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SMM Morning Comments (Feb 10): Base Metals Closed with Gains as Market Awaits US CPI

iconFeb 10, 2022 10:00
Shanghai and LME metals all closed in the positive territory as the market awaits the US CPI, which is expected to record the fastest growth in 40 years.

SHANGHAI, Feb 10 (SMM) - Shanghai and LME metals all closed in the positive territory as the market awaits the US CPI, which is expected to record the fastest growth in 40 years.

LME copper rose, aluminium rose 2.35%, lead jumped 2.67%, and zinc added 2.05%.

SHFE copper rose 2.56%, aluminium increased 2.24%, lead jumped 1.1%, zinc added 1.39%.

Copper: LME copper opened at $9,779/mt on Wednesday and hit a high of $10,105/mt before closing at $10,095/mt.

Overnight, the SHFE 2203 copper contract opened at 70,840 yuan/mt, and climbed to 72,270 yuan/mt before closing at 72,040 yuan/mt, up 2.56%. Trading volume stood at 65,000 lots, and open interest was 139,000 lots.

On the macro side, two Fed officials disagreed with raising interest rates by 50 basis points in March, and indicated that 3-4 interest rate hikes are suitable for the whole year of 2022, which eased market expectations for Fed rate hikes, and boosted copper prices. In addition, LME copper inventory fell below 80,000 mt, also pushing up copper prices. SMM sees SHFE copper between 71,500-72,100 yuan/mt on Thursday and LME copper between $9,900-10,000/mt. Spot premiums are expected at 0-100 yuan/mt.

Aluminium: The most-traded SHFE 2203 aluminium contract opened at 22,975 yuan/mt overnight, with the highest and lowest prices at 23,345 yuan/mt and 22,925 yuan/mt before closing at 23,315 yuan/mt, up 510 yuan/mt or 2.24%. 

LME aluminium opened at $3,192/mt on Wednesday, with the highest and lowest prices at $3,272/mt and $3,162/mt. LME aluminium closed at $3,263/mt, up $75/mt or 2.35%.

On the supply side, under the influence of overseas power shortages, aluminium smelters continued to reduce production, and LME aluminium inventories fell for more than half a month. In China, the import window was closed and the production resumption at smelters was slow. Smelters in south-west China may be forced to shut down due to the pandemic. As such, supply in the spot market was tight. On the demand side, downstream aluminium processing enterprises are gradually resuming work after the Spring Festival, and the market is relatively optimistic about post-holiday consumption. SMM expects aluminium prices to remain high.

Lead: LME lead fell sharply to $2,201/mt after opening at $2,209/mt on Wednesday, but then rallied, and closed at $2,268/mt, an increase of 2.67%. Overnight, the SHFE 2203 lead contract opened at 15,100 yuan/mt, and rose to 15,200 yuan/mt before closing at 15,160 yuan/mt, up 1.1%.

Zinc: Three-month LME zinc opened at $3,590.5/mt and rose 2.05% to close at $3,666.5/mt on Wednesday, with open interest declining 581 lots to 253,000 lots. It is expected to trade between $3,620-3,670/mt today. Overnight LME inventory dropped 1,175 mt to 152,700 mt, a drop of 0.76%.

The most-liquid SHFE 2203 zinc contract edged up 350 yuan/mt or 1.39% to settle at 25,530 yuan/mt in the overnight trading, with open interest up 2,927 lots to 109,637 lots. The 2203 contract is expected to move between 25,000-25,500 yuan/mt today, and 0# Shuangyan Zinc will be in premiums of 0-20 yuan/mt over SHFE 2203.

On the supply side, overseas energy crisis remained. The import business was still in losses though the SHFE/LME price ratio improved. The TCs for imported zinc to US$100/dmt. On the demand side, the post-CNY holiday consumption has not yet revived, and the operating companies mainly digested finished products inventory. It is expected that the inventory will rise by another 40,000-50,000 mt in the following two weeks.

On the macro front, unhappy with China's broken trade promises, the US Commerce Secretary has offered to go after Beijing, and the US Chamber of Commerce has revealed that the Biden administration is considering options with China beyond tariffs. The soon-to-be-disclosed US CPI is expected to record the quickest growth in 40 years, serving as a clue whether the US Fed would raise the rate by 50 basis points.

Nickel: Pure nickel supply was still relatively tight, and NPI and nickel sulphate output is likely to drop significantly in February. The fall in nickel sulphate output was mainly the result of poor profit which forced the manufacturers to reduce the production. For NPI, quite a number of NPI plants in Hebei and Shandong suspended or cut the production due to environmental protection requirements. Among them, a large-sized NPI plant in Shandong is expected to cut its output to below 100,000 mt. In addition, some NPI plants in Liaoning would suspend the production for maintenance. As such, near-term NPI supply would experience great shortage. SHFE nickel prices, on the other hand, would gain relatively strong support on the fundamentals.

Tin: The SHFE 2203 tin hovered at a high level. On the fundamentals, the upstream and downstream companies were resuming the production, and the spot market revived. Domestic warrant inventory kept rising. The spot market was stable as a whole amid an unchanged supply and demand pattern.


For queries, please contact Michael Jiang at michaeljiang@smm.cn

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