SMM Morning Comments (Feb 14): Base Metals Closed Mostly with Gains, Eyes on US CPI

SHANGHAI, Feb 14 (SMM) – SHFE and LME base metals closed mostly with gains overnight. The current market focus is on the upcoming U.S. CPI data, which will have an important impact on the U.S. interest rate hike strategy. The U.S. dollar index fell overnight.

Copper: LME copper prices closed at $8,960/mt in overnight trading, up 1.2%. Trading volume was 13,000 lots and open interest stood at 252,000 lots.

The most active SHFE 2303 copper contract finished at 68,570 yuan/mt overnight, a gain of 0.62%. Trading volume was 23,000 lots, and open interest stood at 146,000 lots.

The current market focus is on the upcoming U.S. CPI data, which will have an important impact on the U.S. interest rate hike strategy. The U.S. dollar index fell last night.

In terms of fundamentals, as of Monday February 13, copper stocks in mainstream Chinese markets tracked by SMM increased by 3,400 mt from February 10 to 316,300 mt. The inventory growth fell due to the recovery of consumption and scarce arrivals of imported copper. Over the weekend, only Shanghai saw destocking, mainly due to the reduction in shipments from smelters to warehouses. The overall consumption did not increase significantly. In terms of consumption, copper prices were fluctuating at high levels, and end-user demand did not pick up sharply as expected. The downstream buying interest was tepid. Copper prices have moved up due to a lower US dollar.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,500 yuan/mt overnight before closing at 18,530 yuan/mt, a drop of 5 yuan/mt or 0.03%.

LME aluminium opened at $2,459.5/mt on Monday and closed at $2,421.5/mt, a decrease of $26.5/mt or 1.08%.

At present, there has been no substantial progress in reducing production on the supply side. Aluminium ingot inventory remained in accumulation cycle. Under the background of supply cuts and weaker-than-expected demand recovery, it is difficult for aluminium prices to have upward momentum. It is expected that aluminium prices will remain rangebound in the short term.

Lead: LME lead opened at $2,090/mt and closed at $2,114.5/mt overnight, up 1.12% or $23.5/mt.

The most-traded SHFE 2303 lead contract opened at 15,285 yuan/mt and touched 15,230 yuan/mt before closing at 15,250 yuan/mt, up 10 yuan/mt or 0.07%.

Zinc: On the news front, PetroChina was about to strike a large-scale liquefied natural gas (LNG) deal with Qatar. Federal Reserve Governor Bowman said that more interest rate hikes were needed to curb inflation, and the economy may have a "soft landing". Chinese Premier stressed that efforts shall be stepped up to promote economic recovery as China is still faced with multiple risks and challenges to stabilise its economy. The US stocks closed with a sharp increase, and investors awaited the release of the inflation data.

Overnight, LME zinc opened at $3,040/mt, hitting a low and high of $3,001/mt and $3,125.5/mt respectively, and closed at $3,117.5/mt, up $91.5/mt or 3.02%. Trading volume increased to 9,293 lots, and open interest fell 1,074 lots to 200,000 lots. LME zinc rose overnight, and found support at the middle of the Bollinger Bands. LME zinc inventory decreased by 325 mt to 25,925 mt, down 1.24%.

The US dollar was weak last night, and LME zinc gained momentum driven by longs after hitting its lowest level since January. Eyes shall be on the US inflation data released today.

The most-traded SHFE 2303 zinc contract opened at 22,960 yuan/mt overnight and fell to 22,835 yuan/mt before rallying to a peak of 23,200 yuan/mt. It eventually settled at 23,175 yuan/mt, up 160 yuan/mt or 0.7%. Trading volume reduced to 62,648 lots, and open interest gained by 531 lots to 86,051 lots.

As of yesterday, SMM zinc ingot social inventory increased by 2,300 mt to 187,800 mt compared with last Friday, indicating that the increase in inventory has slowed down. Upbeat sentiment on consumption elevated the average operating rate of downstream enterprises to a historical high level. It is expected that zinc prices will remain rangebound if no disturbance from major emergencies emerges.

Tin: SHFE tin fluctuated narrowly last night after opening high. The most-traded SHFE 2303 tin contract closed at 218,160 yuan/mt.

Domestic warrants remained stable from yesterday. The spot premiums were stable and the shipments remained flat from yesterday. The import window remained open.

SHFE tin prices fluctuated narrowly after opening last night. The most-traded SHFE 2303 tin contract closed at 218,160 yuan/mt, with open interest decreasing 5,063 lots. The open interest of SHFE 2304 and other forward-month contracts also decreased.

To sum up, SHFE tin prices fluctuated amid the eased long-short game. The spot market was stable amid the high downstream raw material inventory. Imported tin continued to arrive, but imported goods were less cost-effective than the early stage. The overall demand for spot goods was weak, and the discounts were relatively stable.

Nickel: The continued strengthening of the US dollar has attracted the inflow of global safe-haven assets, and the prices of nonferrous metals declined. Nickel prices fluctuated at a low level after slumping yesterday. According to SMM research, the intraday spot transactions were average despite the falling prices. In terms of NPI, due to the weakening of spot stainless steel futures, some NPI factories and traders have reduced their quotations. On the demand side, according to SMM survey, the recent cold-rolled coil transactions have remained sluggish. The market held a high spot inventory, and the traders have to cut their prices to ship. In terms of #304 HRC, the rigid demand from the industrial sector still existed, thus the traders bore less inventory pressure and were not in a hurry to ship. And the prices were slightly higher than the CRC. Alloy companies were less willing to purchase pure nickel although the nickel prices dropped. To sum up, pure nickel faces weak supply and demand. In the short term, nickel prices will move rangebound.

[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.]