SMM Morning Comments (Jan 4)

SHANGHAI, Jan 4 (SMM) – 

Copper: LME copper slumped to the lowest overnight at $5,725/mt, and ended at $5,775/mt after a key reading of US manufacturing activity hit a two-year low with the largest drop in a decade. The prices registered the seventh consecutive trading day of decline without technical support below. The SHFE 1903 contract was dragged by shorts to a low of 46,210 yuan/mt, closing 3.73% lower at 46,510 yuan/mt. Pressure from shorts will continue to cap any momentum in a price rebound today. The contract is likely to trade at 46,300-47,000 yuan/mt, and at $5,750-5,820/mt for LME copper. In the spot market, falling prices of futures will attract some downstream purchases, and support premiums at 70-170 yuan/mt today. 

Aluminium: A surge of longs rallied LME aluminium to a high of $1,849/mt and ended it at $1,848.5/mt. However, weak fundamentals may limit momentum and keep prices at $1,815-1,855/mt today. The SHFE 1903 contract rebounded after it dropped to the lowest since January 2017, at 13,290 yuan/mt. Eased pressure from shorts accounted for the rebound. We expect the contract to trade rangebound at 13,350-13,450 yuan/mt today with spot discounts at 80-40 yuan/mt. 

Zinc: LME zinc ended six consecutive trading days of decline as it rebounded from a low of $2,356.5/mt and settled higher at $2,402/mt. However, continued macroeconomic pessimism may keep it hovering weakly at $2,370-2,420/mt today. The SHFE 1902 contract broke support at 20,000 yuan/mt and fell to a low of 19,660 yuan/mt as shorts accumulated. Expectations of greater supplies in the near future weighed on prices. The contract is likely to trade weakly at 19,700-20,150 yuan/mt today. 

Nickel: Prices of nickel led increases among SHFE base metals overnight, buoyed by higher oil prices and a weaker US dollar. The SHFE 1905 contract broke resistance at the 89,500 yuan/mt level and jumped to a high of 89,580 yuan/mt as shorts left the market. LME nickel also rebounded to a high of $10,930/mt, from a low of $10,675/mt overnight. Nickel inventories at LME warehouses shrank 300 mt to 206,100 mt. We expect it to continue its robust performance and consolidate around $10,900/mt, with the SHFE 1905 contract trading at 88,000-89,500 yuan/mt. Spot prices are set at 88,500-89,500 yuan/mt. 

Lead: LME lead fell to a low of $1,932.5/mt overnight. It registered the third consecutive trading day of decline as it settled at $1,941.5/mt, with open interests up 1,134 lots to 100,240 lots. Pressured by a lower LME lead and all moving averages above, the SHFE 1902 contract dipped to a month-low of 17,590 yuan/mt. It will trade under continued pressure today. 

Tin: As the US dollar weakened and oil prices extended their gains, LME tin nudged up and hovered around the five-day moving average. The SHFE 1905 contract also rose to the five-day moving average and jumped to a high of 144,870 yuan/mt. It is likely to test resistance at 145,000 yuan/mt today. Prices are likely to trade rangebound in the short run.