SMM Morning Comments (Jan 6): Base Metals Closed Mixed on Potentially Prolonged Rate Hike Path

SHANGHAI, Jan 6 (SMM) – LME and SHFE base metals closed mixed on potentially prolonged rate hike path. On the macro front, the US initial jobless claims fell to a three-month low last week, suggesting the labour market remains tight, which could force the US Fed to keep raising interest rates.

Copper: LME copper opened at $8,420/mt on Thursday, once hitting the lowest and highest of $8,366.5/mt and $8,451/mt respectively. At last, the contract closed at $8,439.5/mt, down 0%. The trading volume was 18,000 lots, and open interest stood at 241,000 lots.

SHFE 2302 copper opened at 65,160 yuan/mt overnight and dropped to a low of 64,950 yuan/mt after climbing to 65,340 yuan/mt. At last, it closed at 65,140 yuan/mt, up 1.61%. The trading volume was 34,000 lots, and open interest stood at 95,000 lots.

On the macro front, the US initial jobless claims fell to a three-month low last week, suggesting the labour market remains tight, which could force the US Fed to keep raising interest rates.

In terms of fundamentals, recently, the shipments from smelters in the north to east China have increased, pushing up the social inventories. Copper prices fell for a week in a row. But due to the poor downstream consumption, the cargo holders were under pressure and failed to ship their goods at a high price. On the demand side, downstream producers restocked in a small amount amid the fall in copper prices. Most companies are preparing for the Chinese New Year holiday and have finished restocking. It is expected that demand will continue to be weak at the end of the year. Copper prices are expected to remain rangebound.

Aluminium: The most-traded SHFE 2302 aluminum contract opened at 17,950 yuan/mt overnight, with its high and low at 17,990 yuan/mt and 17,805 yuan/mt before closing at 17,815 yuan/mt, down 90 yuan/mt or 0.5%.

LME aluminum opened at $2,257.5/mt on Thursday, with its high and low at $2,267/mt and $2,255.5/mt respectively before closing at $2,256/mt, flat from the previous trading day.

The impact of power rationing in south-west China continued to expand. Guizhou Province is about to impose a third round of power rationing on local aluminum smelters due to high electricity consumption during the heating season. This will further drag down the domestic operating aluminum capacity and ease oversupply pressure in south-west China. On the demand side, downstream consumption is still in the off-season. With the Chinese New Year drawing near, the operating rates of aluminum downstream enterprises declined. Trades in the spot market were poor, and social inventories continued to accumulate. However, in the short term, the power rationing in Guizhou may allow aluminum prices to stop falling and rebound.

Lead: Overnight, LME lead opened at $2,255/mt, and fluctuated between $2,245-2,265/mt, but the the overall prices were further lower than the previous trading day. As the US dollar index rose strongly at night, and prices of non-ferrous metals generally weakened. And LME lead fell to the lowest point at $2,206/mt in the second half of the trading session and finally closed at $2,215.5/mt, a decrease of 1.75%.

Overnight, the most-traded SHFE 2302 lead contract opened at 15,770 yuan/mt and fell to 15,630 yuan/mt. Although SHFE lead prices rebounded slightly as the expectations about export still existed, SHFE lead prices fell again by 0.25% and closed at 15,650 yuan/mt as the domestic inventory may increase amid the approaching delivery of SHFE 2301 lead contract. The open interest decreased 2,888 lots from the previous trading day to 55,877 lots. And the open interest of SHFE 2303 lead contract increased to 66,178 lots.

Zinc: LME zinc closed at $3,011.5/mt on Thursday, up $25.5/mt or 0.85%. The open interest added 525 lots to 187,000 lots. LME inventory fell 1,950 mt to 29,800 mt.

The most traded SHFE 2302 zinc contract closed at 23,190 yuan/mt overnight, up 75 yuan/mt or 0.32%. The open interest fell 453 lots to 88,816 lots. US ADP payrolls recorded 235,000, far higher than expected, fuelling overnight US dollar index. In China, first-home buyers shall be substantially supported, according to the administration. In the spot market, more downstream players took holidays for the Chinese New Year, alluding the imminent seasonal low on the consumption side. With market sentiment cooling down, SHFE zinc is likely to move rangebound.

On the macro front, the US trade account recorded -$61.5 billion in November, the smallest deficit since September 2020; US initial jobless claims for the week ending December 31 recorded 204,000, a new low since the week of September 24, 2022. The speeches by Fed officials: Bullard: interest rates remain slightly below sufficiently restrictive level; it is a bad idea to revise inflation target, inflation may decelerate more slowly than market expects; shrinking balance sheet may be considered at the end of the year. George: it is appropriate to keep interest rates above 5% for a considerable period of time in 2024. In China, PBoC and CBRC: will greatly support the healthy development of the housing market, and first-home buyers will be strongly supported.

Tin: Overnight, SHFE tin fell after opening slightly higher, and closed at around 202,600 yuan/mt. Capital left the market at the opening, but entered the market again later. The domestic tin inventory under SHFE warrants increased slightly. Premiums in the spot market remained low. Trades in the spot market improved slightly due to lower prices. LME tin inventories changed little. Overseas market maintained a small discount. The import profit window remained open. Given little disturbance to the short-term tin market supply-demand, as well as the poor willingness of investors to enter the market, it is expected that SHFE tin will continue to move sideways at a high level.

Nickel: On the supply side, SHFE nickel opened at a low price overnight due to the release of Tsingshan nickel in the market and the Fed’s expected rate hikes. The absolute spot prices fell. The transaction of pure nickel improved significantly within the day. Spot imports suffered losses even though the overseas pure nickel prices dropped. In terms of NPI, the transactions were active in the early stage, and more domestic NPI factories cut their production in December. Besides, the orders for Indonesian NPI have already been signed, tightening the market supply of small orders and reducing the sources of low-priced spots. On the demand side, according to SMM research, the overall stainless steel prices have remained weak recently. Some market participants may have Chinese New Year holidays in advance, so the market has recently begun to control the inventory. In addition, spot supply was tight, and the raw material prices kept rising, but the prices of #316L stainless steel were under pressure amid the sluggish trading. To sum up, the supply tightness of pure nickel has been eased thanks to the release of spots from new domestic pure nickel manufacturers and the improved shipments from the old refined nickel companies. It is expected that nickel prices will fluctuate with some declines in the near future.

[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.]