SMM Morning Comments (Nov 4): Shanghai Base Metals Fell across the Board after Fed Announcement of Tapering

SHANGHAI, Nov 4 (SMM) – Shanghai base metals all went down in the overnight trading on Wednesday after the Fed announced to start the tapering of asset purchase in late November, while the stock decline supported the prices.

LME metals basically closed higher in the trading on Wednesday. Copper fell 0.35%, aluminium rose 0.22%, lead increased 0.76%, and zinc went up $34.5/mt.

SHFE metals mostly fell in the overnight trading. Copper dropped 0.99%, aluminium fell 1.24%, lead shed 1.13%, and zinc decreased 0.59%.

Copper: Three-month LME copper opened at $9,619/mt on Wednesday night and closed 0.35% lower at $9,480.5/mt after hitting the lowest point at 9,360/mt. LME copper is expected to trade between $9,460-9,540 yuan/mt today. The trading volume stood at 16,000 lots, and the open interest reached 262,000 lots.

The most-traded SHFE 2112 copper contract opened at 71,000 yuan/mt and went down 0.99% to close at 69,700 yuan/mt in overnight trading, after hitting the lowest level at 69,610 yuan/mt. The trading volume was 70,000 lots, and the open interest stood at 155,000 lots. The SHFE copper contract is expected to trade at 69,700-70,300 yuan/mt, with the spot premiums at 280-400 yuan/mt.

The Fed announced on Wednesday that it will maintain the benchmark interest rate unchanged, and will start to reduce the asset purchase in late November $15 billion, and it will end around July 2022. The Fed Chairman Powell emphasized at the press conference that the tapering is not equivalent to tightening monetary policy, and it does not mean that the Fed will start raising interest rates immediately in the middle of next year. The US dollar index pulled back since the Fed did not release a hawkish signal, and the LME copper rebounded. The LME copper lost all the gains in the intraday trading on Wednesday as the prices of US oil and Brent Crude plunged. The Backwardation structure of the SHFE 2112 copper contract expanded rapidly, and some major downstream companies held a wait-and-see attitude due to the pandemic in Changzhou city. The premiums fell fast in the cautious sentiment.

Aluminium: LME aluminium opened at $2,682/mt on Wednesday morning and closed at $2,686/mt, up $6/mt or 0.22%.

Overnight, the most-traded SHFE 2112 aluminium contract opened at 20,275 yuan/mt, with the highest and lowest prices at 20,350 yuan/mt and 19,800 yuan/mt before closing at 19,855 yuan/mt, down 250 yuan/mt or 1.24%.

In terms of supply, there are no rumours of additional aluminium production restrictions, and the market still needs to pay attention to the impact of the concentrated arrivals of backlog aluminium ingots. Downstream consumption is gradually recovering from the power rationing, but is still not enough to lower aluminium ingot social inventory, which is expected to continue to accumulate today. Spot discounts in east China remained at 90-100 yuan/mt amid strong willingness to sell. SHFE aluminium will find no support before coal prices stabilise. This, coupled with the concentrated arrival of aluminium ingots, will prevent SHFE aluminium from rebounding significantly.

Lead: Three-month LME lead opened at $2,368/mt last night, hitting the highest level at $2,395/mt, and ended 0.76% higher at $2,379/mt. The market will focus on the Fed interest rate meetings, and the risk aversion sentiment may continue in the market. The lead stocks across LME-listed warehouses continued to fall slightly, supporting the LME lead prices.

The most-active SHFE 2112 lead contract opened at 15,900 yuan/mt last night, hitting the lowest point at 15,630 yuan/mt as the longs reduced positions to avoid risks, and closed at 15,730 yuan/mt, down 1.13%. SHFE lead was dragged down by the LME lead to fall below the 5 and 10-day moving averages, but still fluctuated above 15,600 yuan/mt. The lead stocks across domestic and overseas warehouses are expected to drop further, so the decline in SHFE lead is limited. Today’s focus will be the support at 15,600 yuan/mt.

Zinc: Three-month LME zinc rose $34.5/mt to settle at $3,307/mt last night, with open interest increasing 643 lots to 258,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,300 mt or 0.66% to 194,700 mt. LME zinc prices are expected to stand at $3,280-3,330/mt.

The most-traded SHFE 2112 zinc contract fell 140 yuan/mt or 0.59% to 23,555 yuan/mt, with open interest up 7,153 lots to 169,700 lots. The output at domestic smelters showed recovering growth while the output stood at 560,000 mt in Q4 2020. Downstream producers ramped up restocking as raw material prices fell, pushing lower the discounts in Shanghai and Guangdong. Zinc prices are likely to fluctuate rangebound amid unstable market sentiment. The SHFE 2112 contract is expected to move between 23,300-23,800 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 20 yuan/mt against the December contract.

Nickel: The Federal Reserve announced that it would maintain its benchmark interest rate unchanged overnight, and will launch a debt reduction plan in late November to reduce the size of its monthly asset purchases by $15 billion, and it will end around July 2022. Most of the SHFE base metals prices fell last night. SHFE 2112 nickel contract fell 3.07% or 4,490 yuan/mt to end at 141,550 yuan/mt. SHFE nickel prices dropped to its lowest level in the past three weeks. From a fundamental point of view, the current supply of high-grade NPI remains tight, and the firm prices still support the nickel prices. On the demand side, the nickel spot market is sluggish, and the spot transaction is poor. The supply of nickel sulphate is in slight surplus, and the growth in the consumption of pure nickel has slowed down, which has put pressure on the nickel prices to a certain extent. Therefore, the current nickel prices are expected to continue to fluctuate rangebound.

Tin: Overnight, the SHFE 2112 tin contract rose initially and then fell back. Market inventories are still at a low level and there is no obvious sign of inventory accumulation in the short term. The spot market is tight. Some smelters may reduce production slightly due to power rationing and tight raw material supply. Demand will gradually improve. The SHFE 2111 tin contract will perform well before its delivery, supported by low inventory and high premiums in the spot market. Expectations of output cuts will support the SHFE 2112 tin contract.