SMM Morning Comment For SHFE Base Metals On December 23

SHANGHAI, December 23 (SMM) –

Copper

Last Friday night, LME copper opened at $8,892.5/mt, dipped to $8,880.5/mt at the beginning of the session, then fluctuated upward, reaching a high of $8,953.5/mt near the session's end, and finally closed at $8,944/mt, up 0.66%. Trading volume reached 13,000 lots, and open interest stood at 262,000 lots. Meanwhile, the most-traded SHFE copper 2501 contract opened at 73,650 yuan/mt, dipped to 73,580 yuan/mt at the beginning of the session, fluctuated rangebound, then moved higher and fluctuated upward, reaching a high of 73,950 yuan/mt near the session's end, and finally closed at 73,940 yuan/mt, up 0.28%. Trading volume reached 16,000 lots, and open interest stood at 110,000 lots. Macro side, data released last Friday showed that US November PCE data cooled across the board. The November PCE price index annual rate recorded 2.40%, below the expected 2.50% and the previous value of 2.30%; the monthly rate recorded 0.10%, below the expected 0.20% and the previous value of 0.20%. Market expectations for further interest rate cuts by the US Fed warmed up, and the US dollar index pulled back from a two-year high, supporting copper prices. Fundamentally, supply side, concentrated arrivals of imported copper led some suppliers to sell at low prices, increasing spot copper cathode supply. However, on the consumption side, stocking demand over the weekend did not materialize significantly, and market transactions were sluggish. Domestic inventory is expected to resume building this week, which will put pressure on spot premiums. In terms of prices, the US dollar index remains at a high level, weighing on copper prices. Copper prices are expected to have limited upside today.

Aluminum

Futures Market: Last Friday night, the most-traded SHFE aluminum 2502 contract opened at 19,915 yuan/mt, reached a high of 19,965 yuan/mt, a low of 19,880 yuan/mt, and closed at 19,945 yuan/mt, down 60 yuan/mt or 0.3% from the previous day. LME aluminum opened at $2,516/mt, hit a high of $2,544.5/mt, a low of $2,511.5/mt, and closed at $2,542/mt, up $27/mt or 1.07%.

Summary: Macro front, the US PCE and core PCE indices were comprehensively lower than expected, indicating a slowdown in inflation. This increased market bets on an interest rate cut in March next year. The US dollar index pulled back from a two-year high, providing a boost to base metals. Fundamentals side, recently, pressure on the domestic aluminum supply side has eased slightly. On one hand, domestic aluminum operating capacity has seen a slight decline, with reports of capacity technological transformation or loss-induced production cuts at some aluminum smelters in Sichuan and Guangxi. On the other hand, due to coal supply guarantees in Xinjiang, the in-transit volume of domestic aluminum ingots has decreased, accelerating inventory declines. Demand side, market demand has gradually weakened. Environmental protection inspections have resumed in Henan, leading to a downward adjustment in the weekly operating rate of aluminum plate/sheet and strip, while the aluminum extrusion sector has become increasingly sluggish, with a strong off-season atmosphere. Overall, macro sentiment is influenced by expectations for US Fed interest rate cuts next year, while fundamentals face weak demand during the off-season. Market sentiment has turned pessimistic, and short-term aluminum prices are expected to fluctuate downward.

Lead

Last Friday, LME lead opened at $1,956/mt. During the Asian trading session, the market saw sluggish trading, with LME lead fluctuating mostly between $1,965-1,975/mt. Entering the European session, the US dollar index fell consecutively, while LME lead inventory dropped by nearly 3,000 mt to the lowest level in a month. LME lead then fluctuated upward, reaching a high of $1,990/mt and finally closing at $1,981/mt, up 0.41%.

Last Friday, the most-traded SHFE lead 2502 contract opened at 17,445 yuan/mt. With lead ingot destocking and refinery resumption expectations coexisting, the market saw a tug-of-war between bulls and bears, with SHFE lead mostly trading between 17,375-17,425 yuan/mt before finally closing at 17,405 yuan/mt, up 0.29%. Its open interest stood at 60,941 lots, down 70 lots from the previous trading day.

Macro side, China's December LPR remained unchanged for two consecutive months. The industry expects stronger monetary policy adjustments next year, with room for further RRR cuts and interest rate cuts. Several US Fed officials support data-dependent and cautious rate cuts next year. Powell's "dovish ally" Daly made a rare hawkish statement, while Goolsbee expects "considerable" room for rate cuts over the next year. The US Congress passed a short-term spending bill at the last minute with a large majority, avoiding a government shutdown and excluding the debt ceiling content advocated by Trump.

Fundamentals side, frequent environmental protection impacts in regions such as Henan, Anhui, and Hunan have affected lead ingot production and transportation to varying degrees, tightening regional supply and pushing spot premiums higher. However, futures trading was weighed down by factors such as the lifting of smog warnings in Anhui and lead ingot import expectations. Moving forward, we need to pay closer attention to lead ingot destocking trends.

Zinc

Last Friday, the US Fed's preferred inflation indicators were all below expectations; Biden signed an emergency funding bill to prevent a government "shutdown"; reports suggest that 90% of the Gaza ceasefire negotiations have been completed; Trump warned the EU: tariffs will be imposed if US oil and gas are not purchased; Putin stated that Russia is ready to restore relations with the West without compromising its own interests; the Ministry of Commerce is expediting the formulation of next year's policies related to the "program of large-scale equipment upgrades and consumer goods trade-ins"; legislation on the Promotion of Private Economy Law has made further progress; the cap on the proportion of sales of Hong Kong mutual recognition funds to non-residents has been relaxed to 80%; and five cities, including Shenzhen, are advancing non-discriminatory cross-regional housing provident fund services.

Last Friday, LME zinc opened at $2,960/mt and initially fluctuated upward above the daily moving average, reaching a high of $2,997.5/mt. Subsequently, during a period of fluctuating downward movement, LME zinc attempted to rise but continued to decline as bulls reduced positions, hitting a low of $2,949.5/mt. By the end of the session, LME zinc quickly rebounded near the daily moving average and fluctuated along it, ultimately closing higher at $2,972.5/mt, up $2.5/mt or 0.08%. Trading volume decreased to 85,879 lots, and open interest fell by 1,127 lots to 230,000 lots. Last Friday, LME zinc recorded a long upper shadow candlestick, with resistance from various moving averages above and support from the lower Bollinger Band below. LME inventory decreased by 3,400 mt to 254,125 mt, a decline of 1.32%, marking a reduction in LME inventory. Last Friday, US inflation indicators were all below expectations, leading to a pullback in interest rate cut expectations, and the center of LME zinc prices slightly moved downward. With the reduction in LME inventory, LME zinc is expected to maintain a fluctuating trend.

Last Friday, the most-traded SHFE zinc 2502 contract opened at a high of 24,895 yuan/mt, followed by an increase in short positions that drove SHFE zinc to fluctuate downward below the daily moving average, hitting a low of 24,670 yuan/mt. Subsequently, as shorts reduced positions, SHFE zinc fluctuated upward, ultimately closing lower at 24,820 yuan/mt, down 140 yuan/mt or 0.56%. Trading volume decreased to 78,319 lots, while open interest increased by 3,172 lots to 129,000 lots. Last Friday, SHFE zinc recorded a bearish candle without an upper shadow, with resistance from the 5-day and 20-day moving averages above and support from the lower Bollinger Band below. Domestically, the supply-side imbalance slightly eased, weakening support for zinc prices. However, tight spot supply in the market continues to provide support for zinc prices. SHFE zinc is expected to fluctuate upward.

Tin

Last week, SHFE tin prices experienced significant volatility. Specifically, at the beginning of the week, the most-traded SHFE tin contract closed at 248,900 yuan/mt, down 1.1% from the previous trading day. Influenced by the high-level fluctuations of the US dollar index, SHFE tin prices exhibited corresponding volatility. During mid-week, the price of the most-traded SHFE tin contract continued to decline, exerting some impact on market sentiment, with the overall price trend appearing slightly weak. By Thursday, the price of the most-traded SHFE tin contract briefly rebounded but then pulled back again. During this period, market sentiment turned heated, and many traders entered the market to trade. By the weekend, prices were seeking clear direction amid ongoing fluctuations. In the spot market, last week's consumption activities were mainly concentrated from Thursday to Friday, during which spot market trading was active, with some trading enterprises achieving daily trading volumes of 100-200 mt. In contrast, the spot market at the beginning of the week was relatively quiet, with traders adopting a more cautious attitude and a wait-and-see sentiment dominating in the complex and volatile market environment.

Nickel

Last week, nickel prices fluctuated, with the spot prices at 122,000-131,000 yuan/mt and SHFE nickel at 121,000-129,000 yuan/mt. During the week, under the combined influence of the US Fed's economic policies and the decline in premiums for nickel ore, nickel prices continued to fall steadily.

In the spot market: Last week, the continued decline in nickel prices, coupled with a slight tightening of domestic spot supply, drove up the spot premiums for some domestic brand refined nickel during the week. If nickel prices continue to decline, spot premiums may remain high and stable in the short term.