SMM Morning Comments (Nov 23): Base Metals Extended Gains Overnight amid Bullish Sentiments

SHANGHAI, Nov 23 (SMM) – Shanghai base metals rose across the board on Tuesday morning. Meanwhile, their counterparts on LME basically fell.

LME metals all closed with gains on Monday. Copper gained 0.21%, aluminium increased 0.45%, lead rose 1.26%, and zinc went up 3.97%.

SHFE metals performed similarly in the overnight trading. Copper increased 1.39%, aluminium gained 0.86%, lead rose 1.25%, zinc surged 4.52%, and nickel won 2.27%.

Copper: Three-month LME copper opened at $9,343/mt last night, and gained 0.21% to close at $9,671.5/mt after hitting the lowest and highest points at $9,579/mt and $9,750/mt respectively. The trading volume was 11,000 lots, and the open interest stood at 255,000 lots. Three-month LME copper is expected to trade between $9,630-9,730/mt today.

The most-active SHFE 2201 copper contract opened at 70,370 yuan/mt and rose 1.39% to close at 71,420 yuan/mt in overnight trading. Trading volume was 70,000 lots, and open interest was 169,000 lots. SHFE copper is expected to trade between 71,000-71,600 yuan/mt today, with spot premiums between 650-1,500 yuan/mt.

After US President Biden nominated Powell as the chairman of the Fed, the US Treasury yields rose simultaneously with the US dollar, and the US dollar index reached a 16-month high of 96.551. The gains of LME copper narrowed under the rising US dollar, while the low inventories continued to support the prices. The premiums of spot quotations fell from 2,000 yuan/mt to below 1,000 yuan/mt, mainly because some imported copper entered the market, and some spots shipped from Guangdong will arrive in Shanghai. The shortage of spots and invoices may be alleviated. The Backwardation structure between SHFE 2112 and 2201 has expanded to 500 yuan/mt, which to some extent suppressed the downstream purchase and dragged down the premiums. The spot premiums may stabilise further after the lack of input invoices is relieved, but the drop may be limited.

Aluminium: Three-month LME aluminium rose 0.45% to end at $2,695/mt on overnight.

The most-active SHFE 2201 aluminium contract increased 0.86% to end at 19,260 yuan/mt last night.

The domestic supply tightened again while the demand remained muted. The demand in north China was sluggish, which may push down aluminium prices. SHFE Aluminium is expected to fluctuate rangebound. The changes in social inventories and downstream consumption remain as the amrket focus.

Lead: Three-month LME lead opened at $2,225/mt and hit the lowest level at $2,219/mt last night, before closing 1.26% higher at $2,248.5/mt. LME lead made further gains and rebounded to above the low of Bollinger Band, despite the rising US dollar.

The most-active SHFE 2112 lead contract opened at 14,920 yuan/mt last night, hitting the highest point at 15,015 yuan/mt, and closed at 14,930 yuan/mt, up 1.25%. The social inventory fell continuously as the downstream users made purchases after the lead prices fell for the whole previous week. The spot holders held the prices firm amid bullish sentiments and the news a large secondary lead smelters in Anhui will reduce production. Thus the lead prices rose further in the overnight trading.

Zinc: Three-month LME zinc inched up 3.97% to end at $3,356/mt last night, with open interest unchanged and standing at 269,000 lots. Zinc stocks across LME-listed warehouses dropped by 2,375 mt or 1.34% to 175,025 mt. Smelters in Europe suffered losses amid rising electricity costs. LME zinc is expected to move between $3,310-3,370/mt.

The most-traded SHFE 2201 zinc contract rose 1,035 yuan/mt or 4.52% to 23,950 yuan/mt, with open interest increasing by 13,064 lots to 162,900 lots. On the supply side, overseas energy problems have intensified. Glencore said that the zinc sulphide production line at its Portovesme smelter will be overhauled by the end of next month due to high energy prices continuing to impact Italy’s industrial base. The production line has an annual production capacity of 100,000 mt. The operating rates at die-casting alloy plants fell slightly as some plants digested finished products. The demand from end-users was less than expected after zinc prices fell and some producers were inclined to reduce the orders from customers with debts approaching the end of this year. Spot premiums rose due to the approaching long-order deadline and the relatively tight market resources for this month's ticket. The electricity prices in Europe have risen again, and smelters are losing money, boosting overseas zinc prices. It is expected that zinc prices will be firm. The most-traded zinc contract is expected to move between 23,400-24,000 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 50-70 yuan/mt over the SHFE 2112 zinc contract.

Nickel: The SHFE 2112 nickel contract closed at 151,980 yuan/mt, an increase of 4,000 yuan/mt, or 2.72%, from the settlement price of the previous trading day. The trading volume was 102,000 lots. Open interest decreased by 801 lots to 88,000 lots. Due to the closing of the import window, the domestic supply of pure nickel has been tight recently, and there will be the possibility of further inventory declines. On the demand side, the current demand from new energy still has a certain growth rate, but the growth rate has slowed down significantly. The production of stainless steel has basically recovered, and the demand for nickel has also stabilised. There are no highlights for nickel in the supply and demand. However, due to the low domestic inventories, the SHFE front-month nickel contract prices are trending higher.  Yesterday, the US House of Representatives voted to pass the Biden administration's $1.75 trillion bill, including a new tax credit bill for electric vehicles proposed by the head of the House of Representatives Democrats. The subsidy proposed by the bill is favourable for the consumption of new energy vehicles. It also stimulated nickel prices to rise to a certain extent. The market sentiment will keep the nickel prices strong today. However, we still need to be wary of the nickel price callback after the return to the fundamentals.

Tin: SHFE 2112 tin contract trended higher, with funds leaving the market. The import data of the ore increased and the net exports of tin ingots turned to net imports. The supply side is expected to continue to loosen. In the later stage, attention should be paid to whether the actual performance of the demand and inventory will be accumulated. SHFE 2112 tin contract hit a recent high. 2112 contract funds continued to leave the market steadily, and the rate of reducing positions has accelerated compared with yesterday's performance. The entry of 2201 contract funds has also proceeded steadily. Therefore, supply and demand remained weak, spot market stabilised and the funds of futures decreased. Prices are expected to be congested at high levels with the approaching of 2112 contract deliveries.