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SMM Morning Comments (Jan 12): Base Metals Closed Mostly with Gains on Falling US Dollar
Jan 12, 2023 10:00CST
Source:SMM
On the macro front, the US dollar has remained weak recently as the market bets the US Fed will not have to raise the interest rate as quickly as expected to curb high inflation.

SHANGHAI, Jan 12 (SMM) – LME and SHFE base metals closed mostly with gains overnight. On the macro front, the US dollar has remained weak recently as the market bets the US Fed will not have to raise the interest rate as quickly as expected to curb high inflation.

LME copper added 2.56%, aluminium rose 1.06%, lead fell 0.32%, and zinc jumped 1.36%;

SHFE copper added 2.08%, aluminium rose 0.71%, lead fell 0.39%, and zinc jumped 0.86%.

Copper: LME copper opened at $9,032/mt yesterday, once hitting the lowest and highest of $8,985/mt and $9,185/mt respectively. At last, the contract closed at $9,168.5/mt, up 2.56%. Trading volume was 25,000 lots, and open interest stood at 252,000 lots.

SHFE 2303 copper opened at 68,020 yuan/mt overnight, once climbing to a high of 69,030 yuan/mt. At last, it closed at 68,820 yuan/mt, up 2.08%. The trading volume was 59,000 lots, and open interest stood at 193,000 lots.

On the macro front, the euro briefly hit a seven-month high against the dollar on Wednesday, the highest since May 31, 2022. The US dollar has remained weak recently as the market bets the US Fed will not have to raise the interest rate as quickly as expected to curb high inflation.

In terms of fundamentals, the current import losses have exceeded 1,400 yuan/mt. The closure of the import window has led to a rapid reduction in the source of imports, and it has also created export profits for domestic smelters. In addition, as the Chinese New Year (CNY) is approaching, the smelters and traders reduced their activities in the market. The spot market was relatively slack. Copper prices continued to grow, and downstream companies have begun their CNY holiday one after another. The consumption is expected to weaken further as most companies will take their CNY holiday next week. Copper prices will fluctuate with some ups amid lower US inflation and potential better demand.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 18,310 yuan/mt overnight before closing at 18,365 yuan/mt, up 130 yuan/mt or 0.71%.

LME aluminium opened at $2,458/mt on Wednesday and closed at $2,489/mt, an increase of $26/mt or 1.06%.

After the positive overseas macro factors have been digested, China released a series of favourable policies, boosting market confidence. However, poor downstream demand ahead of the upcoming CNY holiday and rapidly rising inventory will prevent aluminium prices from going up.

Lead: Overnight, LME lead opened at $2,186/mt and fell slightly during the Asian trading hours. During the European trading hours, LME lead finally closed at $2,179/mt, down $7/mt, or 0.32%, after briefly touching the high point at $2,199.5/mt.

Overnight, the most-traded SHFE 2303 lead contract opened at 15,450 yuan/mt and fell to 15,370 yuan/mt, down 60 yuan/mt or 0.39%.

Zinc: LME zinc closed at $3,210/mt on Wednesday, up $43/mt or 1.36%. The open interest fell 594 lots to some 188,000 lots. LME inventory fell 475 mt mt to 21,675 mt, a drop of 2.14%. LME zinc rose overnight amid falling US economic readings.

The most traded SHFE 2302 zinc contract closed at 23,925 yuan/mt overnight, up 205 yuan/mt or 0.86%. The open interest added 651 lots to 79,271 lots. SHFE zinc was strong recently with optimism on the macro front, but was capped by rising supply and falling demand.  

Overnight, the US saw the first full flight grounding in about 20 years, with airline companies hoping to return to normal on Thursday. Russia replaced the commander-in-chief of military operations in Ukraine, adjusting its command structure after battlefield setbacks. The amount of capital inflows into emerging market plummeted by more than 90% last year, while the funds poured in after China eased pandemic controls. The US stocks closed sharply higher, with the S&P and Nasdaq both up more than 1%.

Tin: Overnight, SHFE tin rose initially and then fell back, closing at around 214,000 yuan/mt. Longs and shorts continued to reduce their positions. The domestic tin inventory under warrants changed little. Trades in the spot market declined due to rising tin prices. LME tin inventory rose slightly. Overseas market maintained a small discount. The import profit window remained open. Demand is gradually weakening as the Chinese New Year is approaching. Risk aversion sentiment has increased. It remains to be seen whether the price rise will sustain.

Nickel: On the supply side, SHFE nickel fluctuated with some downward potential. The pure nickel supply and demand are poor near the Chinese New Year, so the intraday transactions were slack. NPI transactions were active in the early stage. Domestic NPI factories will cut their production in January 2023, and the sources of Indonesian NPI have already been booked, which may tighten the spot supply in January 2023. On the demand side, according to SMM research, the nickel futures prices dropped, which cast a little impact on spot prices. With most market participants already on CNY holiday, the spot prices remained stable. Alloy producers became less willing to purchase with the end of pre-holiday stockpiling. Pure nickel demand has weakened, but the short-term nickel prices will remain rangebound.

[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.]


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