SMM Morning Comments (Jan 20): Base Metals Closed Mixed on Cooling Expectations for Rate Hikes

SHANGHAI, Jan 20 (SMM) – LME and SHFE base metals closed mixed overnight. A number of economic data showed that the growth of the US economy is slowing down after the US Fed raised interest rates several times. The market expects the Fed to gradually slow down or even stop raising interest rates. The Chinese spot market was basically stagnant for the Chinese New Year holiday.

LME copper added 0.37%, aluminium fell 2.07%, lead dropped 1.7%, and zinc gained 1.07%;

SHFE copper fell 0.57%, aluminium fell 0.26%, lead dropped 0.46%, and zinc gained 0.8%.

Copper: LME copper opened at $9,442.5/mt yesterday, once hitting the highest and lowest of $9,550.5/mt and $9,190/mt respectively. At last, the contract closed at $9,271.5/mt, up 0.37%. The trading volume was 17,000 lots, and open interest stood at 256,000 lots.

SHFE 2303 copper opened at 70,910 yuan/mt overnight and fell to 69,280 yuan/mt after climbing to 71,490 yuan/mt. At last, the contract closed at 69,940 yuan/mt, down 0.57%. The trading volume was 42,000 lots, and open interest stood at 187,000 lots.

A number of economic data showed that the growth of the US economy is slowing down after the US Fed raised interest rates several times. The market expects the Fed to gradually slow down or even stop raising interest rates. The US dollar index fluctuated downward, which was bullish for copper prices.

In terms of fundamentals, the inventory in Guangdong has increased significantly for five consecutive days, which was contributed by the poor demand. On the last trading day, the overall market transactions were critically sluggish. Holders had to constantly cut the prices to gain a small number of transactions. Besides, consumption continues to weaken approaching the Chinese New Year. Copper prices are expected to remain rangebound with some upward potential in the near future.

Aluminium: The most-traded SHFE 2302 aluminium contract opened at 19,065 yuan/mt overnight before closing at 19,015 yuan/mt, down 50 yuan/mt or 0.26%.

LME aluminium opened at $2,638/mt on Thursday and closed at $2,583.5/mt, a drop of $54.5/mt or 2.07%.

Favourable domestic policies and optimistic expectations drove a rebound in aluminium prices. Moreover, the peak of Covid infections has passed in many parts of China, fuelling market optimism over demand recovery after the CNY holiday. There will be strong risk aversion in the last trading day before the holiday. Optimism over post-holiday consumption is expected to sustain further rise in aluminium prices.   

Lead: Overnight, LME lead opened at $2,173/mt and fell 1.7% to $2,135/mt, after hitting the highest point at $2,185/mt and the lowest point at $2,130/mt. The open interest increased 304 lots to 117000 lot, and the trading volume increased 41 lots to 5,557 lots.

The most-traded SHFE 2303 lead contract opened at 15,300 yuan/mt and fell 0.46% to 15,230 yuan/mt, after hitting the highest point 15,320 yuan/mt and the lowest point at 15,230 yuan/mt. The open interest increased 51 lots to 81,793 lots compared with the previous trading day. The trading volume decreased 33,329 lots to 19,610 lots.

Zinc: LME zinc closed at $3,416/mt on Thursday, up $36/mt or 1.07%. The open interest added 2,747 lots to some 200,000 lots. LME zinc inventory kept falling.

The most traded SHFE 2303 zinc contract closed at 24,580 yuan/mt overnight, up 195 yuan/mt or 0.8%. The open interest added 2,019 lots to 100,000 lots. The market players in the mainstream zinc ingot market was basically on holiday, hence there were almost no quotations or transactions heard. The fundamentals offered limited support to zinc price. The current price move was pushed by the capital front, and the macro sentiment is of concern at present.

Overnight, the Russian Deputy Prime Minister Novak said Russia was not discussing the possibility of oil production cuts with OPEC+. The US Fed official Brainard said a 25 bps rate hike in February is likely and it is necessary to maintain restrictive rates in a period of time. US Fed official Collins said a rate hike to possibly slightly above 5% is needed, which will then be maintained for some time. The ECB minutes showed that the vast majority of members supported a 50 basis point rate hike in December, with many members initially leaning towards a 75 basis point hike.

Tin: Overnight, SHFE tin rose above 230,000 yuan/mt and closed at aroud 231,200 yuan/mt. Open interest of the most-traded contract continued to fall. Inventory of SHFE tin warrants changed little. The spot market was quiet. LME tin inventory continued to fall. Overseas market maintained discounts. Import profits are expected to remain at a low level. As the Chinese New Year (CNY) is around the corner, supply and demand almost stagnated. Investors will stay cautious in the last trading day before the holiday. SHFE tin will come under pressure after continuous rise.

Nickel: SHFE nickel prices rose due to the influence of funds. The spot premiums dropped while the spot prices of pure nickel rebounded. NPI plants held low in-plant inventories of finished products. According to SMM research, production of some NPI production lines that were suspended for workers' strikes and other reasons in Indonesia returned to normal, and the events cast a limited impact on the market. On the demand side, according to SMM research, the stainless steel industry is on the Chinese New Year holiday. The market saw scarce transactions. Demand from alloy producers decreased with the end of stockpiling. To sum up, the supply and demand for pure nickel remain weak. SMM believes that nickel prices will remain rangebound with some drops.

[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.]