SMM Morning Comments (Feb 14): Base Metals Mostly Closed with Losses on Friday Night under High Inflation Pressures

SHANGHAI, Feb 14 (SMM) – Shanghai base metals mostly closed with losses in the overnight trading last Friday as the US inflation hit a nearly 40-year high. LME metals performed similarly.

LME copper dropped 3.46%, aluminium fell 1.2%, lead rose 0.33%, and zinc decreased 0.77%.

SHFE copper lost 2.23%, aluminium dropped 1.01%, lead gained 0.46%, and zinc shed 1.45%.

Copper: LME copper opened at $9,986/mt last Friday night, briefly rising to $10,041/mt, and then dropping to $9,802/mt, and closed at $9,830/mt, down 3.46%. The trading volume was 23,000 lots, and the open interest reached 26,000 lots.

The most active SHFE 2203 copper contract dropped 2.23% to close at 70890 yuan/mt in last night’s trading. Trading volumes were 58,000 lots and open interest stood at 139,000 lots.

On macroeconomy, the U.S. inflation data hit a new height in nearly 40 years. The market expected the Fed to tighten monetary policy, and the U.S. dollar index rebounded, which contained copper futures. Meanwhile, the U.S. stock market suffered panic selling. Three major U.S. stock market indexes all dropped sharply. Last week, due to the rising of US dollar and strong risk-aversion sentiments, copper prices fell sharply for two days, reversing the gains at the beginning of the week. In terms of spot, with the downstream work resumption and the gradual return of long-term orders, traders hold firm to the prices. LME copper will trade between $9,800-9900/mt today; SHFE copper prices are expected to move between 70600-71200 yuan/mt, with spot premiums between 100-200yuan/mt.

Aluminium: LME aluminium opened at $3,238/mt last Friday and ranged between 3,108-3,240/mt before closing at $3,199/mt, a decrease of $39/mt or 1.2%.

The most-traded SHFE 2203 aluminium contract opened at 23,670 yuan/mt during last Friday’s night session, and hit a low of 22,185 yuan/mt before closing at 22,440 yuan/mt, down 230 yuan/mt or 1.01%.

Domestic aluminium production gradually increased, but the total operating capacity was lower than the level in the same period last year. The outbreak of the pandemic in Baise, Guangxi disrupted the production and transportation of local aluminium smelters last week, which exacerbated the tight supply in the spot market. On the demand side, most downstream producers in north China resumed work late, and the production resumption in Shandong, Hebei, and Henan will be slow in the short term due to environmental protection policies. SHFE aluminium may hover highs in the short term.

Lead: LME lead opened at $2,274.5/mt last Friday, falling to the lowest point at $2,245/mt before rebounding to the highest level at $2,288/mt, and closed at $2,287.5/mt, up 0.33%.

The most traded SHFE 2203 lead contract opened at 15,355 yuan/mt in the overnight trading last Friday. However, the lead ingot inventory increased as expected, and the SHFE lead fluctuated around 15,330 yuan/mt before closing at 15,370 yuan/mt, up 0.46%. The open interest increased by 27 lots to 40,357 lots.

Zinc: LME zinc opened at $3,683/mt last Friday, and dropped to the lowest point at $3,617/mt, before closing at $3,655/mt, down 28.5/mt or 0.77%. The trading volume was 9,556 lots, and the open interest increased 1,146 lots to 254,000 lots. LME zinc inventory decreased by 300 mt to 151,900 mt, a drop of 0.2%. LME zinc fluctuated within a wide range as the investors left the market with profits amid risk aversion sentiments. However, the LME zinc is expected to trade between $3,620-2,670 yuan/mt.

The most-traded SHFE 2203 zinc contract opened at 25,720 yuan/mt and dropped to the lowest level at 25,370 yuan/mt before closing at 25,450 yuan/mt, down 375 yuan/mt or 1.45%. The trading volume was 75,336 lots, and the open interest dropped by 3,182 lots to 102,748 lots.

On the supply side, due to the lack of explosives in the northern regions during the Winter Olympics, the mines’ production was reduced, and the TCs for zinc concentrate in Inner Mongolia continued to decrease. China produced 517,600 mt of refined zinc in January, up 4,300 mt on the month but down 4.56% YoY. Although the downstream enterprises have not fully resumed their production, the social inventory stands at 82,200 mt, down 13,000 mt from the same period last year. The zinc spot prices stand high, and the transactions are sluggish.

The zinc fundamentals remain supportive to the prices, while the risks may occur in the macroeconomics.

The SHFE zinc is expected to move between 25,300-25,800 yuan/mt today, and spot premiums for domestic 0# Shuangyan will be seen at 0-30 yuan/mt.

Nickel: LME inventory continued to fall. During the CNY holiday, nickel stocks did not accumulate in a large scale. Logistics resumed and the spot goods arrived one after another in the spot market. Although the spot premiums dropped, the prices of nickel remained high. In the first week after the holiday, the downstream purchasing demand was limited and suppressed by the high nickel prices. So the nickel spot market transactions was weak last week. However, the contradiction still exist. The supply of pure nickel is short globally. The impact of tight supply of nickel raw materials is transmitted to the downstream, and the output of nickel sulphate declines. All in all, the influence of short-term nickel fundamentals on nickel prices is positive. This week, SHFE nickel prices are expected to fluctuate between 170,000-178,000 yuan/mt. LME nickel prices are expected to move between $23,000-23,800/mt. 

Tin: The most-traded SHFE tin contract declined during last Friday’s night session with the exit of longs. The domestic social inventory continued to accumulate, and inventory under warrants also increased, indicating that the poor sales in the spot market drove the sellers' willingness to deliver to SHFE warehouses. It is expected that SHFE tin will trade sideways at highs.