aluminium inventory would fall. Currently, spot aluminium prices were in premiums over SHFE aluminium contract, indicating relatively tight supply of spot aluminium ingot.

Lead: Three-month LME lead opened at $2,219/mt on Monday and dipped 0.36% to close at $2,202.5/mt.

The most-liquid SHFE 2203 lead contract fell 0.17% to close at 14,795 yuan/mt in the overnight trading, after briefly hitting the highest point at 14,870 yuan/mt.

Zinc: Three-month LME zinc opened at $3,627/mt and rose 0.69% to close at $3,640/mt on Wednesday, with open interest increasing 1,152 lots to 253,000 lots. It is expected to trade between $3,600-3,650/mt today. Overnight LME inventory dropped 625 mt to 154325 mt, a drop of 0.4%.

The most-liquid SHFE 2203 zinc contract edged up 30 yuan/mt or 0.12% to settle at 25,205 yuan/mt in the overnight trading, with open interest down 1,861 lots to 106,138 lots. The 2203 contract is expected to move between 25,100-25,600 yuan/mt today, and 0# Shuangyan Zinc will be in premiums of 60-80 yuan/mt over SHFE 2203.

On the fundamentals, the zinc supply is likely to drop in February, while the cost side will offer strong support. SMM social inventory increased 57,400 mt from the pre-holiday level, and is expected to keep rising this week. The demand will still be weak as only a small number of downstream consumers resumed the production.

Overnight, the US is reported to soon announce an end to Trump-era steel tariffs on Japan, but Washington is becoming impatient with China, who has not fulfilled its trade deal promises; the US House of Representatives plans to vote on a stopgap spending bill on Tuesday; the European Central Bank Chang stressed that policy adjustments will be gradual; China's foreign reserves fell slightly in January. Hong Kong is expected to tighten pandemic prevention restrictions, with the number of confirmed cases doubling every three days.

Nickel: The most traded SHFE nickel contract opened at 171,100 yuan/mt in the overnight trading, and hit a high of 175,600 yuan/mt before closing at 173,000 yuan/mt, up 2,170 yuan/mt or 1.27%. The open interest fell 3,000 lots to 129,000 lots.

Tin: The SHFE 2203 tin moved in narrow range in the overnight trading, with sluggish participation of investors. On the fundamentals, domestic and foreign warrants inventory changed little, and the spot market saw lacklustre demand. The supply and demand were still weak.