Evening Comments (Jan 3): Copper fell to 3-week low as Middle East tensions flared

SHANGHAI, Jan 3 (SMM) – Shanghai copper prices extended the decline to the lowest in three weeks on Friday, as investors switched on risk-off mode following a flare-up in Middle East tensions after a senior Iranian military official was killed in a US air strike.

With investors seeking safe haven, US gold prices rose above $1,540/oz to a four-month high and the dollar strengthened, while SHFE nonferrous metals, except for tin, cruised lower on the day. Nickel tumbled 2.9% to lead the losses, lead dropped 2.6%, zinc declined 1.1%, copper shed 1%, and aluminium fell 0.2%.

The ferrous complex, except for coking coal and iron ore, drifted lower as well. Stainless steel plunged almost 3%, hot-rolled coil slid 0.8%, coke and rebar fell 0.6%.

Oil prices spiked following the news in Middle East.

Copper: The most active SHFE 2003 contract fell below the 20-day moving averages to its lowest since December 16 at 48,870 yuan/mt shortly before it closed the day 0.99% lower at 48,900 yuan/mt. Whether it could hold to 48,900 yuan/mt will come under scrutiny tonight.

Aluminium: The most traded SHFE 2002 contract recovered from a two-week trough in afternoon trade to close the day 0.18% lower at 14,085 yuan/mt, holding onto its recent range. Social inventories are likely to continue to grow, as pre-holiday stockpiling by downstream consumers will come to an end and as primary aluminium producers are keen to recover operations. SHFE aluminium is expected to edge lower to 13,900-14,100 yuan/mt next week. With spot premiums remaining firm on tight availability, backwardation on SHFE aluminium is likely to widen.  

Zinc: The most traded SHFE 2003 shed 1.14% on the day to 17,715 yuan/mt, the lowest close in a month, as shorts flocked in. SHFE zinc has fell for three consecutive trading days, and now sits below the five-, 10- and 20-day moving averages.

Nickel: The most traded SHFE 2003 contract dropped its weakest in more than three weeks at 107,680 yuan/mt, shortly before it finished the trading day down 2.94% at 107,800 yuan/mt. SHFE nickel has lost support at all near-term moving averages, and support is seen at 106,000 yuan/mt.

Lead: Shorts knocked the most traded SHFE 2002 contract to a record low of 14,545 yuan/mt in afternoon trade, before the contract closed the day 2.64% lower at 14,595 yuan/mt. SHFE lead is likely to extend its decline tonight, in view of its weak LME counterpart.

Tin: The most traded SHFE 2006 contract eased during the daytime session, paring overnight gains to close the day 0.4% firmer at 135,020 yuan/mt.