SMM Morning Comments (Nov 5): Base Metals Fell across the Board under Rebounding US Dollar

SHANGHAI, Nov 5 (SMM) – Shanghai base metals all trended lower on Friday morning after the US dollar index rebounded significantly in the overnight trading. Meanwhile, their counterparts on LME basically fell.

LME base metals all fell in the trading on Thursday. Copper fell 0.71%, lead dropped 1.37%, aluminium shed 4.93%, and zinc decreased by $70/mt.

SHFE base metals dropped across the board in the overnight trading as well. Copper fell 1.42%, lead dropped 0.73%, aluminium jumped 5.39%, zinc plunged 3.11%, and nickel decreased 1.06%.

Copper: Three-month LME copper opened at $9,538/mt last night, hitting the highest and lowest points at $9,620/mt and 9,369/mt respectively, and closed at $9,544/mt, down 0.71%. The trading volume was 14,000 lots, and the open interest reached 26,200 lots. The LME copper is expected to trade between $9,370-9,460/mt.

The SHFE 2112 copper contract opened at 70,630 yuan/mt and went down 1.42% to close at 69,270 yuan/mt in the overnight trading, after hitting the lowest level at 68,770 yuan/mt. The trading volume was 87,000 lots, and the open interest stood at 157,000 lots. The SHFE copper contract is expected to trade at 69,000-69,600 yuan/mt, with the spot premiums at 230-400 yuan/mt.

The Fed reiterated that the current high inflation is temporary, and the Bank of England unexpectedly decided to keep the interest rates unchanged, which dragged down the pound and pushed up the US dollar by 0.51% to near the record high within the year overnight. The rebounding US dollar weighed on the non-ferrous metals prices, and the copper futures pulled back. The Backwardation structure between the SHFE 2111 and 2112 copper contracts stood at 400-500 yuan/mt, suppressing the purchase. The spot premiums pulled back again amid the sluggish transaction.

Aluminium: LME aluminium opened at $2,680.5/mt on Thursday morning and closed at $2,553.5/mt, down $132.5/mt or 4.93%.

Overnight, the most-traded SHFE 2112 aluminium contract opened at 19,780 yuan/mt, with the highest and lowest prices at 19,815 yuan/mt and 18,750 yuan/mt before closing at 18,885 yuan/mt, down 1,075 yuan/mt or 5.39%.

Russia will cancel aluminium export tariffs, triggering concerns of increasing global supply. Downstream consumption is gradually recovering from the power rationing, but is still not enough to lower aluminium ingot social  inventory, which rose 31,000 mt to 1.01 million mt, triggering concerns of weaker consumption. The combined inventory of aluminium ingots and aluminium billets totalled 1.15 million mt this week, which was the same as last week. If the total inventory of aluminium ingots and aluminium billets declines, aluminium prices may rebound.

Lead: Three-month LME lead opened at $2,364/mt last night and dropped to hit the lowest level at $2,330.5/mt under the rebounding US dollar, before closing at $2,346/mt, down 1.37%. Powell’s dovish remarks mitigated the market concerns after the Fed’s taper decision.

The most-active SHFE 2112 lead contract opened at 15,695 yuan/mt last night, hitting the lowest point at 15,510 yuan/mt, and closed at 15,580 yuan/mt, down 0.73%. SHFE lead risked the 20-day moving average in the overnight trading. The spot market may see stronger wait-and-see sentiments as the spot prices fall. SMM will monitor whether the prices can stop falling at around 15,500 yuan/mt.

Zinc: Three-month LME zinc fell $70/mt to settle at $3,237/mt last night, with open interest increasing 2,733 lots to 261,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,150 mt or 0.59% to 193,550 mt. LME zinc is expected to move at $3,220-3,270/mt today.

The most-liquid SHFE 2112 zinc contract decreased 735 yuan/mt or 3.11% to settle at 22,885 yuan/mt in the overnight trading, with open interest down 1,770 lots to 162,900 lots. The output at smelters in Guangxi and Yunnan showed recovering growth and the domestic supply increased sharply. Downstream producers ramped up restocking as zinc prices fell. The inventory is likely to decline today. Zinc prices declined sharply amid bearish sentiment. Social inventory is about to fall sharply as domestic output increases and government stockpiles arrive at downstream plants, which will support zinc prices. Zinc prices are expected to rebound amid stable market sentiment. The most-traded zinc contract is expected to move within a range of 22,800-23,300 yuan/mt today, and spot premiums for domestic #0 Shuangyan will be seen at 50-60 yuan/mt against the December contract.

Nickel: SHFE 2112 nickel fell 1.06% or 1,520 yuan/mt to end at 141,300 yuan/mt overnight. Last night, the prices of non-ferrous metals generally fell. SHFE aluminium prices led the decline and fell by more than 5%, while SHFE nickel prices also led the declines as investors reduced positions, driven by market sentiment and capital outflow. The supply side: Due to lower cost expectations and lower acceptance by steel mills, the prices of NPI has fallen from a high level, market inquiries have fallen. On the demand side: nickel sulphate prices have weakened due to the current sufficient market supply. On the pure nickel side, after the prices of nickel fell, the downstream began to purchase actively. On the whole, the support logic of NPI in the early stage has gradually weakened due to the decrease in the cost of NPI, and the supply of nickel sulphate is sufficient and surplus is expected to put pressure on nickel prices; however, the demand for nickel is still there and there is support below, but the market sentiment is general weak. The nickel prices are expected to remain weak and rangebound.

Tin: Overnight, the SHFE 2112 tin contract rose initially and then fell back. Inventory rebounded slightly. Some smelters may reduce production slightly due to power rationing and tight raw material supply. Demand will gradually improve. The backwardation between SHFE 2111 and 2112 tin contracts widened further. The upside room of the 2111 contract may be limited before delivery due to the increase in warrants.