SMM Morning Comments (Nov 19): Most Base Metals Gained Support from Stronger Market Confidence in Economic Recovery

SHANGHAI, Nov 19 (SMM) – Shanghai base metals basically trended higher on Friday morning amid stronger market confidence in economic recovery. Meanwhile, their counterparts on LME mostly went up as well.

LME metals closed mixed in the trading on Thursday. Copper gained 1.25%, aluminium increased 0.59%, lead fell 0.98%, and zinc dropped 1.1%.

SHFE metals settled mixed in the overnight trading as well. Copper rose 0.35%, zinc increased 1.1%, nickel rose 2.82%, aluminium fell 0.59%, and lead dropped 1.54%

Copper: Three-month LME copper opened at $9,343/mt last night, and gained 1.25% to close at $9,480/mt after hitting the lowest and highest points at $9,315/mt and $9,500/mt respectively. The trading volume was 18,000 lots, and the open interest stood at 254,000 lots. Three-month LME copper is expected to trade between $9,430-9,530/mt today.

The SHFE 2201 copper contract opened at 68,720 yuan/mt on Thursday night, falling to the lowest point at 68,200 yuan/mt before rebounding to the highest point at 69,110 yuan/mt, and closed at 69,060 yuan/mt, up 0.35%. The trading volume was 50,000 lots, and the open interest reached 148,000 lots. SHFE copper is expected to trade between 68,800-69,400 yuan/mt today, with spot premiums between 700-1,100 yuan/mt.

Although last week’s US initial jobless claims was higher than expected, the continued jobless claims declined. The current jobless claims is close to the level before the COVID-19 pandemic, which boosted the market confidence in economic recovery. The market still has concerns about inflation. US dollar index kept pulling back in the overnight trading, which drove the copper futures to rebound and close higher. The spot premiums surged to a new high since 2014 yesterday, mainly because the domestic social inventory and the inventory in bonded warehouses totalled only 298,800 mt, a quite low level in the history. The customs’ restrictions on invoices early this week impeded the imports further, which increased the tight domestic supply. If the futures prices continue to fall, the premiums will keep rising today.

Aluminium: LME aluminium opened at $2,610/mt on Thursday and closed at $2,624/mt, an increase of $15.5/mt or 0.59%.

Overnight, the most-traded SHFE 2201 aluminium contract opened at 18,475 yuan/mt, with the highest and lowest prices at 18,535 yuan/mt and 18,230 yuan/mt before closing at 18,470 yuan/mt, down 110 yuan/mt or 0.59%.

The domestic supply is tightening again, which may boost the aluminium market. However, the current domestic aluminium downstream consumption is seasonally weak, and the continued accumulation of aluminium ingot inventory will also cap gains of aluminium prices. In the short term, SHFE aluminium will remain weak due to lower costs and demand concerns.

Lead: Three-month LME lead opened at $2,258/mt last night and basically fluctuated between $2,260-2,270/mt, then the prices fell below the low of Bollinger Band and fluctuated around $2,235/mt. In the European session, LME lead continued to drop to the lowest level at $2,212/mt amid strong bearish sentiments and closed at $2,228/mt, down 0.98%. LME lead fell below all moving averages and hit a one-month low. Today’s focus will be the support at $2,200/mt.

The most-liquid SHFE 2112 lead contract opened at 14,855 yuan/mt and decreased 1.54% to close at 14,715 yuan/mt last night, with open interest increasing 2,943 lots to 51,573 lots.

Zinc: LME zinc met resistance at the 10-day moving average on Thursday, and closed at $3,166.5/mt, a decline of $18/mt or 1.1%. Open interest decreased by 2,922 lots to 270,000 lots. LME zinc inventory decreased by 1,275 mt to 1,800 mt, a drop of 0.99%. Inflation in Europe and the United States continues to rise, heightening market expectations for interest rate hikes. The energy problems will continue to plague the European economic recovery. LME zinc is expected to move between $3,170-3,230/mt on Friday.

Overnight, the most-traded SHFE zinc contract moved up after opening at 22,415 yuan/mt, but then fell back and closed at 22,575 yuan/mt, up 245 yuan/mt, or 1.1%. Open interest decreased by 1,279 lots to 36,021 lots. Smelters in Inner Mongolia resumed production. Some secondary zinc smelters put new capacity on line. The supply of zinc ingots may grow significantly in November, but the overall low inventory will still support zinc prices. The most-traded SHFE 2112 zinc contract is expected to move between 22,300-22,800 yuan/mt on Friday. #0 domestic Shuangyan zinc is likely to trade at premiums of 30 yuan/mt over the SHFE 2112 zinc contract.

Nickel: SHFE nickel prices closed at 144,990 yuan/mt in the overnight trading, 3,970 yuan/mt higher than the closing price of the previous trading day, an increase of 2.82%. Open interest decreased by 12,220 lots to 87,604 lots as bears reduced their positions. SHFE nickel prices clawed back the losses in the previous four days. The supply of Jinchuan nickel in the market is currently tight. After the outflow of Russian nickel under warrants, the market supply has increased. But the import window has not yet opened, limiting the inflows of spot cargoes from the bonded zone. On the demand side, SHFE nickel prices stood at around 142,000 yuan/mt. The downstream inquiries were active. The low inventory level and downstream demand still provide support for the nickel prices. Therefore, the nickel prices currently fluctuate rangebound.

Tin: Overnight, the SHFE 2112 tin contract hovered sideways after rising slightly. Warrants decreased slightly, and supply in the spot market was stable, but there are fewer delivery brands. Spot premiums fell slightly, but remained high.

SHFE tin will remain high in the short term amid stable fundamentals. Strong demand in the long run will support the most-traded SHFE tin contract.