SMM Morning Comments (Feb 11): Base Metals Mostly Closed with Gains amid Higher Inflation

SHANGHAI, Feb 11 (SMM) – Shanghai base metals mostly closed with gains on Thursday night. LME metals performed similarly on Thursday.

LME copper gained 0.86%, lead rose 0.53%, and zinc increased 0.48%.

SHFE aluminium fell 0.77%, lead gained 0.99%, zinc rose 1.53%, and nickel won 0.97%.

Copper: Three-month LME copper opened at $10,230/mt on Thursday and gained 0.86% to close at $9,820/mt after hitting the highest level at $10,182/mt. The trading volume was 27,000 lots, and the open interest was 254,000 lots.

The most-active SHFE 2203 copper contract opened at 73,320 yuan/mt and closed at 73,390 yuan/mt.

The US inflation rate rose to 7.5% in January, with both the headline and core CPI inflation hitting the highest level in four decades. The inflation in the service sector also started to pick up significantly. The weekly initial jobless claims dropped unexpectedly. China’s social financing was 617 million yuan in January, hitting a new high. RMB loans increased by 4.2 trillion yuan in February, an increase of 38.06 billion yuan year-on-year. The copper cathode spots were quoted at premiums of 50-130 yuan/mt over February contract yesterday, and the average price premium was 90 yuan/mt, up 40 yuan/mt from the previous day. The SHFE copper broke through 72,000 yuan/mt, suppressing the purchases. While the quotations are supported by the expanding Contango structure as the CNY holiday comes to a close.

Aluminium: LME aluminium opened at $3,263/mt on Thursday, with the highest and lowest prices at $3,333/mt and $3,234/mt.

The most-traded SHFE 2203 aluminium contract opened at 23,300 yuan/mt overnight, with the highest and lowest prices at 23,365 yuan/mt and 22,985 yuan/mt before closing at 23,135 yuan/mt, down 105 yuan/mt or 0.45%. LME aluminium closed at $3,238/mt, down $25/mt or 0.77%.

Aluminium ingot social inventory in China added 84,000 mt from Monday to 950,000 mt on Thursday. LME aluminium inventory increased by 119,025 mt to 880,975 mt, with a daily increase of 16%, the largest increase since March last year. However, the overseas energy crisis and slow production resumption at domestic aluminium smelters will still support aluminium prices. Domestic demand will pick up seasonally. SMM expects aluminium prices to remain high.

Lead: Three-month LME lead opened at $2,260.5/mt on Thursday, hitting the lowest and highest points at $2,252/mt and $2,290/mt respectively, before closing at $2,280/mt, up 0.53%.

The most-liquid SHFE 2203 lead contract gained 0.99% to end at 15,290 yuan/mt in the overnight trading, after briefly hitting the highest point at 16,465 yuan/mt and dropping to the lowest level at 15,200 yuan/mt.

Zinc: LME zinc opened at $3,662.5/mt on Thursday, and hit a high of $3,744.5/mt before falling back to around $3,730/mt, and closed at $3,684/mt, up $17.5/mt or 0.48%. The trading volume rose to 11,593 lots, and open interest added 486 lots to 253,000 lots.  LME zinc inventory decreased by 500 mt to 152,200 mt, a drop of 0.33%. Concerns about Fed's interest rate hike weighed on LME zinc later in the day. LME zinc is expected to move between $3,670-3,720/mt on Friday.

The most-traded SHFE 2203 zinc contract opened at 25,915 yuan/mt overnight and rose to 26,175 yuan/mt before falling back to 25,820 yuan/mt and closed at 25,945 yuan/mt, up 390 yuan/mt or 1.53%. Trading volume rose to 97,600 lots, and open interest decreased by 444 lots to 110,541 lots.  On the supply side, overseas energy costs remain high, providing strong support for zinc prices when European smelters that previously reduced production have not resumed production. Domestic inventory pressure remains high. It is expected that the zinc price will still fluctuate strongly. The most-traded SHFE zinc contract is expected to move between 25,500-26,000 yuan/mt on Friday. #0 domestic Shuangyan zinc is likely to trade at premiums of 10-30 yuan/mt over the SHFE 2203 zinc contract.

Nickel: The SHFE nickel moved upward overnight on the fundamental support. On the supply side, the pure nickel will arrive intensively in late February and early March, but the spot supply will remain tight. Hence the nickel briquette is quoted at a premium of 4,000 yuan/mt over the SHFE 2203 nickel contract, and the NORNICKEL is quoted at a flat level agains the Jinchuan nickel. The high nickel prices weighs on the downstream production, but the demand for pure nickel remains high for lack of raw material substitutes. The nickel prices are expected to be in an upward trend in Q1. The SHFE 2203 nickel contract opened at 175,000 yuan/mt on Thursday, and closed at 174,500 yuan/mt, up 1,670 yuan/mt or 0.97% from the previous trading day. The trading volume was 135,000 lots, and open interest decreased by 55,000 lots to 135,000 lots.

Tin: The SHFE 2203 tin contract fell back after opening higher during Thursday’s night session. Higher tin prices discouraged downstream buyers in the spot market. Tin prices will remain firm as demand gradually recovers with downstream production resumption.