SMM Morning Comments (Jan 10): Base Metals Closed Mostly with Gains on Expectations of Slowing US Rate Hike

SHANGHAI, Jan 10 (SMM) – LME and SHFE base metals closed mostly with gains as the market expects that recent US economic data will prompt the US Fed to slow down the pace of rate hikes. As a result, the US dollar fell.

LME copper added 2.19%, aluminium rose 5.64%, lead fell 0.43%, and zinc jumped 4.11%;

SHFE copper added 1.68%, aluminium rose 1.67%, lead fell 0.1%, and zinc jumped .17%.

Copper: LME copper opened at $8,773/mt yesterday and climbed to $8,870/mt after falling to $8,727.5/mt. At last, the contract closed at $8,798.5/mt, up 2.19%. The trading volume was 18,000 lots, and open interest stood at 241,000 lots.

SHFE 2302 copper contract opened at 66,300 yuan/mt overnight, once hitting a high of 66,820 yuan/mt. At last, it closed at 66,750 yuan/mt, up 1.68%. The trading volume was 18,000 lots, and open interest stood at 86,000 lots.

On the macro front, the market expects that recent US economic data will prompt the US Fed to slow down the pace of rate hikes. As a result, the US dollar fell, which was bullish for copper prices.

On the fundamentals, As of Monday January 9, SMM copper inventory across major Chinese markets added 5,000 mt from last Friday to 122,500 mt, up 36,100 mt YoY. On one hand, the increase in the number of COVID-19 patients in China forced factories around the country to start an early Chinese New Year holiday, pushing up the inventories. On the other hand, smelters ramped up the shipments to east China and south China to dump their in-plant inventories approaching the Chinese New Year. Most processing enterprises plan to take their Chinese New Year holiday next week, hence the overall consumption will continue to weaken. Copper prices that will be dominated by macro factors in the near future are expected to remain rangebound.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 18,050 yuan/mt during the night session before closing at 18,215 yuan/mt, up 300 yuan/mt or 1.67%.

LME aluminium opened at $2,313/mt on Monday and closed at $2,425/mt, an increase of $129.5/mt or 5.64%.

The macro front is relatively bullish for SHFE aluminium price, and attention shall be paid to the economic readings overseas. On the fundamentals, SHFE aluminium fell steeply last week due to weak demand and more-than-expected inventory accumulation, but it rebounded on Monday and last night with boost from the macro front. SHFE aluminium is expected to move rangebound in the near term.

Lead: Overnight, LME lead opened at $2,221/mt and increased slightly during the Asian trading hours. During the European trading hours, LME lead hit the highest point at $2,310/mt as the US dollar index fell, but then fell to $2,215/mt, down $9.5/mt or 0.43%.

Overnight, the most-traded SHFE 2302 lead contract opened at 15,680 yuan/mt and rose to 15,705 yuan/mt, but then fell to the lowest point at 15,550 yuan/mt, down 15 yuan/mt or 0.10%.

Zinc: LME zinc closed at $3,164/mt on Monday, up $125/mt or 4.11%. The open interest lost 1,287 lots to some 186,000 lots. LME inventory fell another 1,450 mt mt to 22,850 mt, a drop of 5.97%.

The most traded SHFE 2302 zinc contract closed at 23,830 yuan/mt overnight, up 505 yuan/mt or 2.17%. The open interest added 562 lots to 84,662 lots. SHFE zinc rose along with rising LME zinc overnight, as well as amid expectations of strong consumption in the future.

On the macro front, China and Russia's foreign ministers spoke on the phone: China-Russia relations are based on non-alignment, non-confrontation and non-targeting third parties. The US Fed will pay close attention to December inflation data to assess the pace of the next interest rate hike. China's Ministry of Finance clarified VAT relief for small-scale taxpayers. Russia strengthened its attacks on the eastern frontline of Ukraine, with heavy losses on both sides.

Tin: On the fundamentals, domestic warrants inventory rose again, and market shipments fell on rising prices. LME inventory changed little, and the import window remained open. In terms of futures market, the most-traded SHFE tin continued to consolidate in a narrow range, and closed the night session around 207,000 yuan/mt. The investors still left the market in night session. To sum up, with Chinese New Year approaching, coupled with falling demand and withdrawal with investors from the market, SHFE tin is more than likely to move rangebound.

Nickel: Upstream companies become less willing to ship since the logistic services will be suspended near the Chinese New Year. Spot imports still suffered losses as the overseas pure nickel supply remains tight. NPI plants generally get small inventory pressure thanks to the pre-holiday stockpiling of the nearby alloy casting companies and the previously intensive restocking of downstream producers. But the December NPI output dropped somewhat, hence the spot supply was scarce. According to SMM research, recently, participants in the stainless steel market have started to have their Chinese New Year holidays one after another. Besides, automobile and shipping transportation in some areas will also be restricted. Steel mills have also gradually started their annual maintenance. They may probably expand the maintenance scale in January 2023. In terms of alloys, SHFE nickel prices stabilised, and the downstream companies’ pre-holiday stockpiling ended last week, hence the intraday transactions were slack. Pure nickel demand has weakened, but the short-term nickel prices will remain rangebound as the prices slumped last week.

[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.]