SMM Morning Comment For SHFE Base Metals On February 5

SHANGHAI, February 5 (SMM) –
Copper
LME copper prices opened at $8526/mt and closed with a drop of 0.71% at $8464/mt last Friday evening, with the low-end of $8454/mt and the high-end of $8544.5/mt. The trading volume was 20,000 lots, and open interest stood at 285,000 lots. The most traded SHFE 2403 copper opened at 68800 yuan/mt last Friday night and closed at 68730 yuan/mt, down 0.15%. The contract fell to 68610 yuan/mt after climbing to 68850 yuan/mt. Trading volume was 16,000 lots, and open interest stood at 138,000 lots. On the macro front, the U.S. non-farm payrolls increased by 355,000 more than expected after seasonally adjustment in January, the unemployment rate remained stable in January, and wage growth reached 0.6%, a new high since March 2022. Strong labor market data pushed the U.S. dollar index higher. At the same time, dragged down by weak domestic demand, copper prices are generally under pressure. In terms of fundamentals, from the supply side, inventories continue to rise, and some low-priced imported copper may still flow in before the holidays. In terms of consumption, most companies have gradually completed their inventory preparations and entered the Spring Festival holiday, with very few replenishments. Spot transactions are expected to become increasingly deserted. Overall, there is no supply shortage expected due to increased inventory and weak demand. In terms of price, on the whole, strong labor market data has pushed the U.S. dollar index higher. At the same time, as the Chinese New Year approaches, domestic consumption has become increasingly quiet, and copper prices are expected to be under pressure.
Aluminum
The most-traded SHFE 2403 aluminum contract opened at 18,870 yuan/mt last Friday night, with its low and high at 18,810 yuan/mt and 18,890 yuan/mt before closing at 18,870 yuan/mt, up 0.32%. LME aluminum opened at $2,247/mt last Friday, with its high and low at $2,253/mt and $2,226/mt respectively before closing at $2,236.5/mt, up 0.56%.
As CNY is drawing near, inventory is expected to grow amid sluggish consumption. From a macro perspective, expectations for an interest rate cut by the Federal Reserve in March fell, but have been digested by the market. In the short term, aluminium prices are expected to move rangebound, and we will continue to pay attention to whether unexpected news from the macro perspective will disrupt market sentiment.
Lead
LME lead fell last Friday night and recorded losses for more than three consecutive days. SHFE lead continued to trade sideways [SMM Lead Morning Comment]
LME lead opened at $2145/mt and went downward during the Asian trading hours last Friday evening, declining to $2130/mt during the European trading hours before rebounding to $2153/mt. It finally closed at $2136.5/mt, down 0.19%.
The most-traded SHFE 2403 lead contract opened at 16180 yuan/mt last Friday night, hitting the highest point at 16250 yuan/mt, and closed at 16165 yuan/mt, down 0.18%.
Zinc
Domestic downstream demand weakened, and SHFE zinc subsequently declined [SMM Zinc Morning Comment]
LME zinc opened at $2465.5/mt last Friday evening, and hit a high of $2483.5/mt before falling back to a low of $2437/mt, and closed at $2451.1/mt, a decrease of $18.5/mt or 0.75%. The trading volume decreased to 10930 lots, and open interest added 2713 lots to 222,000 lots. LME zinc inventory decreased by 550 mt or 0.28% to 198325 mt, a drop of 0.28%. The U.S. non-farm payrolls increased by 353,000 in January after seasonally adjustment, the largest increase since January 2023. The labor market performed strongly, the U.S. dollar index rose rapidly, and the macroeconomic pressure suppressed zinc prices.
The most active SHFE 2403 zinc contract prices opened at 20715 yuan/mt and fell 40 yuan/mt or 0.19% to close at 20675 yuan/mt in last Friday evening trading, with the high-end of 20760 yuan/mt and the low-end of 20620 yuan/mt. Trading volumes decreased to 34216 lots and open interest grew 998 lots to 80419 lots. Downstream demand weakened again, spot transactions were light, and the fundamental support for zinc prices weakened.
Tin
SHFE 2403 tin contract swung on a soft note last Friday night, closing at 214,280 yuan/mt, down 0.43%.
Last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at discounts of 0-500 yuan/mt against SHFE 2403 tin contract, versus discounts of 200 yuan/mt to premiums of 600 yuan/mt for delivery brands, premiums of 300-800 yuan/mt for Yunxi brand, and discounts of 500-1,000 yuan/mt for imported brand tin ingots. Tin prices continued to fall last Friday. With the CNY drawing near, demands for tin ingots gradually decreased. Traders reported that inquiries and purchasing were poor.
Nickel
SHFE nickel prices fluctuated downward last week, experiencing a five-day consecutive decline. Initially, positive macro sentiments was gradually absorbed by the market. The approval process for Indonesia's RKAB slowed, but there's a slight uptick compared to last week's data. This provided some relief to the short-term tightness in nickel ore supply. On the macro front, a significant event last week was the first interest rate decision of the Federal Reserve in 2024, which resulted in maintaining the rates at 5.25%-5.50%. This outcome aligns with market expectations, making it the fourth meeting in a row where interest rates haven't changed since September last year. Federal Reserve Chairman Powell stated that he doesn't believe the first interest rate cut will happen in March. This dampened market optimism for a rate cut in the first half of the year, leading to a decline in market trading sentiment, which affected the overall performance of the nonferrous metals sector. Following February 2, the latest macro data in the United States revealed an increase of 9,000 in initial jobless claims for the week ending January 27, reaching a total of 224,000. The released unemployment data after the Federal Reserve meeting indicates a sluggish job market, reigniting investors' confidence in the expectation of interest rate cuts by the Federal Reserve later in the year. In terms of fundamentals, approaching the Chinese New Year holiday, there was a slight decrease in transaction frequency between upstream and downstream enterprises since mid-January. However, the overall spot market still maintained an active trading atmosphere. Additionally, it's noteworthy that some upstream refined nickel plants reported that a portion of last week's orders are for post-holiday. In terms of inventory, both domestic and overseas inventories continued to accumulate last week. Domestic inventories exceeded 20,000 mt, while overseas inventories surpassed 70,000 mt. Looking at the supply side, according to SMM research, refined nickel production in January increased compared to the previous month. The main reason for this is the rebound in nickel prices in January compared to last December, allowing most refined nickel plants to operate profitably. From the demand perspective, as the Spring Festival holiday approaches, downstream enterprises are gradually entering holiday mode, resulting in a slowdown in procurement pace and a slight decrease in overall spot market activity. In addition, according to SMM research, downstream post-holiday procurement is expected to take place in late February. In summary, the current SHFE nickel market shows a mix of bullish and bearish sentiments, with a certain degree of strength observed before the holiday.