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

SHANGHAI, Jan 10 (SMM) – Shanghai base metals all trended higher on Monday morning. Their counterparts on LME trended mixed.

LME base metals mostly settled lower in the trading last Friday. Copper gained 1.17%, aluminium fell 0.26%, lead fell 0.56%, and zinc lost 0.69%.

SHFE metals performed similarly in the overnight trading last Friday. Copper rose 0.74%, aluminium dipped 0.02%, lead fell 1.1%, and zinc shed 0.98%.

Copper: Three-month LME copper opened at $9,606/mt last Friday night, and gained 1.17% to close at $9,674/mt after hitting the lowest and highest points at $9,549/mt and $9,690.5/mt respectively. The trading volume was 10,000 lots, and the open interest stood at 248,000 lots. Three-month LME copper is expected to trade between $9,600-9,700/mt today,

The most-active SHFE 2202 copper contract opened at 69,470 yuan/mt and rose 0.74% to close at 69,850 yuan/mt in overnight trading last Friday, after hitting the lowest and highest levels at 69,410 yuan/mt and 69,980 yuan/mt respectively.  The trading volume was 31,000 lots, and the open interest was 113,000 lots. SHFE copper is expected to trade between 69,500-70,100 yuan/mt today, with spot premiums between 220-350 yuan/mt.

On the macro front, the US non-farm payrolls for December was far below expectations, triggering market concerns about the US economy under the recurrence of the pandemic. Last Friday, the US dollar index recorded its biggest intraday drop in six weeks, boosting copper futures to rebound and close higher. But at the same time, the US unemployment rate fell to the lowest level in 22 months, supporting the expectations for the Fed to raise interests in March, so the upside room of copper prices is still limited.

Aluminium: LME aluminium opened at $2,930/mt last Friday and closed at $2,922.5/mt, down $7.5/mt or 0.26%.

During last Friday’s night session, the most-traded SHFE 2202 aluminium contract opened at 21,100 yuan/mt, with the highest and lowest prices at 21,105 yuan/mt and 20,950 yuan/mt before closing at 20,995 yuan/mt, down 5 yuan/mt or 0.02%.

The domestic operating aluminium capacity may continue to increase slightly in January, mainly driven by Yunnan and Shanxi. Consumption in downstream sectors showed signs of weakening, except for the aluminium plate/sheet, strip and foil sector, and some aluminium billet processing companies are expected to reduce production. 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 $2,307.5/mt last Friday, fluctuating around the intraday moving average in the Asian session. Then it moved upward to hit the highest point at $2,329/mt in the European session, and pulled back to $2,271/mt. LME lead closed at $2,294.5/mt, down $13/mt or 0.56%.

The most-traded SHFE 2202 lead contract opened at 15,350 yuan/mt in the overnight trading last Friday, hitting the lowest point at 15,160 yuan/mt, and closed at 15160 yuan/mt, down 170 yuan/mt or 1.1%

Zinc: LME zinc opened at $3,563/mt last Friday, and rose to near $3,600/mt, but then fell back. LME zinc closed at $3,538/mt, down $24.5/mt or 0.69%. Trading volume fell to 6,473 lots, and open interest decreased by 201 lots to 251,000 lots. LME zinc inventory decreased by 2,275 mt to 193,875 mt, a drop of 1.16%. The supply problem of European zinc smelters still plagues the market, while the low inventory situation in Europe and the United States has not improved. It is expected that LME zinc will fluctuate at a high level of $3,520-3,570/mt in the short term.

During last Friday’s night session, the most-traded SHFE 2202 zinc contract opened at 24,475 yuan/mt and fell to a low of 24,165 yuan/mt before closing at 24,245 yuan/mt, down 240 yuan/mt or 0.98%. Trading volume fell to 144,000 lots, and open interest decreased by 3,876 lots to 219,600 lots. On the supply side, domestic refined zinc production fell more than expected in December. Based on the smelters’ production plans for January-February, the market expected a smaller inventory growth in Q1. Consumption will continue to weaken as more end-users close early for the Chinese New Year. Zinc ingots from Tianjin arrived in Shanghai, but the volume was not large. Shanghai maintained the destocking, and the spot premiums rose, but the overall transaction was not active. Market still needs to pay attention to the shortage of electricity in Europe. If electricity prices remain high, zinc prices will still have little room to fall under the support of high costs. It is expected that zinc prices will remain high in the short term. The most-traded SHFE zinc contract is expected to move within a range of 24,200-24,700 yuan/mt today. 0# domestic Shuangyan zinc may trade at premiums of 150-170 yuan/mt over the SHFE 2201 zinc contract.

Nickel: SHFE nickel prices closed at 153,350 yuan/mt on the evening trading of Friday. Trading volume was 139,000 lots, and open interest decreased 6,732 to 142,000 lots. At present, the nickel spot supply is tight. If the premiums remain high, the market bullishness is likely to continue to improve in the short term. SHFE nickel prices are expected to move between 148,000-155,000 yuan/mt this week.

Tin: The SHFE 2202 tin contract fell back after opening higher during last Friday’s night session, and closed at around 297,000 yuan/mt. The spot market was relatively stable. The inventory of warrants will continue to increase as the delivery of futures contract is approaching. SHFE tin will have little upside room in the short term amid weaker supply and demand.