SHANGHAI, Jan 28 (SMM) - Below is a brief look back on China's metals market during the Chinese New Year holiday and the short-term market outlook. Please click the links below to the full content of each release.
Copper Prices to Be Subject to Follow-up Consumption post CNY Holiday
LME copper price remained high during the Chinese New Year (CNY) holiday and closed the night session of Friday January 27 at $9,270/mt, down 1%. As a major metal consumer in the world, the Chinese market was closed for the CNY holiday, leading to stalling market transactions. LME copper, on the other hand, remained high as a whole and changed little. Therefore, the market focused more on the US economic performance during this period. The US December PCE price index and consumer confidence index were released on Friday. In addition, the US fourth-quarter GDP released on Thursday showed a slowdown in growth, but it was still higher than market expectations. These economic data supported the US dollar, and copper prices fell under pressure on Friday. On the other hand, during the holiday, LME copper inventory kept falling and reached 73,975 mt as of January 27, a drop of 6,050 mt from 80,025 mt before the CNY holiday.
SMM China Copper Cathode Social Inventory up 39,400 mt during CNY Holiday
As of Saturday January 28, the first working day following Chinese New Year (CNY) holiday, the copper cathode inventory across major Chinese markets added 39,400 mt from last Friday January 20 to 236,000 mt. This marked the fifth consecutive week that the social inventory rose since the end of December. During the CNY holiday, the smelters maintained production, but the downstream players were off on holiday, leading to accumulating social inventory. However, due to the problem of poor transportation efficiency, the accumulation on the first working day after the CNY holiday was less than the same period last year when the growth was 58,800 mt. Nonetheless, the total inventory was 137,300 mt more than the 98,700 mt in the same period last year, of which the inventory in Shanghai added 73,400 mt from the same period a year ago, Guangdong grew 24,000 mt, Jiangsu rose 35,300 mt, and Zhejiang climbed 3,600 mt.
SMM Review of Aluminium Market during CNY Holiday and Post-Holiday Outlook
Review: The most-traded SHFE 2303 aluminium contract hit 19,500 yuan/mt on January 20, a new high in more than half a year. The SHFE was closed from January 21 to January 27 for the Chinese New Year (CNY). LME aluminium opened at $2,593/mt on Monday January 23, with its weekly high and low at $2,664/mt and $2,593/mt respectively before trading at $2,627.5/mt on Friday, an increase of $37.5/mt or 1.45%.
From a macro point of view, during the CNY holiday, the US Department of Labour announced that the number of initial jobless claims for the week ending January 21 was 186,000, which was lower than the previous reading. The preliminary reading of actual annualised GDP in the US rose 2.9% on a quarterly basis in the fourth quarter of 2022, beating forecast of 2.6%. The improvement of various economic indicators indicates that the US economy is still resilient at present, and there is no risk of recession in the short term. Next week, market players will need to pay attention to the Fed’s interest rate decision. According to market news, the Fed may raise interest rates by 25 basis points at the FOMC meeting next Thursday, and the rate hike may slow down. With the lifting of China’s pandemic controls, passenger traffic during the 2023 CNY holiday rebounded significantly. In the first 26 days of January 26, a total of 43.56 million passengers travelled by railways, highways, waterways, and air across the country, an increase of 85.9% YoY, but down 46.9% from the same period in 2019.
Review of Lead Market amid CNY Holiday and Post-Holiday Prospect
During the Chinese New Year holiday, LME lead prices rebounded after falling. At the beginning of this week, LME lead dropped to $2,048.5/mt and then rebounded to $2,237/mt. As of this Friday, LME lead closed at $2,179.5/mt. The LME lead inventory changed little during the CNY holiday and remained at 20,250 mt, a 15-year low.
Post-holiday trend: After the Chinese New Year holiday, there will be more important data released by the United States, such as the number of ADP employment in January, the unemployment rate in January and the seasonally adjusted non-farm payrolls in January. In addition, the US Federal Reserve will announce its interest rate decision in early February and the market expected that the Fed will raise the interest rate by 25 basis points.
In terms of fundamentals, according to the holiday arrangements, most primary lead smelting enterprises produced normally during the holiday and large-sized secondary lead enterprises represented in Anhui also produced in shift. But most downstream enterprises took holidays for 5-15 days while only some storage battery companies continued to produce during the CNY holiday. After the holiday, downstream enterprises started work on January 26 at the earliest, and most of the others plan to resume production on January 28-29. The rest of the enterprises will gradually resume on February 5.
Zinc Prices Gaining Strong Support from Stimulus Policy and Recovering Demand post CNY Holiday
LME zinc extended the strong momentum during the Chinese New Year (CNY) holiday. As of Friday January 20, LME zinc closed at $3,448/mt, up $25.5/mt or 0.75% during the holiday. LME zinc ingot inventory stood at 17,675 mt on the same day, a drop of 975 mt during this period, with warehouses in Singapore contributing the major decline. First of all, the overseas market had strong expectations for demand recover after China relaxed the pandemic control measures. In addition, European smelters currently have no plans to resume the production, and falling LME inventory offered strong support to spot prices.
Looking forward, according to SMM research, the production reduction of Chinese smelters in February 2023 will be less significant than in the same period in the previous year based on the current production scheduling, hence refined zinc output will not fall palpably. Although the social inventory recorded a historical low of 67,000 mt before the CNY holiday, the considerable profit will significantly boost the production post the holiday. Hence the support from the fundamentals will be weak. Nonetheless, considering the market recovery following the scrap of zero-covid policy and the progress of real estate and photovoltaic-related projects which is likely to boost the consumption of galvanised products, the zinc ingot social inventory accumulation will slow. Coupled with the expected short squeeze overseas, SHFE zinc will gain momentum.
Tin Price Likely to Open High after CNY Holiday
SHFE tin market was closed for CNY holiday starting from the evening of January 20. The most-traded SHFE tin contract closed the day session of January 20 with an increase of 7.44% at 238,960 yuan/mt. LME tin remained strong during the holiday, and stood at $31,280/mt as of the time of this release, with a weekly gain of 5.43%.
In detail, LME tin rose slowly at the beginning of the week, and then accelerated to a high of $32,000/mt before pulling back. LME tin inventory added 125 mt during the holiday to 3,055 mt as of Friday January 27.
On the macro front, the number of initial jobless claims in the United States dropped to 186,000 from the previous value of 192,000, lower than the market's previous expectation of 205,000.
On the fundamentals, domestic smelters still maintained production during the CNY holiday. Specifically, the operating rates in Yunnan were higher than those in other provinces like Jiangxi as some smelters in Yunnan maintained normal production during the holiday. The continuous rise in tin prices has pushed up the processing fees, which, however, were still constrained by factors such as tight raw material supply in the holiday. The import window opened briefly ahead of the holiday, but the profitability was not satisfying.
LME Nickel Fluctuated During CNY Holiday
Affected by the expectations of improving domestic consumption, both SHFE nickel and LME nickel prices increased before the Chinese New Year holiday. During the CNY holiday, SHFE stopped trading and LME nickel prices fluctuated at a high level within the rage of $28,000-29,800/mt during January 23 to January 27. During the CNY holiday, the US Department of Labor announced that the number of initial claims for unemployment benefits, which was 186,000 and was lower than the previous value. The initial reading of annualised quarterly rate of GDP in the fourth quarter was 2.9, which was higher than the predicted value of 2.6. The improving economic indicators also indicates that the US economy is still resilient at present, and there is no risk of recession in the short term. Next week, the market should pay attention to the Fed’s interest rate decision. According to market news, the Fed may raise the interest rate by 25 basis points at the FOMC meeting next Thursday.
Strong Bullish Sentiment Arises from Stagnant Rebar Transactions during CNY Holiday
During the CNY holiday, the rebar transactions in the spot market basically stagnated. The quotations were mainly stable, except for slight increases in the quotations of several suppliers. After the holiday, the market quotations have been generally higher. As of January 28, the rebar in Hangzhou (Zenith Steel Group) was quoted at 4,210 yuan/mt, 40-50 yuan/mt higher than pre-holiday offers; the rebar in Beijing (HBIS Group) is quoted at 4,100 yuan/mt, up 40-50 yuan/mt; the quotes of rebar in Shanghai (Shagang Group) were flat at 4,110 yuan/mt. However, as most terminal enterprises and futures companies were still on vacation, the transactions in the market were quiet. It is learned that traders will start to resume trading since January 28, and most of the terminal construction projects will resume operation after February 5.
HRC Prices Rise Extensively post CNY Holiday
During the Chinese New Year (CNY) holiday, the spot prices of hot rolled coil (HRC) in various regions of the country were basically stable compared with before the holiday. Both traders and terminal players were on holiday, and the market stagnated.
On the first working day after the holiday, HRC prices rose across the board with an increase of 10-50 yuan/mt, especially north China.
Looking at the follow-up period, due to the improvement of profits and sales situation in China and abroad, coupled with the market's expectation of demand recovery by the middle of 2023 fuelled by investment in infrastructure and manufacturing, steel mills are still enthusiastic about producing HRC. It is expected that there is still room for mounting supply in January-February. After the festival, demand will also recover slowly. Considering the positive macro stimulus, the slowdown of interest rate hikes in major overseas economies, the bullish outlook and high costs, short-term HRC prices will be resilient, especially in the first trading week post CNY holiday.
Market was Closed During CNY Holiday and Steel Mills Continued to Consume Iron Ore Inventory
Before the Chinese New Year, the iron ore futures prices declined slight as the relevant state departments to effectively controlled the futures market. The trading in the spot market was less active as steel mills completed their restocking targets before the Chinese New Year. Therefore, the support for the spot prices weakened, and the spot prices of PB fines at Qingdao port stood at 850-860 yuan/mt before the holiday. However, the Platts Iron Ore Index continued to rise during the CNY holiday and the 62% iron ore index rose to 127.4 as of January 27. The overseas swap prices fluctuated slightly during the period. As of January 27, Singapore swaps of FE 2305 contract closed at 124.95, driving the costs of iron ore to rise $0.5 to $5.
Steel Mills to Raise Prices amid Weak Demand for Silicon Steel
During the CNY holiday, the silicon steel market was closed, and the quotations of traders after the holiday were flat compared with those before. Most traders in Shanghai and Wuhan returned to work today, apart from a small number of traders who planned to return to work on January 30. The majority of traders in Guangzhou will return to work on January 29 and 30.
In the foreseeable future, mainstream steel mills are inclined to increase prices due to high costs. SMM expects that the steel futures prices of mainstream steel mills in March will continue to rise. As for traders, they are facing greater cost pressure amid rising quotes of steel mills and the potential of further increase. As such, their profits might turn poor again. With regard to demand, since downstream and terminal enterprises generally restocked in advance based on the expectations for an increase in post-holiday prices, the terminal demand in February is expected to run at a low level. The overall purchasing enthusiasm will thus be weak.
SMM Review of Cobalt and Lithium Markets during CNY Holiday and Post-Holiday Forecast
Lithium carbonate: The market was quiet during the Chinese New Year (CNY). Smelters will hold offers firm, despite growing inventory. Inquiries from downstream enterprises may pick up after the holiday break. SMM expects lithium carbonate prices to stabilise or drop slightly.
Lithium hydroxide: The market was closed during the holiday, but gradually recovered after the holiday. The top-tier smelters still focused on exports, and export prices changed little amid stable demand. Lithium hydroxide prices may hold steady in the short term.
Cobalt sulphate: Most smelters were closed during the CNY holiday due to stagnant logistics and gloomy market, except for major integrated producers. Battery production will recover after the holiday, which will drive demand recovery of upstream precursors and cobalt sulphate. Hence, cobalt sulphate prices may stop falling.
Rare Earth Market Remained Stable during CNY Holiday
Generally speaking, the rare earth market remained stable during the CNY holiday. Goods holders basically offered no quotes and there are few inquiries amid thin transactions. It is worth mentioning that the sales of most enterprises were suspended during the holiday, but normal production was still maintained. However, the actual transactions fell short of expectations due to the stagnation of logistics and the shortage of spot goods.
SMM Review of Industrial Silicon Industry Chain and Post-Holiday Outlook
Industrial silicon: During the Chinese New Year (CNY), the operating rate of industrial silicon companies weakened slightly due to output reduction and shutdown of some factories in Sichuan and Yunnan. According to SMM survey, the social inventories of silicon metal in Kunming, Tianjin Port, and Huangpu Port totalled 125,000 mt as of January 28, an increase of 2,000 mt compared to pre-CNY level. The market transactions basically stagnated during the holiday. Most silicon factories held a wait-and-see stance on the first day after the holiday, while buyers barely made inquiries. Given ample supply and lagging demand recovery, silicon metal prices will have little upside room.
Polysilicon: Polysilicon enterprises maintained normal production during the CNY holiday, while logistics activities and market transactions stagnated, pushing up the inventories of polysilicon enterprises to nearly 100,000 mt after the holiday. Firm offers of leading polysilicon enterprises and price hikes by downstream producers encouraged some polysilicon enterprises to raise offers. As some module companies plan to ramp up production, polysilicon prices will extend the rally.
Transactions were Muted and Social Inventory of Silicon Increase Slightly
According to SMM statistics, as of January 28, the social inventory of silicon metal across Huangpu port, Kunming city and Tianjin port totaled 125,000 mt, a slight increase of 2,000 mt compared with that before the Chinese New Year Festival. During the holiday, the transactions in the silicon metal market were muted stagnated, and the logistics services were halted. As such, the shipment was few. Only a small amount of goods arrived in Kunming and Tianjin port. As upstream and downstream enterprises resume work, the activity in the spot market will improve.
PV Market Performed Well during CNY Holiday, Demand Recovery to Result in Falling Inventories
Polysilicon: The operating rates of polysilicon producers remained stable during the CNY holiday, but the inventory kept rising due to the suspension of logistics and the reduction of market transactions. The total inventory of polysilicon enterprises has so far neared 100,000 mt. Nevertheless, thanks to the tough attitudes of leading companies in holding prices firm and the price increases in downstream sectors before the holiday, some polysilicon companies continued to increase their quotations during the holiday. After the holiday, some module enterprises planned to ramp up the production. As such, polysilicon prices are expected to pick up still in the short term.
Silicon wafer: Before the CNY holiday, a top-tier silicon wafer enterprises raised its offers, which prompted some other enterprises to follow suit. Silicon wafer companies generally maintained high operating rates during the CNY holiday on account of low inventories. Therefore, the pressure to delivery was somehow relieved. With the rebound of polysilicon prices as well as the pressure from cost and procurement, the post-holiday prices of silicon wafer are expected to rise slightly.
Solar cells: During the CNY holiday, solar cell companies basically maintained normal production. But the cost pressure from the continuous rise in the raw material prices compelled them to raise their offers as well. Since most enterprises held upbeat outlook for the post-holiday market recovery, it is estimated that the supply and prices of solar cells will both increase in early February.
Magnesium Market Remained Stable During the CNY Holiday
During the Chinese New Year holiday, the domestic magnesium market was closed while the magnesium factories maintained normal and stable production for the long-term orders in the early stage. Due to the halted logistics services, the overall transactions were muted. Most domestic magnesium factories stopped making quotations during the holidays, and the prices of 90# magnesium ingots offered by some factories stood at 22,000 yuan/mt. Due to the declining pre-holiday inventory and the improving post-holiday demand, the magnesium market is expected to continue to improve after the holiday.