SMM Morning Comments (Jan 16): Base Metals Closed Mostly with Gains amid Continuously Falling US Dollar

SHANGHAI, Jan 16 (SMM) – LME and SHFE base metals closed mostly with gains last Friday. On the macro front, economic data released last Thursday showed that US inflation dropped more than expected, strengthening market expectations that the Fed will slow down the pace of rate hikes. The US dollar continued to fall, offering support to metals prices.

LME copper added 0.67%, aluminium rose 1.73%, lead grew 2.4%, and zinc jumped 2.01%;

SHFE copper lost 0.12%, aluminium rose 1.36%, lead grew 0.79%, and zinc jumped 0.6%.

Copper: LME copper opened at $9,192/mt last Friday and climbed to $9,257/mt after falling to $9,062/mt. At last, it closed at $9,240/mt, up 0.67%. Trading volume was 15,000 lots, and open interest stood at 257,000 lots.

The most traded SHFE 2303 copper opened at 68,530 yuan/mt last Friday night, once hitting the lowest and highest of 68,080 yuan/mt and 68,890 yuan/mt respectively. At last, the contract closed at 68,760 yuan/mt, down 0.12%. The trading volume was 33,000 lots, and open interest stood at 198,000 lots.

On the macro front, economic data released last Thursday showed that US inflation dropped more than expected, strengthening market expectations that the Fed will slow down the pace of rate hikes. The US dollar continued to fall, which was bullish for copper prices.

On the fundamentals, as of January 13, SMM copper inventories in major Chinese markets added 13,000 mt to 135,500 mt from last Monday, up 18,000 mt from the previous Friday. Since the end of December, the copper inventory across China has increased for three consecutive weeks, and the inventory in all regions grew last week. Spot imports were scarce last week. The copper stocks were shipments from domestic smelters, and the poor downstream consumption mainly contributed to the increase in inventory. The consumption will decline greatly this week since the downstream companies will have the CNY holiday one after another. The influence of fundamentals continues to weaken, but the copper prices will move rangebound with some up this week affected by the macro factors.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 18,495 yuan/mt at last Friday’s night session before closing at 18,640 yuan/mt, up 250 yuan/mt or 1.36%.

LME aluminium opened at $2,552/mt last Friday and closed at $2,592.6/mt, an increase of $44.1/mt or 1.73%.

Overseas macro data was positive recently, and China released a series of favourable policies, boosting market confidence. However, due to poor downstream demand ahead of the upcoming CNY holiday and rapidly rising inventory, aluminium prices will hardly rise.

Lead: LME lead opened at $2,190.5/mt and advanced 2.40% to settle at $2,244.5/mt after hitting the lowest point at $2,173.5/mt and the highest point at $2,258/mt last Friday. The open interest increased 3,193 lots to 115,000 lots from the previous trading day. The trading volume decreased 1,864 lots to 7,359 lots.

The most-traded SHFE 2303 lead contract opened at 15,220 yuan/mt and closed at 15,405 yuan/m, up 0.79%, after briefly hitting the lowest point at 15,190 yuan/mt and the highest point at 15,420 yuan/mt. The open interest increased 2,337 lots to 79,073 lots from the previous trading day. The trading volume decreased 12,679 lots to 33,929 lots.

Zinc: LME zinc closed at $3,320/mt last Friday, up $65.5/mt or 2.01%. The open interest added 2,091 lots to some 190,000 lots. LME zinc rose on market optimism.

The most traded SHFE 2303 zinc contract closed at 24,315 yuan/mt last Friday night, up 145 yuan/mt or 0.6%. The open interest added 5,078 lots to 71,000 lots. SHFE zinc was boosted by the strong performance of LME zinc amid the world’s optimism over Chinese economic recovery, Russia-Ukraine war drawing to a close, and potentially stabilising natural gas supply.

On Friday, US consumers became increasingly confident that price pressures will ease considerably over the next 12 months, with preliminary one-year inflation expectations falling to 4.0% in January from 4.4% in December 2022, the fourth consecutive monthly decline and the lowest since April 2021, while the five-year inflation expectations rose slightly to 3.0%. Jiao Yahui, director-general of the medical department of China's National Health Commission, said on Saturday that COVID patients in serious conditions in hospital have peaked recently, before showing a slow downward trend.

Tin: SHFE tin hit a recent high at last Friday’s night session, and closed at around 228,000 yuan/mt. The 2303 contract is about to become the most-traded one. Last week, the domestic tin ingot social inventories accumulated sharply. Discounts in the spot market widened. LME tin inventories were little changed. Overseas market maintained discounts. The import window remained open, but import profits are expected to decline. Trades will become muted in the last week before the Chinese New Year.

Nickel: The decline in SHFE nickel prices narrowed compared with the previous week as the bears paid off last week. SHFE nickel prices fluctuated with some declines last week. On January 11, the British Financial Conduct Authority expressed concerns towards LME recovering the nickel trading in Asian hours and required LME to take necessary actions to resolve the violent fluctuations in nickel prices. But it is still doubtful whether LME can control the prices, which means that the liquidity of LME nickel is still difficult to recover in the short term. On the supply side, the import window opened as LME nickel prices fell sharply on January 12, which accelerated the custom clearance of NORNICKEL nickel. Nickel prices remained low last Friday, hence the spot transactions improved amid the downstream restocking period. In terms of NPI, the spot supply may continue to be tight due to the low inventory of most NPI plants and the production cuts in December and January amid the weak demand from stainless steel mills. On the demand side, according to SMM survey, the SHFE nickel prices fell along with declining LME prices, which slightly dragged down the stainless steel prices. But the stainless steel prices rebounded soon afterwards. The pre-holiday transactions in the spot market were about to end and the inquiries were muted. Meanwhile, the logistics services were gradually halted last weekend. Alloy companies restocked raw materials in a small amount. To sum up, pure nickel prices were still greatly affected by the news front but will continue to decline amid the sufficient supply.

[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.]