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SMM Morning Comments (Nov 22): Base Metals Mostly Increased Despite Stronger Risk Aversion Sentiments
Nov 22, 2021 10:02CST
SHANGHAI, Nov 22 (SMM) – Shanghai base metals all cruised higher on Monday morning. Meanwhile, their counterparts on LME basically fell.

SHANGHAI, Nov 22 (SMM) – Shanghai base metals all cruised higher on Monday morning. Meanwhile, their counterparts on LME basically fell.

LME metals mostly increased on Friday night. Copper rose 1.8%, aluminium increased 2.25%, zinc inched up 1.94%, and lead fell 0.34%.

SHFE metals performed similarly. Copper increased 1.7%, aluminium rose 0.94%, zinc gained 2.19%, nickel won 2.48%, and lead dropped 0.68%.

Copper: Three-month LME copper opened at $9,586/mt last Friday night and moved down to $9,521/mt, then rebounded to $9,656/mt, before closing at $9,651/mt, up 1.8%. The trading volume was 18,000 lots, and the open interest was 255,000 lots. Three-month LME copper is expected to trade between $9,600-9,700/mt.

SHFE copper opened at 70,050 yuan/mt in the overnight trading last Friday and gained 1.7% to end at 70,710 yuan/mt after hitting the highest price at 70,860 yuan/mt. The trading volume was 67,000 yuan/mt, and the open interest was 156,000 mt. SHFE copper is expected to trade between 70,300 yuan/mt-70,900 yuan/mt today, with spot prices between 1,000-2,000 yuan/mt.

The US House of Representatives passed Biden's $2 trillion tax and spending bill last Friday, boosting the market sentiment. Copper prices closed higher on Friday amid low domestic inventories. However, a new round of COVID-19 pandemic broke out in Europe, and the market worried about more lockdown measures. Oil prices plummeted on Friday. The US dollar index rose again under the support of risk aversion and hawkish comments from the Fed. The spot premiums in Shanghai surged for two consecutive days and even exceeded 2,000 yuan/mt, mainly due to the customs restrictions on invoicing. The domestic quotations rose amid shortage of input invoice at the end of the year. The downstream purchase declined amid high premiums. However, the holders with complete invoices still held the prices high. The prices are hard to stabilise before the end of the monthly long-term order deliveries.

Aluminium: LME aluminium opened at $2,621/mt last Friday and ranged between 2,619-2,697.5/mt before closing at $2,683/mt, an increase of $59/mt or 2.25%.

The most-traded SHFE 2201 aluminium contract opened at 18,965 yuan/mt during last Friday’s night session, with the highest and lowest prices at 19,400 yuan/mt and 18,940 yuan/mt before closing at 19,385 yuan/mt, up 180 yuan/mt or 0.94%.

A smelter in Yunnan reduced production last Friday due to an accident, and smelters in other regions also cut output, boosting aluminium prices. However, the current domestic aluminium downstream consumption is seasonally weak, and the continued accumulation of aluminium ingot inventory will also suppress aluminium prices. SHFE aluminium will fluctuate widely amid a lack of market confidence. The most-traded SHFE aluminium contract is expected to move within a range of 19,100-19,500 yuan/mt today.

Lead: Three-month LME lead opened at $2,220/mt last Friday, hitting the highest point at $2,251/mt, and ended 0.34% lower at $2,220.5/mt. The US dollar index moved higher amid risk aversion sentiments, and the lead prices were forced down.

The most-active SHFE 2112 lead contract opened at 14,765 yuan/mt and touched 14,585 yuan/mt before closing at 14,665 yuan/mt, down 0.68%. The supply of lead ingots recovered steadily, and the market remained bearish despite the inventory decline. The lead prices are expected to move close to the bottom support amid expectations of weak consumption in December and macro impacts.

Zinc: Three-month LME zinc inched up 1.94% to end at $3,228/mt last Friday, with open interest down 1,181 lots to 269,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,975 mt to 177,400 mt. The Fed Governor Waller said that if employment growth remains strong and inflation is much higher than the Fed’s 2% target, it may have to speed up the Taper process (cutting debt purchases) and adjust policy interest rates as soon as possible. LME zinc is expected to move between $3,300-3,350/mt.

The most-traded SHFE zinc rose 2.19% to settle at 23,105 yuan/mt, with open interest falling 177 lots to 81,727 lots. Shuangyan is about to reduce output amid environmental protection while Hunan Sanli will undergo maintenance for 2 months. Besides, the stocks declined last Friday, supporting long positions. SHFE zinc prices are expected to fluctuate between 23,000-23,500 yuan/mt today.

Nickel: The most active SHFE nickel contract gained 2.48% or 3,590 yuan/mt to end at 148,290 yuan/mt last Friday evening. Trading volume was 91,000 lots, and open interest decreased by 4,386 lots to 90,000 lots. The nickel prices returned to 148,000 yuan/mt last Friday. The substantial discount of pure nickel against NPI has narrowed. In addition, the current growth rate of nickel sulphate demand has slowed down significantly and the consumption margin has weakened, which makes it difficult for nickel to continue to increase. The most noteworthy issue recently is that during the implementation of customs tax control, the importers cannot complete the deductions between the input and output VAT tax. During the period, the tax cost will be passed onto the downstream producers in the form of spot premiums. For nickel, the current inventory is low, and subsequent nickel premiums may continue to rise. Therefore, we believe that the fundamental support for nickel prices is limited. The backwardation structure of the SHFE front-month contract over the next-month contract may expand further. SHFE nickel are expected to move between 143,000-152,000 yuan/mt this week and LME nickel will fluctuate between $19,600-20,500/mt. 

Tin: The closure of ports in Myanmar due to the pandemic will affect raw material supply to China. The higher spot prices constrained downstream demand. Spot premiums remained high. The SHFE 2112 tin contract rose above 290,000 yuan/mt during last Friday’s night session, and closed at around 292,000 yuan/mt. Investors were cautious about building positions of the 2201 contract. The inflows of delivery brand goods eased tight supply in the spot market. Wait-and-see sentiment was strong. SHFE tin will hover narrowly in the short term amid narrowing price gap between spot and futures prices.

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