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SMM Morning Comments (Jan 12): Base Metals Were Boosted By Falling US Dollar Index and Surging Crude Oil Prices
Jan 12, 2022 09:54CST
Shanghai base metals all trended higher on Wednesday morning after the US dollar index fell along with US bond yields and crude oil prices rose sharply.

SHANGHAI, Jan 12 (SMM) – Shanghai base metals all trended higher on Wednesday morning after the US dollar index fell along with US bond yields and crude oil prices rose sharply.

LME base metals mostly increased in the trading on Tuesday. Copper rose 1.71%, aluminium increased 1.7%, lead fell 1.34%, and zinc gained 2.04%.

SHFE base metals all went up in the overnight trading. Copper rose 0.98%, aluminium gained 1.78%, lead won 0.34%, and zinc advanced 2.31%.

Copper: Three-month LME copper opened at $9,626/mt on Thursday and moved down to $9,610/mt, then rebounded to $9,740/mt, before closing at $9,729/mt, up 1.71%. The trading volume was 8,111 lots, and the open interest was 243,000 lots. Three-month LME copper is expected to trade between $9,660-9,760/mt today,

The SHFE 2202 copper contract opened at 69,910 yuan/mt last Friday night, falling to the lowest point at 69,610 yuan/mt and then rebounding to 70,290 yuan/mt. It closed at 70,250 yuan/mt, up 0.98%. The trading volume was 31,000 lots, and the open interest was 109,000 lots. SHFE copper is expected to trade between 69,900-70,500 yuan/mt today, with spot premiums between 260-350 yuan/mt.

On the macro front, Fed Chairman Powell said that the Fed has not yet made a decision on tapering its nearly $9 trillion in assets and liabilities, and is still discussing the taper method, and it may take two, three or four policy meetings to make a decision. The U.S. dollar index fell along with US bond yields yesterday, and the copper futures were boosted to rise. At the same time, the crude oil prices rose sharply, which also benefited copper prices. The spot prices rebounded yesterday, prompting the downstream factories to purchase for restocking, hence the spot transactions improved. The traders held firm to the prices amid tight supply.

Aluminium: LME aluminium opened at $2,953.5/mt on Tuesday and closed at $2,983/mt, an increase of $50/mt or 1.7%.

Overnight, the most-traded SHFE 2202 aluminium contract opened at 21,550 yuan/mt, with the highest at 21,790 yuan/mt before closing at 21,770 yuan/mt, up 380 yuan/mt or 1.78%.

The domestic operating aluminium capacity may continue to increase slightly in January. The downstream operating rates will drop significantly in January due to the Spring Festival holiday and the pandemic, and thus the social inventory may begin to grow in late January. It is expected that the price of aluminium in January will continue to rise amid lower inventory, but longs may take profits at highs. 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 and closed $18/mt or 1.34% lower at $2,307.5/mt in the trading yesterday, after hitting the highest level at $2,310/mt.

The most-liquid SHFE 2202 lead contract opened at 15,200 yuan/mt and rose 0.34% to end at 15,230 yuan/mt in the overnight trading yesterday, after briefly hitting the lowest point at 15,155 yuan/mt.

Zinc: LME zinc opened at $3,502/mt on Tuesday, and hit a high of $3,559/mt before closing at $3,558.5/mt, an increase of $71/mt or 2.04%. The trading volume rose to 8,809 lots, and open interest rose to 253,000 lots. LME zinc inventory decreased by 2,300 mt to 190,325 mt, a drop of 1.19%. The European energy problem has not eased for the time being, and the weakness of the US dollar has given support to LME zinc. LME zinc is expected to move between $3,000-3,050/mt today.

Overnight, the most-traded SHFE 2203 zinc contract opened at 24,355 yuan/mt and hit a high of 24,810 yuan/mt before closing at 24,775 yuan/mt, up 560 yuan/mt or 2.31%. Trading volume was 59,287 lots, and open interest decreased by 362 lots to 77,099 lots. On the supply side, the overseas energy crisis has not yet been resolved, while domestic refined zinc production in December fell more than expected. The production plans of smelters for January-February will provide support for zinc prices. Consumption weakened in January. The pandemic once again caused disturbances to the operating rates of downstream enterprises. Some downstream enterprises will close early for the Chinese New Year. On the whole, the supply side will still support the zinc price. The most-traded SHFE zinc contract is expected to move within a range of 24,300-24,800 yuan/mt today. 0# domestic Shuangyan zinc may trade at premiums of 150-180 yuan/mt over the SHFE 2202 zinc contract.

Nickel: SHFE nickel opened at 158,960 yuan/mt in the overnight trading and rose to a record high of 161,500 yuan/mt. LME nickel prices hit a 10-year high of $21,850/mt. LME nickel inventories continued to decline, falling below 100,000 mt. However, the domestic nickel spot supply is scarce and the inventory remains low. Although the demand growth is expected to slow down, the nickel sulphate producers are not to cut output. The market shall pay attention to the price spread between the SHFE front-month and next-month nickel contracts.

Tin: Overnight, the SHFE 2202 tin contract kept rising and closed at an intraday high with the entry of capital. The spot prices rose further amid tight supply, but inventory under warrants gradually increased. Attention should be on whether capital will flow out of SHFE tin market and the performance of the spot market.

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