SMM Morning Comment For SHFE Base Metals (Dec 18)

SHANGHAI, Dec 18 (SMM) –

Copper

After the US Fed's Expected Interest Rate Cut, Hawkish Signals Emerge Late at Night; Copper Prices Are Expected to Be Under Pressure Today [SMM Copper Morning Comment Dec 19]

Overnight, LME copper opened at $9,008.5/mt, briefly bottomed at $9,005.5/mt at the beginning of the session, and then fluctuated within a wide range with its center moving upward, peaking at $9,049.5/mt near the close. It eventually settled at $9,045/mt, up 0.43%, with trading volume reaching 12,000 lots and open interest at 267,000 lots. Overnight, the most-traded SHFE copper 2501 contract opened lower at 74,250 yuan/mt, briefly bottomed at 74,170 yuan/mt at the beginning of the session, and then fluctuated upward, peaking at 74,540 yuan/mt during the session. It subsequently maintained wide fluctuations and finally closed at 74,450 yuan/mt, up 0.57%, with trading volume reaching 19,000 lots and open interest at 126,000 lots. Macro side, expectations for US Fed interest rate cuts, combined with rising oil prices, boosted copper prices. However, after the close, the US Fed's policy meeting delivered an expected 25-basis-point interest rate cut, but the statement hinted at a slower pace of future rate cuts. The dot plot showed that the forecast for next year's rate cuts was halved, from four times to two times, causing the US dollar index to surge sharply. Fundamentally, market transactions remained relatively quiet, with a tight supply and demand balance. In summary, while the US Fed delivered an expected 25-basis-point interest rate cut, it signaled a slower pace of future cuts, leading to a sharp rise in the US dollar index. Copper prices are expected to be under pressure today.

Aluminum

US Fed Turns Hawkish, US Dollar Surges, Pressuring Aluminum Futures [SMM Aluminum Morning Brief Dec 19]

Overnight, the most-traded SHFE aluminum 2502 contract opened at 19,930 yuan/mt, peaked at 19,950 yuan/mt, hit a low of 19,880 yuan/mt, and closed at 19,945 yuan/mt, up 20 yuan/mt or 0.10% from the previous day. On Wednesday, LME aluminum opened at $2,544/mt, reached a high of $2,549/mt, touched a low of $2,526/mt, and settled at $2,531/mt, down $6/mt or 0.24%.

Summary: Macro front, the US Fed announced a 25-basis-point interest rate cut to a range of 4.25%-4.50%, marking the third consecutive cut, in line with expectations. The latest dot plot indicates policymakers expect two rate cuts in 2025, compared to September's forecast for four cuts next year. Following the Fed's decision and its cautious tone on future rate cuts, the US dollar index surged over 1% to a two-year high, weighing on the non-ferrous metals market. Fundamentals side, the overall supply side saw relatively small changes; demand side, affected by the off-season, the cancellation of export tax rebates, and regional environmental protection-driven production restrictions, downstream producers' operating rates continued to decline. Overall, macro factors were impacted by the Fed's hawkish remarks, while fundamentals face risks from the off-season and aluminum ingot inventory buildup. Market sentiment turned pessimistic, and aluminum prices are expected to fluctuate downward in the short term.

Lead

Lead Prices May Still Be Supported at the Bottom Amid Tight Supply and Rising Demand [SMM Lead Morning Comment Dec 19]

Overnight, LME lead opened at $1,987.5/mt and briefly touched a high of $1,997.5/mt during the Asian session before fluctuating downward. Entering the European session, pressured by the US dollar index's rally, LME lead fell to a low of $1,970/mt, slightly rebounded at the close, and finally settled at $1,983/mt, down 0.1%.

Overnight, the most-traded SHFE lead 2501 contract opened at a low of 17,280 yuan/mt. After shorts reduced positions, it slightly rebounded, fluctuating rangebound around the intraday moving average. It touched a high of 17,435 yuan/mt at the close and finally settled at 17,420 yuan/mt, down 0.91%.

Macro side, the US Fed's December meeting decided on an interest rate cut of 25 basis points with an 11:1 vote, and the statement hinted at a slower pace of rate cuts. The dot plot showed the forecast for next year's rate cuts was adjusted from four times to two. Powell stated that future rate adjustments could be more cautious, depending on further progress in reducing inflation. It may take another one to two years to achieve the inflation target, and rate hikes are unlikely next year. The PBOC and the State Administration of Foreign Exchange announced the optimization of cross-border integrated RMB and foreign currency capital pool pilot policies in 10 provinces and cities, including Shanghai, Beijing, and Jiangsu. The PBOC also held talks with some financial institutions, urging them to monitor their interest rate risks and enhance the stability of bond investments.

Fundamentals, as of 12:00 p.m. yesterday, Anhui province lifted the orange alert for smog weather, and some local smelters resumed production. However, some smelters indicated that it would take half a month to fully restart production after a complete shutdown. In Shandong province, smelters reported that they had not yet received the lifting notice and were still maintaining furnace shutdown. With the approach of New Year's Day and the Chinese New Year holidays, downstream enterprises are expected to stockpile ahead of the holidays. Coupled with the year-end push for production by some large battery producers, lead prices may still find support at the bottom amid tight supply and rising demand.

Zinc

US Fed's Unexpected Hawkish Remarks; LME Zinc Records Three-Day Losing Streak [SMM Zinc Morning Comment Dec 19]

Overnight, the US Fed cut interest rates by 25 basis points as expected, but halved the anticipated number of rate cuts for next year. The US Q3 current account recorded the largest deficit on record. Hamas announced significant progress in ceasefire agreement negotiations in Gaza. The EU is drafting its 16th round of sanctions against Russia. The Central Rural Work Conference proposed orderly advancing the pilot program to extend the second round of land contracts for another 30 years. Two departments announced the optimization of cross-border corporate RMB and foreign currency integrated fund pool pilot policies in 10 provinces and cities. Hong Kong established a task force to promote the development of the gold market. Shenzhen introduced new measures to support artificial intelligence, offering up to 500 million yuan annually in "training power vouchers."

Overnight, LME zinc opened at $3,033/mt. After briefly consolidating around the daily moving average at the start of trading, LME zinc plunged as bulls exited the market, with its center moving below the daily moving average. During European trading hours, it hit a low of $2,988/mt, then fluctuated around $3,005/mt, eventually closing down at $3,001/mt, a decrease of $35.5/mt or 1.17%. Trading volume fell to 8,619 lots, and open interest decreased by 4,398 lots to 230,000 lots. LME zinc recorded a three-day losing streak overnight, with resistance formed by various moving averages above. LME inventory decreased by 1,700 mt to 260,400 mt, down 0.65%, continuing its decline. The US dollar remained strong, and the US Fed's unexpected hawkish remarks on rate cuts pushed LME zinc's center downward.

Overnight, the most-traded SHFE zinc 2502 contract opened at 25,050 yuan/mt. After quickly reaching a high of 25,085 yuan/mt, its center moved below the daily moving average, trading relatively steadily overall. It hit a low of 24,970 yuan/mt during the session and eventually closed down at 25,000 yuan/mt, a decrease of 155 yuan/mt or 0.62%. Trading volume fell to 37,986 lots, while open interest increased by 961 lots to 124,000 lots. SHFE zinc recorded a four-day losing streak overnight, with support provided by the 40-day moving average below. SHFE zinc fluctuated downward overnight as supply-side support weakened. Overall open interest decreased. However, the spot market remained tight, limiting the extent of its decline to some degree.

Tin

US Fed Cuts Interest Rates as Expected, Downstream Enterprises Show Tepid Purchasing Sentiment [SMM Tin Morning Brief Dec 19]

Fed Chairman Jerome Powell stated at the press conference following the rate meeting that the US Fed is at or near the point of slowing interest rate cuts. Decisions on rate cuts next year will be data-dependent, and it seems unlikely to raise rates. During yesterday's night session, SHFE tin prices fluctuated rangebound. Downstream enterprises showed a decline in purchasing enthusiasm. After a slight pullback following a small price increase in tin yesterday, downstream enterprises are waiting for better purchasing opportunities. Some downstream enterprises, after receiving end-user orders, are more inclined to use inventory for production and plan to restock and build inventory when prices fall below 245,000 yuan/mt. Smelting enterprises maintain a sentiment to stand firm on quotes at current price levels, with daily quotes remaining relatively high. The overall spot market trading atmosphere was sluggish, with most trading enterprises recording daily trading volumes of 10-20 mt, while a few trading enterprises reported daily trading volumes of 1-2 truckloads.

Nickel

Spot Premiums/Discounts: The mainstream spot premium for Jinchuan #1 nickel was 4,100-4,300 yuan/mt, with an average of 4,200 yuan/mt, up 450 yuan/mt compared to the previous trading day. The spot premium for Norilsk nickel was -200-0 yuan/mt, with an average of -100 yuan/mt, up 50 yuan/mt compared to the previous trading day. The morning average price of SMM 1# refined nickel fell by 1,225 yuan/mt to 126,225 yuan/mt.

Futures Market: On December 18, nickel prices fluctuated downward in the morning, with the midday closing price dropping by 2,000 yuan/mt to 123,760 yuan/mt, a decline of 1.59%.

Spot Market: The fundamentals remained bearish with no structural changes. Although the drop in futures prices slightly boosted downstream purchase willingness, the overall demand in December continued to be relatively sluggish.

Spot Premiums/Discounts: The premium for Jinchuan branded nickel surpassed 4,000 yuan/mt, reaching an annual high. However, a certain amount of Jinchuan-branded exported nickel plates has recently been re-imported into the domestic market. This may alleviate the short-term supply tightness of Jinchuan nickel, and it is expected that the spot nickel plate premiums may pull back in the future.

Price Spread with Nickel Sulphate: Nickel briquette prices were 123,450-124,000 yuan/mt, down 1,475 yuan/mt compared to the previous trading day.