SMM Evening Comments (Nov 22): Shanghai Nonferrous Metals All Closed with Gains amid Loosening Signal from PBOC

SHANGHAI, Nov 22 (SMM) – Shanghai nonferrous metals all closed with gains as the quarterly report released by the People's Bank of China signalled loosening monetary policy.

Shanghai copper rose 2.41%, aluminium jumped 3.36%, lead lost 0.7%, zinc added 0.97%, tin advanced 1.25%, and nickel soared 3.9%.

Copper: The most-traded SHFE 2201 copper closed up 0.93% or 650 yuan/mt to 70180 yuan/mt, with open interest up 8277 lots to 158184 lots.

On the macro front, the House passed the $2 trillion tax and expenses bill strongly advocated by President Biden, partly boosting market sentiment and pushing up copper prices. Meanwhile, US dollar stayed high amid falling Euro caused by deeper concerns about COVID in Eurozone, which constrained the upside momentum of copper.

In China, the monetary policy implementation report for Q3 disclosed by People's Bank of China removed the representation of “the ultra-loose measures are never a choice” and “it will strictly control the master valve of currency flows”. Instead, it emphasised that it will tackle external policy changes by enhancing exchange rate flexibility, and may loosen the monetary policy slowly and steadily, which boosted copper prices.

On the fundamentals, the copper inventory in bonded zone dropped 9,700 mt to 206,500 mt, falling for six weeks in a row. The less-than-expected supply also supported copper prices.

Tonight, the market shall watch the housing sales in October on an annual basis, the initial reading of November consumer confidence index for November, and the COVID in Eurozone.

Aluminium: The most-traded SHFE 2201 aluminium closed up 1.81% or 340 yuan/mt to 19095 yuan/mt, with open interest down 7313 lots to 220137 lots.

The market’s worries over possible reductions in supply were eased after Yunnan Aluminium announced that it has resumed its capacity which was suspended unexpectedly last week. However, the supply is still unlikely to see any significant increases, hence the market was dominated by the consumption side. The SMM social aluminium ingot inventory dropped slightly, but the capitals were not so confident about a bullish market as the downstream consumption signalled seasonal low.

Lead: The most-traded SHFE 2112 lead closed up 0.64% or 95 yuan/mt at 14865 yuan/mt, with open interest down 1681 lots to 48992 lots.

The smelters were less interested in producing amid shrinking smelting profits as a result of falling lead prices. However, the demand side was relatively robust, and the spot transactions were mostly done in the trading market as the smelters were less willing to make shipments. As such, social inventory of lead ingot has dropped greatly by 5,100 mt from Friday November 19 as of today November 22, and totalled 154,400 mt.

Meanwhile, there have been news about smelters reducing half of their output in Anhui and Shandong due to equipment failure, concerning a total weekly capacity of 15,300 mt. The bearish sentiment was eased to some point, and the downstream consumption has been smooth. In spot market, the primary lead smelters mainly delivered for long-term orders, with premiums at 100-150 yuan/mt over SMM 1# lead. The mainstream spot discounts in Zhejiang and Jinagsu stood at 30 – 0 yuan/mt. For secondary lead, the bullish estimate has been heightened, and the mainstream quotes were in premiums of 0 – 50 yuan/mt over SMM 1# lead.

The smelters became wait-and-see after lead prices rallied, and the downstream purchased from smelters on rigid demand, with some of the purchases being made in trading market. The overall transactions were moderate amid active inquires.

Zinc: The most-traded SHFE 2201 zinc closed up 1.42% or 320 yuan/mt at 22930 yuan/mt, with open interest down 151 lots to 81753 lots.

On the fundamentals, the total social inventory of zinc ingot across seven major markets in China stood at 130,800 mt, up 2,100 mt from last Friday amid more arrivals over the weekend. In terms of the demand side, the downstream purchase weakened due to volatile zinc prices, and most of the transactions were made on dips. On the supply side, the zinc ingot output estimate for December has been revised down by 10,000 mt due to production reduction in Hanzhong, maintenance of Hunan Sanli, and output cuts of Yongchang in December. Zinc prices are likely to stay congested amid a returning supply and demand balance.

Tin: The SHFE 2112 tin closed up 0.92% or 2650 yuan/mt at 291170 yuan/mt, with open interest down 533 lots to 30884 lots.

On the fundamentals, the market shall focus on the import volume after the import window fully opened and the export window closed. In China, the inventory under warrants kept falling, and the market transactions have been slightly sluggish though the spot supply was stable as a whole. The spot premiums were still at a high level albeit slight falls.

Nickel: The most-traded SHFE 2112 nickel closed up 2.65% or 3830 yuan/mt to 148530 yuan/mt, with open interest down 5131 lots to 89106 lots.

Currently, domestic and LME nickel inventories were both at a low level, supporting nickel prices. On the fundamentals, the stainless steel and NPI markets have been quiet, and NPI prices have shown signs of pulling back. While the transaction of nickel sulphate in the new energy market also lacked highlights. Hence, nickel prices are expected to hover at high, with limited support from the fundamental front.