SMM Evening Comments (Feb 11): Shanghai Nonferrous Metals Closed Mixed amid Heightening US Rate Hike Expectation and Better-than-Expected China Economic Readings

SHANGHAI, Feb 11 (SMM) – Shanghai nonferrous metals closed mixed amid heightening US rate hike expectations on the back of a 40-high US CPI as well as the better-than-expected China economic readings including China RMB loans and M2 money supplies.

Shanghai copper lost 0.68%, aluminium dropped 2.45%, lead added 0.59%, zinc was flat, tin gained 0.1%, and nickel declined 0.44%.

Copper: The most-traded SHFE 2203 copper closed down 0.68% or 490 yuan/mt at 71480 yuan/mt, with open interest down 10557 lots to 146828 lots.

On the macro front, China newly added RMB loans as well as social financing both recorded historical highs, while the growth of M2 currency was also higher than estimate, boosting market sentiment, which pulled up overnight SHFE copper. However, the US CPI for January released last night recorded a new high in 40 years. The St. Louis Fed President James Bullard even suggested that the combined interest rate hikes shall be 100 basis points before July, heightening market expectations of a rate hike, raising US dollar index and suppressing SHFE copper.

On the fundamentals, LME copper inventory kept falling and dropped by 10,000 mt to a low of 77,000 mt yesterday, underpinning copper prices.

The current market focus has been shifted to the US Fed rate meeting to be held on March 15 and 16.

Aluminium: The most-traded SHFE 2203 aluminium closed down 2.45% or 570 yuan/mt to 22670 yuan/mt, with open interest down 17708 lots to 192635 lots.

SHFE aluminium hovered high, and spot transactions were sluggish. Social inventories of aluminium ingot are expected to rise more significantly next week. LME inventories recorded significant single day gains yesterday, suppressing the confidence of longs.

Lead: The most-traded SHFE 2203 lead closed up 0.59% or 90 yuan/mt at 15230 yuan/mt, with open interest down 6332 lots to 40330 lots.

LME lead inventory dropped 25 mt to a low in nearly four months. Lead prices posted relatively strong gains recently, but the spot transactions did not improve. The smelters’ discounts expanded minimally, while the downstream was mostly wait and see. The trading market is still recovering, and the purchasing demand is likely to surface next week.

Zinc: The most-traded SHFE 2203 zinc closed down 0.02% or 5 yuan/mt at 25550 yuan/mt, with open interest down 5055 lots to 105930 lots.

The greatly rising social financing reading benefited zinc which is closely correlated with the great infrastructure construction sector. However, the fundamentals of zinc were still weak, and the market shall still watch the overseas energy problem and the demand side under the stimulus from the macro front.

Tin: The most-traded SHFE 2203 tin closed up 0.1% or 320 yuan/mt at 335120 yuan/mt, with open interest down 2129 lots to 33140 lots.

On the fundamentals, there were rarely any transactions in the spot market after overnight futures prices hit a high. The upstream tended to hold the prices firm, and some chose to deliver for the futures; while the downstream was basically wait and see. On the other hand, most downstream participants resumed the production this week, with only a few planning to re-open next week, hence the overall downstream demand was low on the whole.

SHFE warrants rose 240 mt to 3,161 mt, recording a combined gain of 511 mt or 19% throughout the week, mainly because some smelters maintained production during the CNY holiday while the demand stagnated, and some of the post-holiday demand has already been fulfilled ahead of the holiday.

Nickel: The most-traded SHFE 2203 nickel closed down 0.44% or 760 yuan/mt to 172070 yuan/mt, with open interest up 7556 lots to 141784 lots.

On the macro front, the broad non-ferrous market hovered at a high level. LME nickel inventory stood at a three-month low, and kept falling. The downstream started inquires for nickel sulphate, and the prices rose subsequently. To sum up, the relatively strong fundamentals underpinned nickel prices, which will stay high in the near term.