Evening Comments (Dec 23): Lead plunged as shorts flocked in

SHANGHAI, Dec 23 (SMM) – Shanghai lead prices plunged on Monday, on track for new record lows, as shorts flocked into the market.

SHFE lead dropped 1.6% on the day to lead losses among nonferrous metals. Zinc shed 0.6%, copper slid 0.4%, and aluminium edged down 0.07%. Tin inched up 0.05%, and nickel jumped 1.8%.

The ferrous complex also saw mixed performance at the start of the week. Hot-rolled coil rose 0.9%, rebar advanced 0.7%, stainless steel gained 0.4%, while iron ore dipped 0.08%. Coke declined 0.7% and coking coal tumbled 1.1%.

Caution returned to the market, but sentiment remained supported by optimism over the ‘phase one’ trade deal between the US and China and liquidity injection by the People's Bank of China (PBOC).

China's central bank on Monday pumped 50 billion yuan into the financial system through 14-day reverse repos at an interest rate of 2.65%. The PBOC has conducted 14-day reverse repos for four consecutive trading days.

Copper: The most active SHFE 2002 contract held in a tight range during the daytime session, failing to recoup losses from Friday night trade and ending the day 0.37% weaker at 49,050 yuan/mt. SHFE copper clung to its recent highs, but technical indicators showed limited steam to fuel a further rally. Whether it could remain above 49,000 yuan/mt will come under scrutiny tonight.

Aluminium: The most traded SHFE 2002 contract slipped to an intraday low of 14,150 yuan/mt, before it recovered some ground to close less than 0.1% weaker at 14,185 yuan/mt. Backwardation on SHFE aluminium narrowed as SMM data showed a smaller decline in aluminium social inventories and spot premiums declined. With more than a month to go before the Chinese New Year holiday, aluminium inventories are likely to continue to fall, which will prevent SHFE prices from slipping sharply.

Zinc: Shorts knocked the most active SHFE 2002 contract below the five- and 10-day moving averages to an intraday low of 17,980 yuan/mt in afternoon trade, before the contract closed the day 0.63% lower at 18,000 yuan/mt. There is upside room in SHFE zinc, with KDJ indicators in a death cross and SMM data showing an increase in zinc social inventories over the weekend. Whether the contract could hold to 18,000 yuan/mt will come under scrutiny tonight.

Nickel: The most traded SHFE 2002 contract hovered in a tight range during the daytime session, holding gains from Friday night trade to finish the trading day 1.76% firmer at 113,690 yuan/mt. Recent gains have sent SHFE nickel convincingly above the five-day moving average, nearing the 114,000 yuan/mt level where it hovered in late November.

Lead: The most active SHFE 2002 contract slid during the daytime session as shorts aggressively loaded up positions. It ended the trading day down 1.56% at 14,795 yuan/mt, within touching distance of a record low of 14,750 yuan/mt plumbed last Wednesday. SHFE lead is likely to extend its decline to fresh lows tonight, as its LME counterpart eased in European trading hours.  

Tin: As longs added their positions, the most traded SHFE 2005 contract climbed to its highest since October 18 at 140,700 yuan/mt in afternoon trade, before it eased to close just 0.05% higher at 139,920 yuan/mt. Support lies at 139,000 yuan/mt, while resistance is at 140,500 yuan/mt.