SMM Morning Comments (Jan 21): Base Metals Rose across the Board on High US Jobless Claims

SHANGHAI, Jan 21 (SMM) – Shanghai base metals mostly closed with gains overnight on unexpectedly high US jobless claims. LME base metals all rose on Thursday.

LME copper rose 2.22%, aluminium increased 2.03%, lead went up 0.68%, and zinc gained 2.28%.

SHFE copper went up 1.27%, aluminium rose 0.98%, lead shed 0.19%, zinc increased 0.4%, and nickel gained 3.99%.

Copper: Three-month LME copper opened at $9,950/mt on Thursday and moved down to $9,881/mt, then rebounded to $10,065/mt, before closing at $10,039/mt, up 2.22%. The trading volume was 15,000 lots, and the open interest was 239,000 lots. Three-month LME copper is expected to trade between $9,880-9,980/mt today,

The SHFE 2203 copper contract opened at 71,190 yuan/mt last night, and rose to the highest point at 71,880 yuan/mt, before closing at 71,740 yuan/mt, an increase of 1.27%. The trading volume was 39,000 lots, and the open interest was 153,000 lots. SHFE copper is expected to trade between 70,900-71,500 yuan/mt today, with spot prices between a discount of 60 yuan/mt and a premium of 100 yuan/mt.

On the macro front, the weekly initial jobless claims as of January 15 was far higher than the market expectations, rising for the third straight week to a highest level since October 2021. The US dollar index slipped after the data was released, but it closed with gains. In the spot market, some downstream users gradually started their holidays, and the copper prices above 70,000 yuan/mt suppressed the purchases. The market transactions stood sluggish. Besides, the goods holders were willing to sell the goods on high prices amid reduced long-term orders, and the quotations were much more than the inquiries. The spot premiums dropped below 100 yuan/mt, and the quotations over the SHFE 2203 copper contract fell to discounts.

Aluminium: LME aluminium opened at $3,047/mt on Thursday and closed at $3,115/mt, an increase of $62/mt or 2.03%.

Overnight, the most-traded SHFE 2203 aluminium contract opened at 21,600 yuan/mt, with the highest and lowest prices at 21,805 yuan/mt and 21,500 yuan/mt before closing at 21,700 yuan/mt, up 210 yuan/mt or 0.98%.

On the supply side, although the production of aluminium in Yunnan and Shanxi increased, the overall output remained relatively low. In terms of demand, consumption has weakened as the Spring Festival approaches, and the social stocks rose to 726,000 mt on January 20. In terms of cost, the recent rise in alumina and thermal coal prices has pushed up aluminium prices further. It is still necessary to be alert to possible exit of bulls before the Spring Festival and the energy shortage in Europe. Inventory increase during the Spring Festival this year may be smaller than in previous years, and the post-holiday inventory peak may be lower than 1.2 million mt.

Lead: The most active SHFE lead contract opened at $2,395/mt yesterday and closed 0.68% higher at $2,374/mt.

The most-liquid SHFE 2203 lead contract opened at 15,705 yuan/mt last night and decreased 0.19% to settle at 15,665 yuan/mt, with open interest increasing 418 lots to 57,264 lots.

Zinc: LME zinc opened at $3,588/mt, and closed at $3,672/mt, up $82/mt or 2.28%. Open interest decreased by 4,689 lots to 250,000 lots. LME zinc inventory decreased by 3150 mt to 172375 mt. LME zinc inventories fell sharply due to strong overseas demand, providing upward momentum for zinc prices. LME zinc is expected to move between $3,670-3,720/mt on Friday.

Overnight, SHFE zinc hit a high of 25,375 yuan/mt, and closed at 25,310 yuan/mt, up 100 yuan/mt or 0.4%. Open interest increased by 3,518 lots to 125,000 lots. The supply side was still disturbed by factors such as environmental protection and routine maintenance, hence refined zinc output may fall to 513,400 mt in January. Although the demand has slowed down, the social inventory has not increased. Zinc prices are expected to remain firm. The most-traded SHFE zinc contract is expected to move between 25,200-25,700 yuan/mt on Friday. #0 domestic Shuangyan zinc is likely to trade at premiums of 150-180 yuan/mt over the SHFE 2202 zinc contract.

Nickel: SHFE nickel has hit record highs since the start of 2022 and rose its limit up yesterday. The contract rose 6,820 yuan/mt or 3.99% in the overnight trading. Trading volume was 215,000 lots, and open interest decreased by 19,000 lots to 116,000 lots. SMM believes that the LME nickel inventory declined below 95,000 mt, and the domestic inventory remained low, which continues to intensify industrial conflicts and brings more financial attention. The main reason for the current strong expectation over nickel prices is the commissioning of new global stainless steel projects in 2022 and the NMC, CAM and precursors still maintain a growth rate of 30-50%. The demand for nickel is optimistic. The global demand, especially China, will continue to be strong and supply shortages will continue, and this will drive declines in LME nickel inventories. In addition, Indonesia's current power issues have gradually become prominent as the production progress is accelerated, and there are still concerns about the progress of the commissioning of Indonesia's NPI and high matte projects. If the projects are carried out as scheduled, the inventory decline of LME nickel will decelerate noticeably in the second half of the year. If the project progress is slower than expected, there will still be great worries about nickel supply.  The current nickel prices are relatively high. And the market shall pay attention to the big price volatility caused by the callback.