SMM Morning Comments (Jan 5): Base Metals Closed with Losses on Weak Macro Front

SHANGHAI, Jan 5 (SMM) – LME and SHFE base metals closed with losses during night trade. On the macro front, according to the US Fed’s December monetary meeting minutes, there was no mentioning of rate hike pace in February. Last month, the US Fed raised the interest rate by 50 basis points, and the officials agreed to slow the rate path and rein inflation in a moderate way.

LME copper fell 0.83%, aluminium lost 0.22%, lead dropped 1.33%, and zinc slid 0.15%.

SHFE copper fell 1.29%, aluminium lost 0.39%, lead dropped 0.7%, and zinc slid 0.79%.

Copper: LME copper opened at $8,337/mt on Wednesday, touching the low at $8,188/mt before closing at $8,188/mt, down 0.83%. The trading volume was 19,000 lots, and open interest stood at 233,000 lots.

SHFE 2302 copper opened at 63,940 yuan/mt overnight. It hit the low and high of 63,850 yuan/mt and 64,460 yuan/mt respectively before closing at 64,200 yuan/mt, down 1.29%. The trading volume was 34,000 lots, and open interest stood at 99,000 lots.

On the macro front, according to the US Fed’s December monetary meeting minutes, there was no mentioning of rate hike pace in February. Last month, the US Fed raised the interest rate by 50 basis points, and the officials agreed to slow the rate path and rein inflation in a moderate way.

On the fundamentals, copper price fell after opening low after copper inventory started to accumulate. The traders also failed to hold the prices firm amid poor downstream demand. In addition the smelters in north China actively shipped their cargoes to east China, easing the supply pressure in the north. On the demand side, most terminal players have been in a holiday mood, and have completed restocking for the Chinese New Year holiday as well, hence the overall demand contracted significantly, and is likely to remain weak in the near term. SHFE copper price is expected to remain weak with poor support from the fundamentals and macro front.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 17,800 yuan/mt overnight, with its high and low at 17,880 yuan/mt and 17,740 yuan/mt before closing at 17,795 yuan/mt, down 70 yuan/mt or 0.39%.

LME aluminium opened at $2,272/mt on Wednesday, with its high and low at $2,277/mt and $2,265/mt respectively before closing at $2,267/mt, a drop of $6/mt or 0.22%.

The power rationing in south-west China dragged down the domestic operating aluminium capacity. Once downstream enterprises resume their production, regional supply shortages will occur in the first quarter. However, the short-term aluminium prices will face downward pressure due to falling domestic and overseas demand, inventory accumulation, as well as weaker cost support. Downstream operating rates fell in the off-season, and spot market was muted.

Lead: LME lead opened at $2,280.5/mt on Wednesday, and moved between $2,250-2,290/mt amid falling European natural gas prices but low LME lead inventory. The contract finally closed the session at $2,255/mt, down 1.33%.

The most-traded SHFE 2302 opened at 15,750 yuan/mt overnight, and then dropped straightly to 15,675 yuan/mt with longs leaving the market. The contract then rallied to 15,700 yuan/mt on expectations of pre-holiday restocking. It finally closed the night session at 15,715 yuan/mt, down 0.7%. The open interest fell 1,329 lots to 63,712 lots.

Zinc: LME zinc closed at $2,986/mt on Wednesday, down $3.5/mt or 0.15%. The open interest added 138 lots to 187,000 lots. LME inventory fell 2,725 mt to 27,750 mt.

The most traded SHFE 2302 zinc contract closed at 23,155 yuan/mt overnight, down 185 yuan/mt or 0.79%. The open interest added 367 lots to 90,170 lots. The TCs of zinc concentrate were raised again in January to as high as 5,700 yuan/mt in some places. Some smelters gradually ramped up the production amid proper prices, sufficient raw materials and lucrative profits. In addition, the zinc ingot social inventory began to accumulate, which will potentially weigh on zinc price.

On the macro front, according to US Fed December meeting minutes released overnight, the inflation risks remain key to policy outlook, and the unwarranted easing in financial conditions and market misinterpretation of policy are worrying; no official expects rate cuts this year; the focus is on economic data and maintaining policy flexibility. The Fed's Kashkari: it would be appropriate to continue raising rates at least for the next few meetings until we are confident that inflation will top out. US ISM manufacturing PMI recorded 48.4 in December, a new low since May 2020. The People's Bank of China held a work conference for 2023, and the meeting pointed out the implementation of the 16 financial measures to support the stable and healthy development of the real estate market is of great importance.

Tin: Overnight, SHFE tin rallied after opening slightly lower, closing at around 207,200 yuan/mt. Longs and shorts exited the market. The inventory of SHFE tin warrants continued to increase. Premiums in the spot market stayed at lows. LME tin inventory rebounded slightly. Overseas premiums were close to zero. The import profit window remained open. With weak supply and demand before the upcoming Chinese New Year, SHFE tin may hover at highs.

Nickel: On the supply side, imported pure nickel continued to suffer great losses, and the premiums of NORNICKEL nickel were higher than that of Jinchuan nickel. For NPI, there were few spots available in the spot market following active transactions in the early stage as well as rising production curtailment efforts of NPI plants in December. On the demand side, the prices of spot stainless steel in Wuxi and Foshan rose slightly. According to SMM research, the spot prices have been relatively high amid optimism over the post-holiday market. In the alloy market, some players are expected to build stocks ahead of the Chinese New Year holiday. To sum up, pure nickel supply tightness eased to some extent as new and established pure nickel manufacturers were more active in making shipments. SHFE nickel price is likely to fall in the near term.

[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.]