SMM Morning Comments (Jan 7): Shanghai base metals performance mixed with services sector activity in China expanding at a slower pace in December

Published: Jan 7, 2021 10:00
Shanghai base metals traded mixed on Thursday morning as developments turned the focus on Chinese tech giants and regional energy stocks. Meanwhile, their counterparts on the LME also set for a mixed start.

SHANGHAI, Jan 7 (SMM) — Shanghai base metals traded mixed on Thursday morning as developments turned the focus on Chinese tech giants and regional energy stocks. Meanwhile, their counterparts on the LME also set for a mixed start.

A private survey showed services sector activity in China expanding at a slower pace in December, with the Caixin/Markit services Purchasing Managers’ Index coming in at 56.3. That compared against November's reading of 57.8.

Shanghai base metals closed mixed in overnight trading. Lead slid 0.37%, aluminium declined 0.68% and tin weakened 0.33%, while zinc climbed 1.13%, copper rose 0.53% and nickel increased 0.52%.

The LME complex performed similarly on Wednesday. Zinc was the best performer with a rise of 1.38%. Copper advanced 0.28%, nickel edged up 0.11%, while aluminium slid 0.85%, lead declined 1.4% and tin weakened 0.54%

Copper: Three-month LME copper rose 0.28% to end at $8,073/mt on Wednesday, and is likely to trade between $8,040-8,120/mt today.

The most-active SHFE 2102 copper contract went up 0.08% to close at 59,080 yuan/mt in overnight trading, and it is expected to move between 58,900-59,400 yuan/mt today, while spot premiums will be seen at 100-180 yuan/mt.

The ADP employment report released by the US last night showed that the ADP employment unexpectedly recorded -123,000 in December, which was the first negative value since April 2020. The market worried about the impact of the pandemic and the labor market continued to be tense. In addition, the Democratic Party won control of the Senate, boosting the expectation of overweight fiscal stimulus. Boosted by this, the US dollar index rebounded from its low level at night, while copper prices fell under pressure. On the spot side, the surge suppressed downstream and spot traders. As inventories remained low, holders had no intention of lowering the premium, and there was no room for price reduction in the market, which further dampened trade transactions. The downstream showed fear of high prices, and the overall trading showed a wait-and-see situation.

Zinc: Three-month LME zinc rose 1.38% to close at $2,870/mt on Wednesday. Zinc stocks at LME-listed warehouses fell 125 mt to 201,900 mt. The expectation of more economic stimulus policies in the US boosted bullish sentiment, and the weakness of the US dollar also provided basic support for LME zinc. However, under the pandemic, the negative value of non-agricultural data in the US showed that the labor market was tight and limited the increase of LME zinc. The contract is likely to trade between $2,830-2,880/mt today.

The most-liquid SHFE 2102 zinc contract rose 1.13% to end at 21,485 yuan/mt in overnight trading. The tight zinc ore end remained unchanged, and the recent high premiums in spot market also provided support for zinc prices. However, the weakening consumption in the downstream galvanizing section limited the upward space of SHFE zinc. The production situation of smelters will be monitored in the near term. The SHFE zinc contract is expected to move between 21,000-21,500 yuan/mt today, while spot premiums for domestic 0# Shuangyan will be seen higher at 350-400 yuan/mt.

Nickel: The most-active SHFE 2103 nickel contract rose 0.52% to close at 130,190 yuan/mt on Wednesday. Open interests rose 3,286 lots to 174,000 lots. Whether the contract could remain above 130,000 yuan/mt will come under scrutiny today.

Lead: Three-month LME lead settled 1.4% lower at $2,046.5/mt on Wednesday.

The most-active SHFE 2102 lead contract went down 0.37% to close at 14,975 yuan/mt on Wednesday night. The contact is likely to keep fluctuating at high in the near term.

Tin: Three-month LME tin closed down 0.54% at $21,090/mt on Wednesday. The dollar fell again, approaching its lowest level since April 2018. According to foreign media reports, the Democratic Party won the final election of the Senate in Georgia, which will clear the way for a larger fiscal stimulus plan. The continued decline of LME tin inventories shows that the tight supply situation of refined tin overseas has not eased, and LME tin will keep trading at a high level under this support, but there is a certain demand for technical adjustment after continuous rise. Pressure above will be seen from $21,500 /mt today. Support below will be seen from $20,400/mt today.

The most-liquid SHFE 2103 tin contract fell 0.61% at 157,720 yuan/mt on Wednesday night. The trend guidance provided by LME tin will be monitored today. Pressure above will be seen from 160,000 yuan/mt today. Support below will be seen from 154,000 yuan/mt today.

Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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