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SMM Morning Comments (Jan 30): Base Metals Closed Mostly with Losses on Rising US Dollar
iconJan 30, 2023 10:00
LME base metals closed mostly with losses last Friday as the US dollar index was supported following the release of a serious of US economic data.

SHANGHAI, Jan 30 (SMM) – LME base metals closed mostly with losses last Friday as the US dollar index was supported following the release of a serious of US economic data.

SHFE was closed for Chinese New Year holiday last week, and will resume trading today January 30.

Copper: LME copper opened at $9,361/mt last Friday night and rose to a modest high of $9,392.5/mt before falling to $9,175/mt. At last, the contract closed at $9,270/mt, down 1%. The trading volume was 13,000 lots, and open interest stood at 253,000 lots. LME copper was high last week, and fell last Friday when US dollar index was supported following the release of a serious of US economic readings.

On the macro front, the US released the US PCE price index and consumer confidence index for December last Friday. In addition, the US GDP for the fourth quarter released on Thursday showed a slowdown in growth, but was still higher than market expectations. US dollar index was well supported.

On the fundamentals, SMM copper cathode inventory across the country added 39,400 mt from before the Chinese New Year holiday (January 20) to 236,000 mt as of January 28, as the smelters maintained normal production while the downstream players were off for holiday. Nonetheless, restricted by poor transport efficiency, the inventory accumulation as of the first working day post the CNY holiday was less than in the previous year when the increment came in at 58,800 mt. On the demand side, the processing companies will resume the production recently, but high copper price will weigh on downstream consumption.

Aluminium: On January 20, SHFE 2303 aluminium contract jumped to 19,500 yuan/mt, 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 last Monday, with its weekly high and low at $2,664/mt and $2,593/mt respectively before closing at $2,627.5/mt, an increase of $37.5/mt or 1.45%.

Given limited increase in supply and optimism over post-holiday consumption, SHFE aluminium will still have upside room. However, there are risks to watch for, including overseas interest rate hikes, weaker-than-expected consumption recovery, and possible corrections after continuous rise.

Lead: During the Chinese New Year holiday, the LME 3M lead contract continued to decline since last Monday, but rose rapidly last Tuesday and continued to increase last Wednesday and Thursday. However, the prices fell slightly last Friday, and closed with a week-on-week increase of 4.58%.

Amid the rising LME lead prices, the price ratio between SHFE lead price on January 20 and LME lead prics on January 27 narrowed to 6.96, which was close to the 6.97 on January 3. The Chinese yuan in the offshore market continues to increase in December 2022 and January 2023. Since November 2022, according to the SMM data, exporting lead became profitable and the profits rose to more than 1,000 yuan/mt at the end of December 2022, and hit the highest point at 1,076 yuan/mt on January 3. As such, the export volume of lead in December 2022 increased significantly to 16,432 mt, an increase of 326.25% month-on-month and 161.24% year-on-year. In addition, driven by the expectation of increasing in-plant inventory during the CNY holiday, it is expected that the short-term export profits will remain at a relatively high level.

Zinc: Last Friday, the PCE price index, an inflation gauge preferred by the Fed, continued to decline in December, with its year-on-year growth falling to a one-year low. Fed funds futures continue to reflect the expectations for a 25 basis-point rate hike this week, and point to the possibility of another 25 basis points before the rate hikes stop. Former US Treasury Secretary Summers delivered an unexpectedly dovish speech, by warning Fed against signalling its next move when the economic outlook was highly uncertain. Shanghai government announced to continue providing new energy vehicle replacement subsidies that could top 10,000 yuan for each automobile. Some banks in Zhengzhou, Henan province cut the lower limit of the first-home loan interest rate to 3.8%, down 50 basis points, while keeping interest rate for the second purchase unchanged. 

LME zinc opened at $3,495/mt last Friday, and closed at $3,448/mt, a decrease of $51/mt or 1.46%. The trading volume rose to 5,486 lots, and open interest added 2,015 lots to 210,000 lots. LME zinc inventory decreased by 950 mt to 17,675 mt.

SHFE zinc market was closed for the Chinese New Year (CNY) holiday. The market has been expecting for a recovery of domestic economy and consumption. However, the relatively high operating rates of zinc smelters during the holiday has resulted in potentially sufficient supply. In this context, the zinc prices are expected to keep fluctuating. Eyes on the inventory changes after the CNY holiday.

Tin: LME tin continued to increase during the Chinese New Year holiday. Fundamentally, domestic social inventories continued to accumulate significantly before the holiday, and the spot quotations were scare. The average premium still remained low. The LME inventory increased during the holiday, and the total inventory reached 3,055 mt. In terms of market trend, the LME tin prices continued to increase during the holiday and rose above $32,500/mt, but then fell and closed at $30,740/mt. To sum up, driven by the strong performance of LME tin during the CNY holiday, SHFE tin is likely to increase on the first trading day after the CHY holiday. However, the tin prices may fall in light of the expectation of increasing inventory and the fear of high prices.

Nickel: SHFE nickel dropped ahead of CNY holiday. Looking back on the market before the holiday, on the supply side, there were few quotations heard in the market before the holiday. For NPI, most NPI plants had few inventories on hand. With regard to MHP, the nickel-cobalt smelter jointly owned by BASF and Eramet will be put into production as early as in 2026 with a capacity of 67,000 mt. On the demand side, almost all players across the stainless steel industry chain were on holiday. The market was quiet after the players completed restocking.

[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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