SMM Morning Comments (Jan 9): Base Metals Closed with Gains on Unexpectedly Strong US Labour Market

SHANGHAI, Jan 9 (SMM) – LME and SHFE base metals closed with gains last Friday. The US non-farm payrolls released last week were much better than expected, and the US dollar index dropped as well, underpinning metals prices.

Copper: LME copper opened at $8,437.5/mt last Friday, once hitting the lowest and highest of $8,361/mt and $8,624/mt respectively. At last, the contract closed at $8,610/mt, up 2.82%. Trading volume was 24,000 lots, and open interest stood at 243,000 lots.

SHFE 2302 copper opened at 64,920 yuan/mt and edged higher to 65,750 yuan/mt after dropping to 64,700 yuan/mt. At last, it closed at 65,680 yuan/mt, up 0.81%. Trading volume was 30,000 lots, and open interest stood at 92,000 lots.

On the macro front, a US report showed that US service industry activity shrank for the first time in more than two and a half years in December 2022, thus the market expects that the US Fed cannot insist on a hawkish stance. US dollar fell under pressure, which was bullish for copper prices.

On the fundamentals, as of last Friday January 6, SMM copper inventories in major Chinese markets added 8,200 mt to 117,500 mt from last Monday, up 33,800 mt YoY. The consumption grew thanks to the fall in copper prices, but the shipments from domestic smelters increased greatly. Smelters in north China ramped up the shipments to the east owing to the poor local consumption. A large number of terminal enterprises have begun their Chinese New Year holiday, and processing enterprises also plan to take their holidays this week. It is expected that the demand will show a downward trend before the Chinese New Year. The prices will be mainly dominated by the macro factors and will move rangebound.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 17,852 yuan/mt at last Friday’s night session before closing at 17,885 yuan/mt, up 20 yuan/mt or 0.11%. LME aluminium opened at $2,259.5/mt last Friday and closed at $2,308/mt, an increase of $52.5/mt or 2.33%.

The current macro impact on aluminium prices is limited. The drastic drop in aluminium prices last week was mainly due to poor fundamentals and sharp increase in social inventory. Aluminium prices are now close to smelters’ costs. According to SMM data, the average cost of aluminium smelters stood at around 17,800 yuan/mt. It remains to be seen whether aluminium prices will find cost support.

Lead: Last Friday, LME lead opened at $2,215/mt and fluctuated sideways during the Asian trading hours, then fell to $2,175.5/mt during the European trading hours. After the US dollar index fell, LME lead prices rebounded and finally closed at $2,227/mt, up $11.5/mt or 0.52%.

Last Friday night, the most-traded SHFE 2302 lead contract opened at 15,555 yuan/mt and rose to the highest point at 15,620 yuan/mt amid the early session, then fell to the lowest point at 15,575 yuan/mt, down 90 yuan/mt or 0.57%.

Zinc: LME zinc closed at $3,039/mt last Friday, up $27.5/mt or 0.91%. LME inventory fell 1,500 mt to 24,300 mt, a significant drop of 5.81%. Non-ferrous metals prices were supported by more-than-expected US non-farm payrolls and falling US dollar.

The most traded SHFE 2302 zinc contract closed at 23,255 yuan/mt overnight, up 15 yuan/mt or 0.06%. The open interest fell 1,828 lots to 85,623 lots. The fundamentals and macro fronts signalled totally differently recently. The fundamentals were weak as a whole amid the seasonal low on the consumption end approaching the Chinese New Year, while the macro front is quite bullish with the introduction of new real estate support to boost the purchasing of first home.

Tin: SHFE tin moved sideways at last Friday’s night session, closing at around 205,500 yuan/mt. Longs and shorts left the market. Last week, the domestic tin ingot social inventories fell slightly. In the spot market, transactions picked up slightly, driven by pre-holiday stocking. LME tin inventories were little last week. Overseas premiums hovered at lows. Import profit window remained open. SHFE tin may move in a narrow range amid weakening demand and capital outflows.

Nickel: SHFE nickel lost nearly 10% last week owing to the frequent events on the macro and news front. US Fed's Bullard made a speech and hinted that the final value of 5.1% at the end of this round of rate hikes may be sufficient to control the US inflation, which suggests that the Fed will raise the interest rates by at least 75 basis points in the next few months. The speech also conveys the US Fed's determination to control inflation in 2023. Market fears of an economic recession intensified, which is bearish for commodity prices. On the supply side, the SHFE nickel contract opened at alow last Thursday due to the release of Tsingshan nickel into the market and the expected Fed’s rate hikes. The absolute spot prices fell. The transactions of pure nickel improved significantly in the same day. Spot imports still suffered losses even though pure nickel prices dropped in the overseas markets. NPI transactions were active in the early stage. More domestic NPI factories cut their output in December, and the sources of Indonesian NPI have already been booked, tightening the supply in the spot market and reducing the sources of low-priced spot NPI. On the demand side, according to SMM research, the overall stainless steel prices have remained weak recently. Some market participants may have an early Chinese New Year holiday, so the market has recently begun to control the inventory. In addition, spot stainless steel 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, sources of imported pure nickel were scarce, but 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 established 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.]