SMM Morning Comments (Jan 7): Base Metals Closed Mixed Overnight amid Cautious Sentiments

SHANGHAI, Jan 7 (SMM) – Shanghai base metals trended mixed on Friday morning amid cautious market sentiments. Their counterparts on LME closed mixed on Thursday night.

LME metals closed mixed in the trading on Thursday. Copper fell 1.34%, aluminium increased 0.62%, lead rose 0.9%, and zinc dropped 0.22%.

SHFE metals closed mixed as well in the overnight trading. Copper dropped 0.96%, aluminium rose 0.85%, lead increased 0.93%, zinc edged up 0.1%, and nickel fell 0.93%.

Copper: Three-month LME copper opened at $9,560/mt last night, and fell 1.34% to close at $9,562/mt. The trading volume was 14,800 lots, and the open interest was 252,000 lots. Three-month LME copper is expected to trade between $9,500-9,600/mt today,

The SHFE 2202 copper contract opened at 69,400 yuan/mt on Thursday night, falling to the lowest point at 69,000 yuan/mt before rebounding to the point at 69,460 yuan/mt, and closed at 69,220 yuan/mt, down 0.96%. The trading volume was 40,000 lots, and the open interest reached 120,000 lots. SHFE copper is expected to trade between 68,900-69,400 yuan/mt today, with spot premiums between 170 yuan/mt and 280 yuan/mt.

On the macro side, the hawkish signals released during the Fed meeting continued to affect the market, and copper futures closed with losses last night in a cautious sentiment. The US weekly initial jobless claims rose to 207,000, slightly higher than market estimates. The U.S. Department of Labor will release the non-farm payrolls for December 2021 today. If it is in line with the ADP non-farm payrolls, it may further accelerate the Fed’s interest hike. In the spot market, the downstream users and traders were purchasing actively. Besides, the closed import window and relatively tight supply supported the traders to hold high quotations.

Aluminium: LME aluminium opened at $2,906/mt on Thursday and closed at $2,930/mt, an increase of $18/mt or 0.62%.

Overnight, the most-traded SHFE 2202 aluminium contract opened at 20,805 yuan/mt, with the highest and lowest prices at 20,920 yuan/mt and 20,685 yuan/mt before closing at 20,860 yuan/mt, up 175 yuan/mt or 0.85%.

On the supply side, domestic aluminium production remains at a low level. Overseas aluminium smelters may reduce production further amid European energy crisis. On the demand side, the downstream operating rates are currently relatively stable. Due to the low arrivals, aluminium ingot inventory fell another 23,000 mt to 776,000 mt this week. In the short term, domestic aluminium prices are expected to remain high. The short-term focus is still on the potential further aluminium production reduction triggered by the energy shortage in Europe and the domestic aluminium inventory data.

Lead: Three-month LME lead opened at $2,290/mt on Thursday and fluctuated around the intra-day moving average, then it hit the lowest level at $2,266/mt in the European session before rising to the highest point at $2,314/mt in the Asian session. It closed 0.90% higher at $2,307.5/mt.

The most-liquid SHFE 2202 lead contract opened at 15,105 yuan/mt last night, hitting the highest point at 15,290 yuan/mt, and closed at 15,270 yuan/mt, up 0.93%.

Zinc: Three-month LME zinc fell 0.22% to end at $3,563/mt last night, with open interest declining 1,854 lots to 252,000 lots. LME zinc inventory decreased by 1,775 mt or 0.9% to 196,150 mt. The electricity prices in Europe are at high levels and the smelting costs increase.

The most-liquid SHFE 2202 zinc contract increased 25 yuan/mt or 0.1% to settle at 24,470 yuan/mt in the overnight trading, with open interest up 1,550 lots to 220,000 lots. On the supply side, China's refined zinc output in December recorded 513,300 mt, a month-on-month decrease of 6,200 mt, with the decline exceeding the expectations. On the consumer side, more terminal companies will take holidays next week, and market demand will continue to decline. Sources of goods in Tianjin have recently arrived in east China, and some goods holders held prices firm to ensure the costs of Tianjin zinc ingots. However, downstream buyers were less willing to restock goods. The overall transactions were muted. The bottom support of zinc prices is strong before the energy problem in Europe is effectively solved. But in the case of weak domestic demand, there is limited room for rebound. It is expected that zinc prices will fluctuate at high levels in the short term. The most-traded SHFE zinc contract is expected to move between 24,100-24,600 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 150-160 yuan/mt over the SHFE 2202 zinc contract.

Nickel: The most active SHFE 2202 nickel contract closed at 149,950 yuan/mt in overnight trading, down 1,410 yuan/mt or 0.93%. Trading volumes stood at 106,000 lots. Open interest decreased 5,521 to 137,000 lots. The market shall pay attention to the pressure from the 150,000 yuan/mt level today.

Tin: Overnight, the SHFE 2202 tin contract fell sharply, but then rebounded quickly. The spot tin market remained stable, and warrants gradually increased. Wait-and-see sentiment remained strong. SHFE tin will remain high in the short term amid weaker supply and demand due to upcoming Chinese New Year.