SMM Evening Comments (Dec 13): Shanghai Nonferrous Metals Mostly Closed with Gains as PBoC Announced to Raise Foreign Exchange RRR

SHANGHAI, Dec 13 (SMM) – Shanghai nonferrous metals mostly closed with gains as the People’s Bank of China (PBoC) announced to raise the foreign exchange RRR by 2 percentage points to 9%, which boosted the export market.

Shanghai copper added 0.23%, aluminium gained 2.07%, lead advanced 1.88%, zinc jumped 1.26%, tin rose 0.1%, and nickel lost 0.32%.

Copper: The most-traded SHFE 2201 copper closed up 0.23% or 160 yuan/mt at 69570 yuan/mt, with open interest up 673 lots to 136367 lots.

On the macro front, the US consumer confidence picked up unexpectedly at the beginning of December, according to US Department of Labor; US CPI in November rose 6.8% YoY, and the inflation surged again, heightening market expectation of accelerated taper since November, 2022. US dollar index dropped on the economic readings, which offered some support to copper prices.

In China, the PBoC decided to raise the foreign exchange RRR by 2 percentage points to 9%. The export market was boosted as the pressures faced by RMB exchange rate weakened. Affected by this news, the copper social inventory in major markets in China rose, so was SHFE copper inventory, which, however, was still at a low level. The short-term increase in copper inventory is unsustainable, hence the low copper inventory will still offer support to copper prices.

Tonight, the market shall watch the moves of LME copper.

Aluminium: The most-traded SHFE 2201 aluminium closed up 2.07% or 390 yuan/mt to 19220 yuan/mt, with open interest up 3713 lots to 173935 lots.

The aluminium ingot social inventory stood at 915,000 mt as of today, down 63,000 mt on a weekly basis. The falling inventory and low aluminium output offered strong upside momentum. The market shall still watch the influences of Winter Olympics and the sustainability of consumption.

Lead: The most-traded SHFE 2201 lead closed up 1.88% or 290 yuan/mt at 15740 yuan/mt, with open interest up 858 lots to 39566 lots.

On the fundamentals, lead ingot supply varied greatly in different regions. On the whole, the operating rates of primary and secondary lead both rallied. On the demand side, the domestic market was stable, and the easing COVID situation in Southeast Asia continued to boost the export market. And the downstream purchase before the year-end was still brisk.

The SHFE lead inventory dropped below 120,000 mt, but the decline has slowed; the lead-acid battery sector was cautious in face of steeply rising lead prices.  

Zinc: The most-traded SHFE 2201 zinc closed up 1.26% or 295 yuan/mt at 23775 yuan/mt, with open interest up 4828 lots to 76924 lots.

The fundamentals of zinc were relatively positive. On the supply side, the environmental protection incident in Guangxi did not evolve, and the production in the south was not affected, hence the zinc supply was relatively sufficient. On the demand side, LME inventory added 26,475 mt to 190,900 mt; while the total zinc inventory across seven major markets in China totalled 125,600 mt, down 5,100 mt from last Monday, which will support zinc prices in the short term.

In the medium term, the market shall watch the interest rate resolution at FOMC meeting and PBoC’s monetary policy.

Tin: The most-traded SHFE 2201 tin closed up 0.1% or 290 yuan/mt at 284950 yuan/mt, with open interest down 3247 lots to 37823 lots.

On the fundamentals, the supply and demand pattern was relatively stable, so was downstream production. The warrants inventory dropped slightly, while the market prices were little changed.

Nickel: The most-traded SHFE 2202 nickel closed down 0.32% or 470 yuan/mt to 145170 yuan/mt, with open interest down 3491 lots to 160944 lots.

The support from the fundamentals was still weak, and the transactions in the stainless steel and new energy sectors were also thin. In other words, the market demand for ferronickel was low. Nickel sulphate prices moved down, weakening the marginal effects.