SMM Morning Comments (Jan 19): Base Metals Closed Mixed on Hawkish Fed

SHANGHAI, Jan 19 (SMM) – LME and SHFE base metals closed mixed overnight. On the macro front, key US Fed policymakers indicated their intention to continue to raise interest rates to fight inflation, and there was upward momentum in the U.S. index, a drag on metals prices.

LME copper edged down 0.07%, aluminium fell 0.27%, lead dropped 2.16%, and zinc gained 2.3%;

SHFE copper added 0.34%, aluminium rose 1.25%, lead dropped 0.49%, and zinc gained 0.52%.

Copper: LME copper opened at $9,442.5/mt on Wednesday and rose to a modest high of $9,550.5/mt after closing at $9,288.5/mt, down 0.07%. The trading volume was 21,000 lots, and open interest stood at 254,000 lots.

SHFE 2303 copper opened at 70,910 yuan/mt overnight, once hitting the high and low at 71,490 yuan/mt and 69,940 yuan/mt respectively, up 0.34%. The trading volume was 52,000 lots, and open interest stood at 193,000 lots.

On the macro front, key US Fed policymakers indicated their intention to continue to raise interest rates to fight inflation, and there was upward momentum in the U.S. index, a drag on copper prices.

On the fundamentals, the copper cathode inventory in Guangdong rose for four consecutive days and was now above 20,000 mt, and is expected to accumulate further mainly due to mounting arrivals and falling demand. On the other hand, imminent Chinese New Year (CNY) holiday made the market extremely quiet, except for a few traders. But the strong SHFE copper made the trades even unlikely. On the consumption side, almost all terminal fabricators and terminal players are in holiday, weighing on the demand. SHFE copper is expected to move rangebound amid the current macro sentiment.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,810 yuan/mt overnight before closing at 19,045 yuan/mt, up 235 yuan/mt or 1.25%.

LME aluminium opened at $2,618.5/mt on Wednesday and closed at $2,611.5/mt, a decrease of $7/mt or 0.27%.

The overseas inflation data has improved recently. Many regions in China have passed the peak of pandemic outbreak. Market players became increasingly optimistic over demand recovery after the Chinese New Year. As longs take an upper hand over shorts, SHFE aluminium may go up slowly in the short term.

Lead: Last night, LME lead opened at $2,217/mt and fell 2.16% to $2,172/mt after hitting the highest point at $2,225/mt and the lowest point at $2,168.5/mt. Open interest fell 2,498 lots to 117,000 lots. The trading volume increased 2,179 lots to 5,516 lots.

The most-traded SHFE 2303 lead contract fell 0.49% to end at 15,280 yuan/mt in the overnight trading, after briefly hitting the point at highest 15,360 yuan/mt and dropping to the lowest level at 15,275 yuan/mt. The open interest increased 951 lots to 80,613 lots from the previous trading day. The trading volume decreased 10,878 lots to 26,916 lots.

Zinc: LME zinc closed at $3,380.5/mt on Wednesday, up $76/mt or 2.3%. The open interest fell 2,915 lots to some 197,000 lots. LME zinc inventory fell 475 mt to 19,525 mt.

The most traded SHFE 2303 zinc contract closed at 24,400 yuan/mt overnight, up 125 yuan/mt or 0.52%. The open interest added 5,512 lots to 102,000 lots. The spot market has basically stagnated at present, with nearly zero trades and accumulating social inventory. But as the longs were active recently, SHFE zinc was resilient.

Overnight, Liu He met with US Treasury Secretary Yellen and both sides agreed to extend communication and exchanges with regard to economy and trade at all levels. The Bank of Japan stayed put and will increase bond purchases in a flexible manner. Governor Haruhiko Kuroda sees no need to further widen the yield band and yield curve control (YCC) is fully sustainable. US Fed officials were active recently. Bullard said that even if inflation falls this year, the Fed will tend to keep interest rates high; Harker said that the Fed is expected to raise rates a few more times this year and inflation will fall to the Fed's 2% target in 2025; Meister said that the interest rate range should be "a bit higher" than the current forecast of 5%-5.25% at the end of 2023; Logan said he supported a slower pace of interest rate hikes. US retail sales recorded a monthly rate of -1.1% in December, the largest decline since December 2021. Eurozone CPI recorded a monthly rate of -0.4% in December, the biggest drop since August 2020.

Tin: Overnight, SHFE tin rose above 230,000 yuan/mt and closed at around 232,100 yuan/mt. Longs and shorts exited amid pre-holiday risk aversion. The domestic tin inventory under SHFE warrants changed little. Trading activities in the spot market were subdued. LME tin inventory continued to fall. Overseas market maintained discounts. Import profits are expected to remain at a low level. Tin prices may face corrections after continuous rise.

Nickel: On the supply side, the upstream players were less interest in making shipments approaching the CNY holiday. For NPI, most NPI plants had few in-plant stocks on hand. In terms of MHP, the nickel and cobalt smelter jointly invested by BASF and Eramet is scheduled to be put into production by early 2026, with an annual capacity of 67,000 mt. On the demand side, the players across the stainless steel chain are already in holiday, and the market was quiet. In the alloy sector, pre-holiday restocking has already been completed. To sum up, SHFE nickel is likely to fall steadily amid weak supply and demand.

[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.]