SMM Evening Comments (Jan 26): Shanghai Nonferrous Metals Closed Mixed ahead of Fed’s Rate Meeting

SHANGHAI, Jan 26 (SMM) – Shanghai nonferrous metals closed mixed today ahead of the US Fed’s interest rate meeting, and the market generally believed that the first interest rate hike will happen in March. Meanwhile, the tension between Russia and Ukraine also disturbed the market

Shanghai copper rose 1.3%, aluminium advanced 1.87%, lead dropped 0.48%, zinc jumped 0.77%, tin added 0.45%, and nickel declined 0.57%.

Copper: The most-traded SHFE 2203 copper closed up 1.3% or 910 yuan/mt at 70730 yuan/mt, with open interest down 1055 lots to 138315 lots.

On the macro front, the market expects that the US Fed will raise the interest rate in March for the first time in three years, and then shrink the balance sheet quickly afterwards, pending the final resolution of the Fed at its rate meeting this week. US dollar index rose, but the market has priced in part of the bullish factor from the US dollar.

In terms of oil, the crude prices rose by more than 2% in light of the political tension between Russia and Ukraine, threatened infrastructure in UAE, and the estimate that the OPEC+ member countries will not able to fulfil the output increase target.

On the fundamentals, LME copper inventory dropped 3,425 mt to 93,000 mt, underpinning copper prices.

Tonight, the market shall watch the adjusted monthly rate of US wholesale stocks in December, seasonally-adjusted US new homes sales in December as well as the EIA crude reserves in the week of January 21.

Aluminium: The most-traded SHFE 2203 aluminium closed up 1.87% or 395 yuan/mt to 21525 yuan/mt, with open interest up 9611 lots to 216408 lots.

On the supply side, the total aluminium output was still low despite rising output in Yunnan and Shanxi. The demand weakened ahead of the Chinese New Year (CNY), resulting in accumulation in stocks in some places. However, the aluminium accumulation during CNY is likely to be lower than 1.2 million mt, less than in previous years.

Lead: The most-traded SHFE 2203 lead closed down 0.48% or 75 yuan/mt at 15440 yuan/mt, with open interest down 2316 lots to 53391 lots.

The spot market was extremely quiet, and the logistics basically stalled. There were shipments from the smelters, but the downstream battery factories have basically completed building the stocks.

Zinc: The most-traded SHFE 2203 zinc closed up 0.77% or 190 yuan/mt at 24955 yuan/mt, with open interest down 1252 lots to 117540 lots.

On the macro front, IMF believes that the global economic growth will be 4.4% in 2022, down from the previous estimate of 4.9%, mainly in consideration of spreading COVID, supply chain issues and high inflations.

On the fundamentals, the steady supply and weakening demand have resulted in seasonal increase in social inventories. But the market was still optimistic about zinc fundamentals.

Tin: The most-traded SHFE 2203 tin closed up 0.45% or 1430 yuan/mt at 320380 yuan/mt, with open interest down 1565 lots to 34995 lots.

The SHFE tin has seen falling open interest for two consecutive days, as market risk aversion sentiment grew as there is only two trading days before the market closes for holidays. The spot market saw limited transactions. SHFE warrants inventory dropped 22 mt to 2,249 mt, a low level compared with the past.

Nickel: The most-traded SHFE 2203 nickel closed down 0.57% or 940 yuan/mt to 165240 yuan/mt, with open interest up 1266 lots to 153379 lots.

The market demand for nickel sulphate was still high. However, the raw materials supply was in a shortage, and LME nickel kept falling, which underpinned nickel prices. The drastically falling of SHFE 2203 has basically burst the market bubble, hence nickel futures are likely to maintain the backwardation structure amid falling LME inventories.