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SMM Morning Comments (Jan 5): Most Base Metals Closed Higher on Concerns over Overseas Power Supply
Jan 5, 2022 10:34CST
Source:SMM
Most base metals prices closed with gains in overnight trading except for lead. The market concerns over overseas power supply incentivised bulls.

SHANGHAI, Jan 5 (SMM) – Most base metals prices closed with gains in overnight trading except for lead. The market concerns over overseas power supply incentivised bulls.

LME copper rose 0.41%, aluminium gained 0.69%, lead gained 0.33%, and zinc climbed 1.13%.

SHFE copper rose 1.3%, aluminium increased 0.45%, lead dropped lost 0.71%, zinc advanced 1.35%, and nickel gained 2.06%.

Copper: LME copper prices rose 0.41% and ended at $9,795/mt last night. Trading volumes stood at 13,000 lots and open interest stood at 253,000 lots. The most-active SHFE 2202 copper contract rose 1.3% to close at 70,710 yuan/mt in overnight trading. Trading volume was 42,000 lots, and open interest was 130,000 lots. Although the recent global COVID-19 pandemic is still severe, investors still bet that the US economy will not be dragged down by the new wave of COVID-19 pandemic. The concerns about the impact from the pandemic on crude oil demand have weakened. International oil prices continued to rise overnight, and both WTI and Brent oil prices closed higher and hit the highest since November 26, bolstering copper futures prices. In addition, the Caixin PMI for China announced yesterday rebounded to 50.9, rising to an expansion territory. The positive manufacturing data also boosted copper to a certain extent. In terms of spot markets, market activity is gradually picking up, and the social inventories remained low. Sellers raised their quotes. Spot premiums will stabilise amid high SHFE copper prices. SHFE copper prices are expected to move between 70,300-71,000 yuan/mt today, and LME copper will trade between $9,740-9,840/mt. Spot expected premiums are likely to move between 60-160 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2202 aluminium contract opened at 20,300 yuan/mt, with the highest and lowest prices at 20,430 yuan/mt and 20,120 yuan/mt before closing at 20,300 yuan/mt, up 90 yuan/mt or 0.45%. LME aluminium opened at $2,820/mt on Monday and closed at $2,832.5/mt, an increase of $19.5/mt or 0.69%.

Domestic aluminium output remains low. Domestic aluminium ingot social stocks were 801,000 mt on January 4, an increase of 2,000 mt from last Thursday. This was the first time that the stocks rose since mid-to-late November. The short-term focus is still on the potential aluminium production reduction triggered by the energy shortage in Europe and the domestic aluminium inventory data. It is expected that SHFE aluminium price will continue to fluctuate at a high level in the short term.

Lead: LME lead prices gained 0.33% to settle at $2,298/mt in overnight trading session. The most-active SHFE 2202 lead contract lost 0.71% to close at 15,325 yuan/mt in the overnight trading yesterday.

Zinc: LME zinc fell to $3,497.5/mt after opening at $3,524.5/mt on Tuesday. However, LME zinc rallied to $3,611/mt before closing at $3,576.5/mt, up $40/mt or 1.13%. Trading volume rose to 11,404 lots, and open interest decreased by 1,108 lots to 250,000 lots. LME zinc inventory decreased by 250 mt to 199,325 mt, a drop of 0.13%. The price rise was driven by the surge in European natural gas prices. In the short term, the market still needs to pay attention to how the energy shortage in Europe will evolve and its impact on zinc smelters. LME zinc is expected to move between $3,540-3,590/mt on Wednesday.

Overnight, the most-traded SHFE 2202 zinc contract opened at 24,200 yuan/mt and hit a high at 24,545 yuan/mt before closing at 24,450 yuan/mt, up 325 yuan/mt or 1.35%. Trading volume rose to 170,000 lots, and open interest increased by 9,853 lots to 221,000 lots. European natural gas prices rose sharply, pushing up the costs of overseas smelters. Domestic smelters were affected by environmental protection, production cuts, and maintenance, preventing their output from increasing. Domestic zinc stocks increased by 10,900 mt during the New Year's Day holiday. The low-season and higher zinc prices discouraged downstream buyers from purchasing. The overall zinc stocks remained low, encouraging cargo holders to continue to raise their spot premiums. The European energy shortages will still offer strong support for zinc prices, but declining downstream demand may put downward pressure on prices. The most-traded SHFE zinc contract is expected to move within a range of 24,000-24,500 yuan/mt today. 0# domestic Shuangyan zinc may trade at premiums of 150-180 yuan/mt over the SHFE 2202 zinc contract.

Tin: Overnight, the most-traded SHFE 2202 tin contract hit a new high. Spot prices remained below 300,000 yuan/mt. SHFE tin is expected to hover sideways at highs amid stable spot market.

Nickel: The most-active SHFE 2202 nickel contract closed at 154,820 yuan/mt, an increase of 3,130 yuan/mt, or 2.06%, from the settlement price of the previous trading day. Trading volume was 171,000 lots, and open interest increased by 9,000 lots to 161,000 lots.

The driver for the rise in metals prices may be that Indonesian coal mining companies are required to stop coal exports from January 1 to January 31, 2022. The Indonesian government stated that it will stop coal exports during this period and use all coal for domestic demand to avoid domestic insufficient power supply. Indonesia is the world's largest exporter of thermal coal, and the news triggered a rise in coal prices. Rising energy prices drove other commodities prices to follow up. The fundamentals of nickel have no directional change at present, with weak consumption and low inventories. The current weak consumption has not been transmitted to the nickel demand.  However, the steel mills will undertake concentrated maintenance in January, and the stockpiling will end, muting trades. There will be arriving shipments of pure nickel this week, which will added into the inventory. There is no upward momentum for nickel prices in view of the current fundamentals.

base metals

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