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SMM Morning Comment For SHFE Base Metals January 8

iconJan 8, 2024 09:55
Copper prices went down as US job growth exceeds expectations in December (SMM copper morning comment)

SHANGHAI, January 8 (SMM) –
Copper prices went down as US job growth exceeds expectations in December (SMM copper morning comment)
LME copper prices opened at $8419/mt and closed at $8415/mt last Friday evening, a drop of 0.78%, with the low-end of $8400/mt and the high-end of $8520/mt. Trading volume was 23,000 lots, and open interest stood at 278,000 lots. The most active SHFE 2402 copper contract prices opened at 68190 yuan/mt and finished at 68300 yuan/mt last Friday evening, down 0.07%, with the low-end of 68140 yuan/mt and the high-end of 68550 yuan/mt. Trading volume was 26,000 lots and open interest stood at 125,000 lots. On the macro front, data showed that U.S. job growth accelerated in December last year and wages rose more than expected, reducing the possibility of the Federal Reserve cutting interest rates in March. The U.S. Dollar index ran at high levels, suppressing copper prices. On the fundamentals, as of Friday January 5, SMM copper inventories in major Chinese markets added 5,300 mt from last Monday to 79,600 mt, up 10,500 mt from two Fridays ago. Inventories have fallen for two consecutive weeks. From the supply side, although the inventory has increased, it is mainly due to the large amount of imported copper. The mainstream standard-quality copper circulating in the market was limited, and the sellers kept prices firm. Overall, the continued increase in inventories will alleviate market concerns about tight supply. In terms of consumption, the fall in copper prices coupled with reduced financial pressure on companies are expected to drive companies to stock up before the Chinese New Year, and demand will pick up. In terms of price, the U.S. index is running at a high level and domestic demand is gradually entering the off-season, and copper prices are still under pressure.
At last Friday’s night session, the most-traded SHFE 2402 aluminum contract opened at 19,120 yuan/mt, with its lowest and highest at 19,080 yuan/mt and 19,255 yuan/mt before closing at 19,190 yuan/mt, down 5 yuan/mt or 0.03%. LME aluminum opened at $2,279/mt last Friday, with its high and low at $2,294.5/mt and $2,251/mt respectively before closing at $2,272/mt, a drop of $13/mt or 0.57%.
Summary: From a macro perspective, the number of non-farm payrolls in the United States in December exceeded expectations, and the unemployment rate was lower than expected. Although the ISM service industry index fell, it was still in the expansion range, highlighting the resilience of the job market, and market expectations for interest rate cuts were lowered. In terms of fundamentals, the domestic aluminum supply side has entered a period of stable operation, with no major changes in the short term. As the traditional off-season has arrived, the industry's aluminium ingot is expected to increase. The disturbance in the alumina supply caused by the oil deposit incident in Guinea and the domestic heating season may come to an end for the time being. The trading logic of SHFE aluminum returns to the fundamentals. The short-term aluminum supply remains stable, while the consumption is still expected to weaken. The seasonal accumulation of aluminum ingots may be approaching, which will suppress SHFE aluminum. However, the current low inventory supports aluminum prices. SMM predicts that SHFE aluminum will remain volatile in the short term.
The macro is weak but the fundamentals are improving, LME lead rebounded [SMM Lead Morning Comment]
Overnight, LME lead opened at US$2,075.5/ton and once rose to US$2,090/ton. Prices finally closed at US$2,076/mt, an increase of 1.34%.
The most active SHFE 2402 lead opened at 16095 yuan/mt and reached a high of 16145 yuan/mt, and finally closed at 16145 yuan/mt, up 0.81%. Open interest decreased 328 lots to 39149 lots.
Refined zinc supply to decrease, SHFE zinc prices met resistance [SMM Zinc Morning Comment]
Last Friday evening, LME zinc prices opened at $2531/mt and went up to close at $2544/mt, up $5/mt or 0.2%. Trading volume decreased to 7391, and open interest decreased 2143 lots to 202,000 lots. Last week, LME inventories decreased by 1,725 tons to 221,775 tons, a decrease of 0.78%. The U.S. non-farm employment population data was released last Friday night. Subsequently, LME zinc rose before falling, and met resistance.
The most active SHFE 2402 zinc contract prices opened at 21200 yuan/mt and closed at 21300 yuan/mt last Friday evening, up 90 yuan/mt or 0.42%. The trading volume was down to 38750 lots, and open interest decreased 1032 lots to 74024 lots. Some domestic smelters experienced production cuts in January, putting pressure on the supply side. However, the import window is about to open, and subsequent imported zinc ingots are still flowing into the domestic market. This, combined with the off-season for consumption hampered rise in SHFE zinc prices.
SHFE 2402 tin contract rose to 207430 yuan/mt at last Friday’s night session and then fell back, closing at 206310 yuan/mt, down 1.27%. During the early trading last Friday, spot premiums and discounts in domestic spot market for various domestic tin ingot brands were as below. Small brand tin ingots were offered at discounts of 400-1000 yuan/mt compared to SHFE 2402 tin contract, versus premiums of 0-700 yuan/mt for delivery brands, premiums of 900-1100 yuan/mt for Yunxi brand, and discounts of 900-1300 yuan/mt for imported brand tin ingots. Tin prices continued to fall last Friday, and trading companies reported an increase in procurement enthusiasm from downstream companies. Generally speaking, the spot market transactions last Friday were relatively active.
Nickel prices continued to decline, reaching 123,540 yuan/mt on last Friday, with a weekly drop of 2.1%. But nickel sulphate prices remained stable last week. The main reason is the weak trading in the nickel salt market, with both reduced supply and subdued demand in the upstream and downstream sectors. NPI prices saw a slight rebound last week, primarily influenced by a resurgence in downstream procurement demand. Recently, there was a noticeable increase in the intended selling prices of traders. Due to a significant decline in SHFE nickel prices last week, the price difference between pure nickel and NPI, as well as nickel sulphate, narrowed. On the macro front, on last Wednesday night, the Fed released minutes from their meeting. Fed officials think the risk of rising inflation has decreased somewhat. They hinted that expectations for a rate cut in 2024 might persist but didn't give any signal about when it might happen. The Fed switched from being dovish before and minutes reveal a hawkish stance now. Additionally, the Red Sea shipping incident remains unresolved. European shipping leaders announced price hikes and extended shutdowns. However, the Red Sea crisis did not have a significant impact on pure nickel at the moment. From a fundamental perspective, the spot market saw limited circulation of nickel plates, primarily led by Jinchuan nickel plates. Additionally, spot quotations increased. According to SMM research, domestic pure nickel inventories decreased last week, driven by downstream dip buying. There was a slight increase in orders for electroplating and alloys across different industries. This was reflected in the active trading of Jinchuan nickel plates in the spot market. Regarding stainless steel, inventory continued to decline, although at a slower rate, signaling a tempered optimism.

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