SMM Morning Comments (Jan 18): Base Metals Closed with Gains on Optimism over China Economy

SHANGHAI, Jan 18 (SMM) – LME and SHFE base metals closed mostly with gains overnight. On the macro front, dragged by the fact that Bank of Japan (BOJ) may carry out policy adjustment, the US dollar went down. Coupled with optimism over China’s economic recovery, metals prices continued to rise.

LME copper added 2.14%, aluminium rose 0.23%, lead grew 0.66%, and zinc gained 0.73%;

SHFE copper added 1.95%, aluminium rose 0.7%, lead grew 0.03%, and zinc gained 0.27%.

Copper: LME copper opened at $9,101.5/mt on Tuesday and rose to a modest high of $9,308/mt after closing at $9,295/mt, up 2.14%. The trading volume was 19,000 lots, and open interest stood at 258,000 lots.

SHFE 2303 copper opened at 68,900 yuan/mt overnight, once hitting the low and high at 68,780 yuan/mt and 70,030 yuan/mt respectively. At last, the contract closed at 69,900 yuan/mt, up 1.95%. The trading volume was 49,000 lots, and open interest stood at 197,000 lots.

On the macro front, dragged by the fact that Bank of Japan (BOJ) may carry out policy adjustment, the US dollar went down. Coupled with optimism over China’s economic recovery, copper futures price continued to rise.

On the fundamentals, market animation weakened steeply as the Chinese New Year (CNY) holiday is imminent, and the circulation of Chinese copper dropped significantly. Only a few imported copper cathode arriving at ports last weekend was successfully traded. On the demand side, only a very few buyers still had restocking demand, and most downstream players have already been in holiday. Copper price is likely to remain strong with bulls on the macro front.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 18,620 yuan/mt overnight before closing at 18,750 yuan/mt, up 130 yuan/mt or 0.7%.

LME aluminium opened at $2,618.5/mt on Tuesday and closed at $2,624.5/mt, an increase of $6/mt or 0.23%.

SHFE aluminium is expected to remain strong in the near term with strong boost from bullish overseas economic readings and China’s support policies. But accumulating social inventory and the holiday atmosphere will cap the upside momentum of aluminium price.

Lead: LME lead opened at $2,210.5/mt on Tuesday, and then stabilise after a brief increase in Asian trading hours. The contract then rose further to $2,239.5/mt in European trading hours amid falling US dollar before falling to $2,210/mt. It closed the session at $2,220/mt, up 0.66%. The open interest added 922 lots to 119,000 lots.

The most-traded SHFE 2303 contract opened at 15,375 yuan/mt overnight, and then fell to 15,340 yuan/mt before climbing to 15,400 yuan/mt amid strength of LME lead. The contract closed the night session at 15,355 yuan/mt, up 0.03%. The open interest added 115 lots to 79,020 lots.

Zinc: LME zinc closed at $3,304/mt on Tuesday, up $24/mt or 0.73%. The open interest fell 314 lots to some 200,000 lots. LME zinc inventory fell 500 mt to 20,000 mt.

The most traded SHFE 2303 zinc contract closed at 24,295 yuan/mt overnight, up 65 yuan/mt or 0.27%. The open interest added 6,497 lots to 93,000 lots. With the roll-back of Chinese covid-zero policy, the overseas bulls’ confidence was boosted. However, as the market players generally believe that the Russia-Ukraine war will come to an end soon, the debates over natural gas prices become heated again, bringing down European natural gas futures contract price by 3%. Falling natural gas prices facilitated the production resumption of smelters, hence there is possibility that overseas supply will rise soon.

Overnight, Chinese Vice Premier Liu He said China's pandemic prevention and control optimisation was smooth, with the production and life returning to normal across the board. The International Monetary Fund (IMF) Managing Director Georgieva said global growth is expected to bottom out in 2023, despite the on-going war in Ukraine and rising interest rates. The US Federal Reserve Bank of New York said its manufacturing index plunged to -32.9 in January from -11.2 in December last year, the lowest level since mid-2020 and the fifth-worst reading in the survey's history, as orders fell sharply and job growth stalled.

Tin: On the fundamentals, domestic warrants inventory changed little, and SHFE 2301 was still under delivery. The premiums/discounts in the market remained low, but there were quotations heard in the market. LME inventory dropped slightly, and overseas spots were in discounts. The import profit is expected to stay low. In the futures market, the most-traded SHFE tin moved in a narrow range, and closed the night session at around 226,200 yuan/mt. The investors were not active in trading, and the open interest of the most-traded SHFE tin contract dropped. To sum up, SHFE tin is expected to hover at a high level before the CNY holiday amid weak supply and demand.

Nickel: On the supply side, the spot premiums dropped yesterday amid weak demand. For NPI, most NPI plants held low in-plant inventory. According to SMM survey, a NPI plant in Indonesia has resumed the production yesterday after experiencing a strike earlier, and the overall impact will be insignificant. On the demand side, most stainless steel mills and traders have completed pre-holiday inventory verification, and have thus been off for holiday. There were currently no quotations in the market. In the alloy sector, the pre-holiday restocking process has completed as well. Therefore, weak supply and demand of pure nickel will put nickel price on the downward track.

[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.]