SMM Morning Comments (Dec 20): Fed’s Hawkish Comments Weighed on Base Metals

SHANGHAI, Dec 20 (SMM) – Shanghai base metals mostly trended lower on Monday morning. Meanwhile, their counterparts on LME trended mixed.

LME metals mostly closed higher in the trading last Friday. Copper rose 2.38%, aluminiuim increased 1.96%, lead fell 0.41%, and zinc gained 2.2%.

SHFE metals closed mixed in the overnight trading last Friday. Copper increased 2.01%, aluminium dropped 0.08%, lead fell 0.57%, zinc shed 0.48%, and nickel 0.64%.

Copper: Three-month LME copper opened at $9,486/mt last Friday night and fluctuated around $9,500/mt. It closed at $9,477.5/mt, up 2.38%. The trading volume was 16,000 lots, and the open interest was 253,000 lots. LME copper is expected to trade between $9,450-9,550 yuan/mt today.

The SHFE 2202 copper contract opened at 69,130 yuan/mt and increased 2.01% to settle at 69,040 yuan/mt last night. The trading volume was 42,000 lots, and the open interest was 126,000 lots.

SHFE copper is expected to trade between 68700-69300 yuan/mt today, with spot premiums between 70-180 yuan/mt.

Fed Governor Waller said that the first interest hike may take place in March 2022, Fed will start tapering assets and liabilities at the meetings after the interest hike. Hawkish comments boosted the US dollar index to surge. In addition, the worsening pandemic of COVID-19 variant Omicron intensified the market concerns and dragged down copper prices. The spot transactions improved last Friday, and the premiums were held firm.

Aluminium: LME aluminium opened at $2,676/mt last Friday and closed at $2,733.5/mt, an increase of $52.5/mt or 1.96%.

The most-traded SHFE 2201 aluminium contract opened at 19,785 yuan/mt during last Friday’s night session, with the highest and lowest prices at 19,845 yuan/mt and 19,635 yuan/mt before closing at 19,705 yuan/mt, down 15 yuan/mt or 0.08%.

The profitability of domestic aluminium smelters has improved, but output remains low due to the impact of environmental protection and energy consumption dual control policy. The arrivals of aluminium ingots in east and south China were limited as cargoes were piling up at railway stations in Xinjiang, but concentrated arrivals are expected this week. This, coupled with the pandemic in Zhejiang, may slow down the decline in aluminium ingot social inventories. It is expected that SHFE aluminium will be relatively firm this week.

Lead: Three-month LME lead opened at $2,319/mt in the overnighg trading last Friday. The prices fell in the Asian session and rebounded to the highest level at $2,334.5/mt. Then the US dollar surged, weighing the non-ferrous metals prices. The LME lead closed at 2,303.5/mt, a decrease of $9.5/mt or 0.41%.

The most active SHFE 2202 lead contract opened at 15,730 yuan/mt last Friday night, hitting the lowest and highest levels at 15,510 yuan/mt and 15,625 yuan/mt respectively, and closed at 15,565 yuan/mt, down 0.57%.

Zinc: Three-month LME zinc gained 2.2% to settle at $3,381/mt last Friday, with open interest increasing 1,546 lots to 246,000 lots. Zinc stocks across LME-listed warehouses fell 750 mt or 0.36% to 206,825 mt. Zinc stocks across LME-listed warehouses dropped by 1,300 mt or 0.63% to 205,525 mt. The supply problems of zinc smelters in Europe still plague the market, and the low inventory in Europe and the United States has not improved. However, the current interest rate hikes in many countries and the recurrence of the pandemic have caused the market to worry about the economic downturn. LME zinc prices are expected to stand at $3,340-3,390/mt this week.

The most-liquid SHFE 2201 zinc contract fell 0.48% to settle at 22,805 yuan/mt last Friday, with open interest increasing 2,886 lots to 208,500 lots. On the supply side, smelters in Europe reduced the production again amid power shortages while the recovery of the production in domestic smelters was less than expected. The consumer side has entered the off-season. The market was less willing to restock goods as zinc prices trended higher. The decline of social inventory of zinc ingots slowed. Spot premiums in Shanghai fell while discounts in Guangdong and Tianjin continued to expand. Rising costs in domestic and overseas smelters support zinc prices. Zinc prices are likely to fluctuate at high levels. The most-traded zinc contract is expected to move between 23,500-24,000 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 90-100 yuan/mt over the January contract.

Nickel: SHFE 2202 nickel contract closed at 145,450 yuan/mt last Friday evening, up 920 yuan/mt or 0.64% from the previous trading day. The trading volume was 148,000 lots. Open interest decreased by 6,648 lots to 146,000 lots. At present, the positive factor of nickel is still that the absolute inventory is too low. The market still needs to pay attention to the import window. The price difference between NPI and pure nickel has widened to 20,000 yuan/mt, and the demand for nickel sulphate is still pessimistic. SHFE nickel is expected to move between 140,000-148,000 yuan/mt and LME nickel prices are expected to fluctuate between $19,500-20,000/mt.

Tin: The most-traded SHFE 2201 tin contract saw small fluctuations during last Friday’s night session and closed at around 284,000 yuan/mt. The spot tin market remained stable amid stable supply and demand. Given the stable fundamentals and lack of speculative capital, SHFE tin will remain rangebound.