SHANGHAI, Jan 3 (SMM) – LME base metals closed mixed last Friday. On the macro front, the US Fed will announce its December monetary policy meeting minutes this week. Fed’s Bullard will deliver a speech, which may hint at the direction of the Fed’s monetary policy. Besides, the annual gain of the US dollar against other currencies will reach 7.9%, the biggest increase in seven years.
SHFE was closed last Friday night for New Year's Day holiday.
LME copper fell 0.66%, aluminium gained 0.53%, lead jumped 0.66%, and zinc dropped 0.22%.
Copper: LME copper opened at $8,420.5/mt last Friday, once hitting the highest and lowest of $8,465.5/mt and $8,357/mt respectively. At last, the contract closed at $8,374/mt, down 0.66%. The trading volume was 11,000 lots, and open interest stood at 237,000 lots.
On the macro front, the US Fed will announce its December monetary policy meeting minutes this week. Fed’s Bullard will deliver a speech, which may hint at the direction of the Fed’s monetary policy. Besides, the annual gain of the US dollar against other currencies will reach 7.9%, the biggest increase in seven years.
On the fundamentals, as of Friday December 30, SMM copper inventory across major Chinese markets stood at 97,900 mt, up 18,200 mt from Monday and 21,700 mt from December 13, the highest level in the past three weeks. Near the end of the year, downstream consumption remains poor. And affected by COVID-19, the operating rates of downstream factories fall, and some even have an early Chinese New Year holiday. The overall downstream consumption is poor near the year-end. Copper prices are still manipulated by weak fundamentals. SMM believes that the prices will remain rangebound with some downward potential.
Aluminium: The most-traded SHFE 2302 aluminium contract opened at 18,720 yuan/mt at last Friday’s day session, with its high and low at 18,770 yuan/mt and 18,700 yuan/mt before closing at 18,725 yuan/mt, up 20 yuan/mt or 0.11%.
LME aluminium opened at $2,376.5/mt last Friday, with its high and low at $2,389/mt and $2,375/mt respectively before closing at $2,388.5/mt, an increase of $12.5/mt or 0.53%.
On the supply side, power rationing in Guizhou tends to escalate. The increase in domestic aluminium production was lower than expected in December. On the demand side, the domestic downstream processing sectors are in the off-season, and new orders are insufficient, dragging down the operating rates last week. Aluminium ingot inventory rose for two consecutive weeks, weakening support for aluminium prices. The short-term aluminium prices are expected to maintain a rangebound trend, and attention should be paid to downstream pre-holiday stocking and inventory changes.
Lead: Last Friday, LME Lead opened at $2,270/mt and fell to $2,246/mt at the beginning of the session due to the weak SHFE lead. During the European trading hours, LME lead once fell to $2240.5/mt as the US dollar index rose, but the overall prices rose to around $2,300/mt. LME lead prices finally closed at $2,292/mt, an increase of 0.66%.
According to the Announcement of the Shanghai Futures Exchange on the 2023 Closing Arrangements, due to the New Year's Day holiday, SHFE lead did not conduct night trading on the evening of December 30, 2022 (Friday).
Zinc: LME zinc closed at $2,967.5/mt last Friday, down $6.5/mt or 0.22%. The open interest added 162 lots to 187,000 lots. And LME inventory fell 1,800 mt to 32,025 mt, a new low in nearly 30 years.
SHFE was closed last Friday night, and resumed operation on Tuesday. On the fundamentals, some downstream players have been closed for Chinese New Year holiday, while some are about to complete their restocking plans ahead of the holiday. Nonetheless, SHFE zinc will be supported by low zinc social inventory.
On the macro front, Turkish Energy Minister Fatih Donmez said on Monday that Turkey's (signed) gas supply contract with Russia was long term and referred to international prices and volumes. The EU High Representative for Foreign Affairs and Security Policy Borrelli published an article criticising the US Inflation Reduction Act. German Deputy Chancellor and Minister for Economic and Climate Protection Habeck said he hoped that the eastern part of Germany would phase out coal power generation, and the timing has been brought forward to 2030. European Commission Vice-President Dombrovskis warned that EU member states must start reducing budget deficits and adopt tighter fiscal policies at a time when the European Central Bank is taking measures to slow inflation and it is important that fiscal and monetary policies do not conflict with each other. In China, Minister of Industry and Information Technology Jin Zhuanglong pointed out that in 2023, optimising pandemic prevention and control measures, coupled with supporting policies targeting stabilising and improving the economy, will strongly boost market confidence.
Tin: SHFE tin rose at last Friday’s night session, with open interest of the most-traded contract up. LME tin underperformed SHFE tin, thus the SHFE/LME tin price ratio expanded slightly. Last week, the domestic tin ingot social inventories accumulated again. Trades in the spot market were poor amid rising tin prices. LME tin inventories changed little. Overseas premiums stayed at lows. The import profit window opened again. With weak supply and demand, it will be difficult for tin price rise to sustain.
Nickel: On the macro front, on the evening of December 29, the US Department of Labor announced that the number of people claiming for first unemployment benefits was 225,000 last week, which was in line with market expectations but was higher than the previous value of 216,000. It may indicate that the labour market in the United States is weakening and the possibility of radical interest rate hikes in 2023 decreases. Meanwhile, the international oil prices continued to decline and the commodity market was muted. On the supply side, the upstream enterprises were much more willing to sell primary nickel at the end of the month, hence the spot premiums continued to decline. But the spot transactions were still weak. The import window was still closed. In terms of NPI, the transactions were active in the early stage, and the orders for Indonesian NPI have already been placed. Only some traders restocked NPI amid the bullish outlook. As such, the spot supply was actually relatively tight. On the demand side, according to SMM research, as the bid prices of ferromolybdenum and ferrochrome released recently increased significantly, the prices of 316L and 430 stainless steel rose accordingly. However, the increase in the prices of 316L stainless steel was slow due to the weak market transactions. The price of 430 stainless steel rose significantly as some downstream processing plants had restocking demand to catch up with the schedule after resuming the production. At the alloy end, affected by the impact of the first round of pandemic outbreak, the operating rates of the alloy industry declined in December, hence the consumption of pure nickel decreased. To sum up, the current demand for primary nickel extends the weakness, and the support for the high nickel prices may decline. SHFE nickel is expected to move between 221,000-237,000 yuan/mt this week. At present, the price of LME nickel has not yet returned to the fundamentals, and the nickel prices may fluctuate significantly amid poor transactions. SMM will resume the price forecast of LME nickel after the LME nickel return to the fundamentals.
[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]
