SMM Evening Comments (Jan 17): Shanghai Nonferrous Metals Closed Mixed as PBoC Signalled Interest Rate Cuts

SHANGHAI, Jan 17 (SMM) – Shanghai nonferrous metals closed mixed today. The People’s Bank of China lowered the one-year MLF and seven-day reverse repurchase rates by 10 basis points, sending a formal interest rate cut signal.

Shanghai copper dropped 1.81%, aluminium retreated 0.49%, lead rose 0.45%, zinc fell 1.47%, tin advanced 0.29%, and nickel lost 0.88%.

Copper: The most-traded SHFE 2202 copper closed down 1.81% or 1290 yuan/mt at 70170 yuan/mt, with open interest down 16837 lots to 91482 lots.

On the macro front, the World Bank estimated in its latest Global Economic Outlook that the global economic growth in 2021 will be 5.5%, and drop to 4.4% in 2022, both down 0.2 percentage point from the previous estimate.US dollar index rose as the investors risk appetite reduced, and the opinion that the market has digested the expectation on the Fed’s tighter monetary policy weakened.

On the fundamentals, as of Monday January 17, the copper inventory across major Chinese markets increased 5,900 mt from last Friday to 92,500 mt. The inventories recorded gains on Monday over the weekend for seven straight weeks, and the increase in inventory showed signs of speeding up. The downstream demand, however, weakened approaching the Chinese New Year. And the high copper prices also suppressed market demand.

Aluminium: The most-traded SHFE 2202 aluminium closed down 0.49% or 105 yuan/mt to 21125 yuan/mt, with open interest down 10276 lots to 144673 lots.

On the supply side, the operating aluminium capacity in Yunnan and Shanxi is expected to rise. On the demand side, the downstream operating rates dropped approaching the Chinse New Year (CNY), and the inventory finally saw the pivot this week. The market shall watch the moves of longs for risk aversion, apart from the energy shortage in Europe.

Lead: The most-traded SHFE 2202 lead closed up 0.45% or 70 yuan/mt at 15660 yuan/mt, with open interest down 4885 lots to 26468 lots.

The operating rates of primary lead dropped slightly as the raw materials supply tightened. The operating rate of secondary lead, on the other hand, rose slightly as there existed both production cuts and resumption. The lead supply faced less pressures. The downstream demand has been weakening as the lead-acid battery manufacturers took holidays for the CNY.

Zinc: The most-traded SHFE 2202 zinc closed down 1.47% or 365 yuan/mt at 24545 yuan/mt, with open interest down 9138 lots to 55585 lots.

On the macro front, the People’s Bank of China lowered the one-year MLF and seven-day reverse repurchase rates by 10 basis points, sending a formal interest rate cut signal. Overall, although the market has certain expectations for rate cut, it is still slightly greater and earlier than expected. In addition, China released data on industrial value added and real estate development investments, which were basically in the downward cycle. It shows that China's economy is still facing multiple pressures from demand contraction, supply shock and expected weakening.

On the fundamentals, some smelters controlled their production amid pressures from the mining side, except from production suspensions and cuts out of environmental protection demands. Meanwhile, some smelters in Hunan were still under maintenance, which lasted longer than usual. It is expected that the output in January will stand at 513,400 mt, down greatly from the previous period, underpinning zinc prices.

Tin: The most-traded SHFE 2202 tin closed up 0.29% or 900 yuan/mt at 308080 yuan/mt, with open interest up 4552 lots to 40985 lots.

On the fundamentals, the spot market was still stable, and the warrants inventory dropped slightly. SHFE 2201 was in the process of delivery, which will lead to more spot supplies to the market, pressuring tin prices.

Nickel: The most-traded SHFE 2202 nickel closed down 0.88% or 1450 yuan/mt to 162580 yuan/mt, with open interest down 22136 lots to 144211 lots.

On the fundamentals, nickel sulphate producers raised their offers amid excessively high costs. The NPI prices remained stable as the steel mills have basically completed their restocking. The spot market turned quiet as the CNY approaches, and the SHFE nickel is expected to stay congested for lack of upside momentum.