SHANGHAI, Feb 14 (SMM) - At the beginning of the lunar new year, domestic liquidity is expected to be fully relaxed. In January, the scale of social financing increased by 6.17 trillion yuan, an increase of 984.2 billion yuan over the corresponding period last year. Among them, Chinese currency loans to the real economy increased by 4.2 trillion yuan, marking a monthly statistical high and up 380.6 billion yuan YoY. On the whole, steady economic growth will be the theme throughout 2022. In the medium term of the current downward cycle of China economy, there has been a significant increase in both government bonds issuance and financing demand from business entities. The policy direction for a steady growth is clear. It is expected that there is still room for domestic social financing to increase. Monetary easing is not yet ended, and interest rate cut is still possible. In the case of quarterly loose monetary policies, all major assets rose to varying degrees. It should be noted that among the overseas data released within the week, the inflation rate in the US topped expectation and rose to 7.5% in January, the overall and core CPI rose to the highest level in 40 years, and the inflation rate in the service industry also started to rise significantly. Driven by the high inflation data, the market expects the US Fed to raise interest rates by 50bp in March, which contained the rapid rise of copper prices.
In terms of fundamentals, the domestic social inventory accumulated 58,800 mt during the Spring Festival. As the downstream industry still did not resume the production completely and the high copper prices suppressed downstream consumption to a certain extent, the social inventory rose by another 27,800 mt in the past week. The domestic social inventory almost doubled as compared with the pre-holiday level. However, the overall inventory remained at a historically low level. In January, the SMM domestic copper cathode output was 815,100 mt, down 6.0% MoM and up 2.5% YoY. The overhaul impacted the output of a large smelter in the south by a combined 40,000 mt across its three smelters, which exceeded expectations. At the same time, the shutdown of Fangyuan and the overhaul of Lanxi Zili all slightly influenced the output of smelters in January to a certain extent, hence the output of copper cathode in January was far less than expected. It also partly explained why domestic inventories remained low in January.
It is expected that the SHFE copper 2203 contract will run at 71,500-74,000 yuan/mt this week and the LME zinc will run at $9,950-10,500/mt.
This Monday is the last trading day before the delivery of SHFE 2202. At present, SHFE 2202 and 2203 contracts was in a contango structure at 80 yuan/mt. The downstream will return to the market after the delivery of SHFE 2202. It is expected that the spot premiums will be 100-200 yuan/mt this week.
