SMM Morning Comments (Nov 26): Base Metals Pulled Back as Market Sentiments Weakened

SHANGHAI, Nov 26 (SMM) – Shanghai base metals mostly trended lower on Friday morning amid weakened market sentiments. Meanwhile, their counterparts on LME performed similarly.

LME metals closed mixed in the trading on Thursday. Copper fell 0.85%, zinc dropped 0.15%, aluminium rose 0.44%, and lead increased 0.37%.

SHFE metals basically dropped in the overnight trading. Copper dropped 1.08%, aluminium fell 0.28%, zinc decreased 0.72%, nickel shed 1.95%, and lead rose 0.36%.

Copper: Three-month LME copper opened at $9,894/mt and fell to the lowest point at $9,725/mt, then rebounded to close at $9,761/mt last night, down 0.85%. The trading volume was 12,000 lots, and the open interest was 261,000 lots. Three-month LME copper is expected to trade between $9,720-9,810/mt today.

The most active SHFE 2201 copper contract opened at 72,140 yuan/mt and went down 1.08% to close at 71,130 yuan yuan/mt in the overnight trading. The trading volume was 64,000 lots and open interest stood at 179,000 lots. SHFE copper is expected to trade between 70,800-71,400 yuan/mt today, with spot premiums between 230-510 yuan/mt.

The recent interest rate hikes in South Korea, New Zealand and other countries have triggered market concerns about global currency tightening. Goldman Sachs economists predict that the Fed will accelerate the tapering and interest rate hikes due to inflationary pressures. The market sentiments will be suppressed under the expectation of tightening liquidity, and the copper futures pulled back. The spot premiums dropped rapidly as the holders significantly lowered prices to sell off goods, but the downstream purchase were scarce.

Aluminium: LME aluminium opened at $2,698/mt on Thursday and closed at $2,715/mt, an increase of $12/mt or 0.44%.

Overnight, the most-traded SHFE 2201 aluminium contract opened at 19,595 yuan/mt, with the highest and lowest prices at 19,645 yuan/mt and 19,265 yuan/mt before closing at 19,375 yuan/mt, down 55 yuan/mt or 0.28%.

Supply declined, boosting market prices. Aluminium processing enterprises in Henan are affected by environmental protection issues. Although the impact is limited for the time being, it may extend to other regions. The short-term aluminium price trend is expected to remain strong.

Lead: Three-month LME lead opened at $2,268/mt yesterday, hitting the lowest and highest points at $2,261/mt and $2,290/mt respectively, and then closed 0.37% higher at $2,281.5/mt.

The most-liquid SHFE 2201 lead contract opened at 15,290 yuan/mt in the overnight trading, and rose to the highest point at 15,440 yuan/mt before falling to the lowest level at 15,215 yuan/mt. The contract settled at 15,270 yuan/mt, up 0.36%. The shorts increased positions with the relatively bearish sentiments, and the prices gained support at 15,200 yuan/mt.

Zinc: Three-month LME zinc fell 0.15% to end at $3,310.5/mt last night, with open interest rising 2,067 lots to settle at 269,000 lots. Zinc stocks across LME-listed warehouses dropped by 2,650 mt or 1.58% to 165,225 mt. The backwardation structure of LME cash to the three-month contract expanded. High spot premiums in Europe and America support prices. LME zinc prices are expected to move between $3,280-3,330/mt.

The most-liquid SHFE 2201 zinc contract decreased 170 yuan/mt or 0.72% to settle at 23,595 yuan/mt in the overnight trading, with open interest down 1,418 lots to 179,300 lots. SHFE zinc prices are expected to stand at 23,300-23,800 yuan/mt. It is normal to see output cuts in the overseas ore and smelting end. The domestic output at smelters showed recovery. Downstream restocking demand has been restrained by high zinc prices. Domestic inventory rose again and spot premiums fell sharply. Spot premiums remain high in Europe and America while LME zinc ingot inventory keeps falling, boosting overseas zinc prices. However, the domestic consumption was muted and inventory pressure was great. Zinc prices are expected to be volatile at high levels. SHFE/LME zinc price ratio will be at low levels. 0# domestic Shuangyan zinc may trade at premiums of 70-80 yuan/mt over the SHFE 2112 zinc contract.

Nickel: SHFE nickel prices followed LME nickel prices yesterday and rose to 155,000 yuan/mt at one point. From a fundamental point of view, the reason that supports the strong nickel prices is still low inventories. However, the nickel demand side has weakened, and there is no change in other aspects. The driving force for nickel prices to rise sharply is not strong, and the purchase for spot nickel products is weak amid high nickel prices. SHFE nickel prices closed at 151,550 yuan/mt in the evening trading, a drop of 3,010 yuan/mt or 1.95%. Trading volume was 225,000 lots, and open interest decreased by 577 lots to 135,000 lots. SHFE nickel prices are expected to move around 150,000 yuan/mt today.

Tin: Overnight, the SHFE 2201 tin contract fell back with the exit of capital. Some smelters in Gejiu, Yunnan are affected by environmental protection restrictions. The port closures in Myanmar due to the pandemic triggered expectations of tighter supply. Demand is largely stable. Spot transactions did not improve significantly, but spot prices remained high. The SHFE 2201 tin contract is expected to hover around the current level amid stable spot market and lack of capital inflows.