SMM Morning Comments (Jan 31): Base Metals Closed with Losses on Worries over Chinese Demand Recovery

SHANGHAI, Jan 31 (SMM) – SHFE and LME base metals mostly closed with losses overnight as the world is now keenly eyeing Chinese demand recovery after the Chinese New Year holiday. China's official manufacturing PMI data will be announced today, which will have a certain impact on market expectations.

Copper: LME copper prices closed at $9,196.5/mt overnight. Trading volume was 12,000 lots and open interest stood at 254,000 lots, a decline of 0.79%.

The most active SHFE 2303 copper contract finished at 69,550 yuan/mt overnight. Trading volume was 33,000 lots, and open interest stood at 176,000 lots, down 0.2%.

On the macroeconomic front, the US dollar rose on Monday as the upcoming two-day policy meeting by the Federal Reserve pushed the US dollar higher. China's official manufacturing PMI data will be announced today, which will have a certain impact on market expectations. In terms of fundamentals, as of Monday January 30, copper stocks in mainstream Chinese markets tracked by SMM increased by 27,900 mt from Saturday January 28 to 263,900 mt, mainly because downstream consumption has not yet recovered, and smelters continued to ship cargoes to warehouses.

In China’s spot markets, only some traders and upstream plants resumed normal operations in the first week following Chinese New Year holidays. And most of the downstream producers still had raw material inventories. In addition, copper prices remained rangebound at high levels. Thus the overall trading was subdued. The approaching interest rate hike, combined with market concerns about the degree of China's economic rebound, will keep copper prices rangebound.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,980 yuan/mt overnight before closing at 18,920 yuan/mt, a drop of 80 yuan/mt or 0.42%.

LME aluminium opened at $2,631.5/mt on Monday and closed at $2,566/mt, a decrease of $61.5/mt or 2.34%.

The confidence of bulls was somehow diminished following continuous rise of aluminium prices, leading to a pullback. But expectations for demand improvement should keep SHFE aluminium firm. In the near future, market players will pay close attention to the pace of consumption recovery and evolution of overseas interest rate hikes.

Lead: LME 3M contract fell slightly after opening modestly high, and then moved rangebound before breaking through the daily moving average to a high of $2,197/mt. The contract finally closed Monday at $2,140/mt, down 1.81%.

The most-traded SHFE 2303 contract rose quickly after opening, and closed the night session at 15,230 yuan/mt, down 0.39%.

Zinc: Last night, the US Treasury Department upgraded its forecast for the Federal debt this quarter to $932 billion, in excess of the estimates of some bond brokers. One of the highlights at this week’s FOMC meeting will be the impact assessment of Fed's previous rate hikes on economic growth and inflation. Traders, for the first time since January 11, bet that the interest rate of European Central Bank (ECB) would peak at 3.5%. In addition, it is the first time since December 28 last year that markets have priced in a 50 basis points hike for ECB’s interest rate hike this week. China’s National Health and Medical Commission announced that the covid-19 pandemic in China was basically under control with low infection rate.

Overnight, LME zinc opened at $3,460/mt before moving down to consolidate at $2,975/mt. It eventually closed down $8.5/mt or 0.25% at $3,439.5/mt. The trading volume rose to 6,179 lots, and open interest decreased by 1,018 lots to 209,000 lots. LME zinc inventory shed by 250 mt to 17,425 mt.

Overnight, the most-traded SHFE 2303 zinc contract opened at 24,280 yuan/mt and fluctuated upwards before closing at 24,405 yuan/mt, up 120 yuan/mt or 0.49%. Trading volume was down to 142,477 lots, and open interest lost 593 lots to 98,609 lots. At the beginning, the market expectations for consumption recovery drove up the zinc prices, but the bullish sentiment gradually cooled afterwards. SMM survey showed that the social inventory of zinc ingots across seven markets in China gained 54,900 mt to 157,900 mt during the Chinese New Year (CNY) holiday. SMM expects the inventory accumulation cycle to extend into mid and late-February, pointing to a limited fundamental support for zinc prices. In the spot market, the trades were poor on the first trading day after the holiday as most market players took a wait-and-see stance. Generally speaking, zinc prices are likely to maintain fluctuating.

Tin: On the fundamentals, domestic warrants inventory changed little, while the social inventory rose slightly post the Chinese New Year holiday. The spot market picked up from before the holiday, but the spot prices were relatively stable. LME inventory fell slightly. In the futures market, the most-traded SHFE tin contract fell overnight, and closed the session at around 235,200 yuan/mt. The open interest fell, and the capitals were eyeing the forward contract. To sum up, SHFE tin start to correct after consecutive growth earlier, and the post-holiday social inventory is worth attention.

Nickel: On the supply side, boosted by optimism over post-holiday consumption, SHFE nickel opened high Monday morning, and spot prices rose as a well. For NPI, the stainless steel mills started to make inquiries immediately after the holiday, and NPI prices grew following rising stainless steel spot prices. On the demand side, the transactions of stainless steel were good in Wuxi yesterday, with spot prices on the rise. The social inventory of stainless steel, however, accumulated as Delong released a batch of goods to the market ahead of the Chinese New Year holiday. Meanwhile, most downstream fabricators will not resume the production until around the Lantern Festival. The alloy factories’ demand was contained by high nickel prices. Nonetheless, accumulating nickel social inventory will offer less support to currently high nickel price.

[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.]