SMM Evening Comments (Jan 28): Shanghai Nonferrous Metals Closed Mixed in the Last Trading Day ahead of CNY

SHANGHAI, Jan 28 (SMM) – Shanghai nonferrous metals closed mixed in the last trading day ahead of the Chinese New Year. The market was basically in the holiday mood, while the better-than-expected US GDP reading for the past quarter aroused some discussions.

Shanghai copper lost 0.31%, aluminium advanced 2.05%, lead dropped 1.3%, zinc jumped 2%, tin added 0.86%, and nickel declined 1.28%.

Copper: The most-traded SHFE 2203 copper closed down 0.31% or 220 yuan/mt at 70290 yuan/mt, with open interest down 685 lots to 129300 lots.

On the macro front, the US released its GDP reading for the fourth quarter 2021 yesterday, which topped the previous reading and the estimate, and was indeed the best performance in nearly 40 years. The market heightened the estimate of accelerated interest rate hike, hence the overnight US dollar index rose by 0.77% to a high of 97.3 since July 2020, rising for four consecutive sessions.

Meanwhile, the WTI and Brent crude prices both hit the highs since October 2014, a level close to $90/mt, but edged down afterwards.

On the fundamentals, the copper inventory in the bonded zone rose 18,600 mt to 243,100 mt from a week ago, rising for five straight weeks. The inventories in the major markets in China also climbed slightly by 8,300 mt, alleviating the pressures of copper prices from the upper end. However, since the total inventory was still low, it will underpin the copper prices.

Tonight, the market shall watch the climate index and consumer confidence index in the eurozone in January, the US PEC price index for December as well as personal expenses on a monthly basis. The OPEC+ meeting to be held on February 2 is also worth of attention.

Aluminium: The most-traded SHFE 2203 aluminium closed up 2.05% or 440 yuan/mt to 21950 yuan/mt, with open interest down 1415 lots to 203307 lots.

The supply of aluminium was still low despite rising aluminium operating capacities in Yunnan and Shanxi. The demand, on the other hand, weakened amid the imminent Chinese New Year (CNY). The post-holiday inventory peak may be less than 1.2 million mt.

Lead: The most-traded SHFE 2203 lead closed down 1.3% or 200 yuan/mt at 15210 yuan/mt, with open interest down 778 lots to 49368 lots.

The lead market was quiet in the last trading day ahead of the CNY, and the overnight lead prices are expected to drop.

Zinc: The most-traded SHFE 2203 zinc closed up 2% or 495 yuan/mt at 25295 yuan/mt, with open interest down 6595 lots to 106960 lots.

On the fundamentals, it is expected domestic refined zinc output in January will stand at 521,000 mt, up 7,700 mt on the month; the output in February is estimated at 487,700 mt, up 3.5% YoY, both of which are better than previous estimate. In terms of inventory, as of January 28, the zinc ingot inventory across the seven major regions in China totalled 160,500 mt, up 15,200 mt from January 24 and up 26,900 mt from January 21, according to SMM data. The downstream has already been dominated by the holiday sentiment, resulting in thin transactions.

Tin: The most-traded SHFE 2203 tin closed up 0.86% or 2810 yuan/mt at 329600 yuan/mt, with open interest down 7086 lots to 34907 lots.

The spot market was already in the holiday mood, with few transactions. The traders were mostly closed for the holiday, while a few smelters will maintain normal production during the CNY holiday. The smelters that took break are expected to resume normal production starting from February 15, which will weigh on tin output. SHFE tin warrants rose 377 mt to 2,650 mt today, indicating a quiet downstream market.

Nickel: The most-traded SHFE 2203 nickel closed down 1.28% or 2120 yuan/mt to 163750 yuan/mt, with open interest down 11569 lots to 130522 lots.

According to neutral estimate of SMM, domestic primary nickel will see a surplus from Q1 2022 until the end of 2023, mainly contributed by NPI. LME nickel inventory is expected to drop quickly in Q1-Q2 2022, and slow down the decline in Q3. Meanwhile, the nickel sulphate output of precursor manufacturers in South Korea and Japan is expected to maintain high growth, which will accelerate the decrease of LME inventory. Though the nickel matte produced in Indonesia has already been shipped to China, its entry into the market will take time. Hence the low inventory will still serve as the main driving force for nickel prices in the medium term.