SMM Morning Comments (Feb 6): Base Metals Closed with Losses on Strong US Job Market

SHANGHAI, Feb 6 (SMM) – SHFE and LME base metals closed mostly with losses last Friday. On the macro front, the U.S. Department of Labor announced last week that the non-farm sector added far more jobs than expected in January, and unemployment rate also fell, both supporting the US dollar. This weighed down metals prices.

Copper: LME copper closed at $8,925.5/mt last Friday evening, a decline of 1.2%. Trading volume was 19,000 lots and open stood at 254,000 lots. The most active SHFE 2303 copper contract finished at 68,470 yuan/mt overnight, down 0.57%. Trading volume was 103,000 lots, and open interest stood at 198,000 lots.

On the macro front, the U.S. Department of Labor announced last week that the non-farm sector added far more jobs than expected in January, and unemployment rate also fell, both supporting the US dollar. This weighed down copper prices. On fundamentals, SMM data showed that copper inventories across mainstream areas in China increased 33,800 mt on Friday February 3 from Monday January 31, 86,600 mt above the same period last year. The main cause are increased shipments from smelters and poor downstream purchases. At present, the domestic market sees oversupply. In terms of consumption, the market will fully resume production after February 5, and the consumption is expected to pick up gradually. Copper prices will remain range-bound during the slow recovery of the market.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 19,080 yuan/mt at last Friday’s night session and moved around 19,000 yuan/mt before closing at 19,015 yuan/mt, down 0.42%.

LME aluminium fell to around $2,570/mt after opening at $2,607/mt last Friday, and closed at $2,566/mt, down 1.48%.

Major overseas central banks raised interest rates one after another. The market is interpreting the interest rate meeting of US Fed as a dovish signal. Investors are expecting the US Fed to suspend interest rate hikes. In China, there are a series of favourable policies to boost the economy. The macro environment is bullish for commodities. The domestic aluminium production declined in January and may drop further amid expectations for production cuts in Yunnan. However, the substantial accumulation of aluminium ingot inventory and slow recovery of downstream production will cap the upside room of aluminium prices. It is expected that aluminium price will fluctuate rangebound this week, and attention should be focused on the implementation of production reduction in Yunnan.

Lead: Last Friday, LME lead opened at $2,134.5/mt the transactions in the morning session were light as the prices fluctuated between $2,140-2,155/mt. During the European trading hours, LME lead declined sharply to $2,092/mt as the US employment data was released beyond expectations and finally closed at $2,103.5/mt, down 2.16%.

The most-traded SHFE 2303 lead contract opened at 15,260 yuan/mt last Friday and fluctuated at 15,300 amid the declining social inventory, but then decreased 0.52% to close the ession at 15,230 yuan/mt in light of the falling LME prices, with open interest decreasing 2,065 lots to 72,180 lots.

Zinc: Overnight, the US claimed to shoot down a Chinese unmanned airship. In response, the Chinese Ministry of Foreign Affairs expressed strong discontent and firm opposition in its statement, and the spokesperson of the Ministry of National Defence also made a speech on the US military’s attack on the Chinese civilian unmanned airship. In the US stock market and bond market, the Fear & Greed Index both surged.

Last Friday, LME zinc tumbled and dropped below the middle of the Bollinger Band before finding support at the 40-day moving average. LME zinc inventory reduced by 100 mt to 16,375 mt.

Last Friday, SHFE zinc fell and neared the middle of the Bollinger Band. On the macro level, the zinc prices faced downward pressure from rallying US dollar index. With regards to the fundamentals, the domestic social inventory is still in an accumulation cycle. The specific follow-up consumption recovery is yet to be measured based on the change in the inventory.

Tin: SHFE tin prices plunged sharply after the opening yesterday night, and then fluctuated at 223,500 yuan/mt. The trading volume of the most-traded contract increased significantly while the open position of SHFE 2303 tin contract continued to decrease.

Domestic tin inventory under SHFE warrants continued to increase. Trades in the spot market improved slightly due to the low premiums and the resumption of production. LME inventory remained stable as the expected import profits were limited. But the imported tin prices were lower than the domestic ones.

In terms of futures prices, the SHFE tin prices plunged after opening last Friday and closed at 223,500 yuan/mt. The open interest of the most-traded contract decreased slightly. The open interest of distant-month contract increased slightly and the positions remained stable.

To sum up, the supply and demand was temporarily balanced. As the market sentiment is stable, tin prices may fluctuated widely.

Nickel: Nickel prices continued to grow last week because of the production resumption of companies post-Chinese New Year holiday. On February 2, the US Fed announced that it would raise the interest rate by 25 basis points to 4.50%-4.75%, which was in line with market expectations. On the supply side, the upstream companies were more willing to ship as the SHFE nickel prices remained high. The spot prices were low, and the transactions picked up slightly in the early trading yesterday. In terms of NPI, according to SMM research, a steel mill in south China once bought high-grade NPI at 1,385 yuan/mtu (tax included, delivery to factory), and the prices of thousands of mt of NPI purchased by a mill in east China were 1,390 yuan/mtu (tax included, delivery to factory). On the demand side, recent market transactions have been weak, and it will take some time for downstream demand to be released. Spot prices remained low under inventory pressure. The #316L stainless steel witnessed no transactions, and some traders suspended quotations. The guide price of steel mills continues to rise amid the rising raw material prices, and there are few transactions in the market. Alloy enterprises were reluctant to purchase as the nickel prices stood high.

[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.]