SMM Evening Comments (Nov 26): Shanghai Nonferrous Metals Mostly Closed in the Negative Territory amid Fears of COVID Variant

SHANGHAI, Nov 26 (SMM) – Shanghai nonferrous metals mostly closed in the negative territory, as the market feared the new COVID variant detected in South Africa with higher infection rate, according to some health authorities.

Shanghai copper lost 1.88%, aluminium dropped 2.42%, lead jumped 0.76%, zinc fell 1.35%, tin declined 1.72%, and nickel slid 3.09%.

Copper: The most-traded SHFE 2201 copper closed down 1.88% or 1350 yuan/mt to 70560 yuan/mt, with open interest down 17016 lots to 171059 lots.

On the macro front, the Goldman Sachs anticipated that the Fed will accelerate its tapering of bond purchase to $30 billion per month starting from January next year, in order to end the massive stimulus package for COVID in advance by mid-March; while it also predicted that the interest rate hike will begin in June the earliest, followed by two other rounds in 2022.

In Eurozone, according to the European Central Bank’s October meeting minutes regarding monetary policy, the Bank will reserve its policy options after the key meeting is held in December as the evolvement of inflation has been extremely uncertain. Hence, the US and Eurozone markets were quite worried about the uncertainties of future inflation, and raised their expectations of interest rate hike, which suppressed copper prices.

In the oil market, the South Korea announced that it will work with US to release oil reserves along with other major consumer countries, including Japan and India. The OPEC+ commented that such action may result in greater surplus of oil supply in early 2022. Overnight US oil dropped slightly, and continued to fall in the day trading, which also constrained the upside room of copper prices.

On the fundamentals, the social inventory of copper increased in major markets in China, with inventory in Shanghai and Guangdong growing the most.

Aluminium: The most-traded SHFE 2201 aluminium closed down 2.42% or 470 yuan/mt to 18960 yuan/mt, with open interest down 3112 lots to 213433 lots.

On the supply side, the falling inventory yesterday has boosted the market; and the demand side has been influenced by the environmental protection-related problems in Henan, which, however, has little impact on aluminium processing companies. The market shall watch if such influences will intensify in the future.

Lead: The most-traded SHFE 2201 lead closed up 0.76% or 115 yuan/mt at 15330 yuan/mt, with open interest up 766 lots to 49888 lots.

In spot market, primary lead smelter quotes were in premiums of 50 – 100 yuan/mt over SMM #1 lead, and mainstream quotes in trading market were flat over SHFE 2112. The secondary refined lead was offered with slightly expanded discounts over SMM #1 lead at 50 – 120 yuan/mt, but the downstream was sluggish in taking in goods.

On the supply side, the reduced secondary refined lead output benefited lead prices. Meanwhile, according to SMM research, the total social inventory of lead ingots in five major market in China stood at 139,200 mt, down 20,300 mt from Friday November 19 and 15,200 mt from Monday November 22.

Looking into next week, some secondary lead smelters are likely to resume the production, potentially disrupting the growth in lead prices.

Zinc: The most-traded SHFE 2201 zinc closed down 1.35% or 320 yuan/mt at 23445 yuan/mt, with open interest down 3288 lots to 85581 lots.

The SHFE zinc edged down today as the market panics arouse by overseas energy crisis were being digested. As of this Friday November 26, the total social zinc inventory across seven major places of consumption stood at 135,100 mt, up 4,300 mt from Monday November 22 and 6,400 mt from last Friday November 19. The downstream demand has been sluggish ahead of the year-end and amid rising zinc prices; and the market was also pessimistic as a whole due to repeating COVID in overseas market.

The market shall keep an eye on the overseas energy issue. Rising electricity prices will probably lead to reduced output of smelters amid excessively high costs. While the domestic market also faces contradictions between high prices and low consumption. Hence, SMM believes that zinc prices will stay congested.

Tin: The SHFE 2201 tin closed down 1.72% or 4980 yuan/mt at 284980 yuan/mt, with open interest down 885 lots to 43068 lots.

On the fundamentals, the supply and demand pattern was still weak, and the weekly operating rates have been low according to initial research. Spot inventory kept falling, and supplies in the market have been stable. Hence, the near-term SHFE tin prices are likely to hover at high levels amid roughly balanced supply and demand, acceptable volatility of inventory and spot premiums, and stable spot transaction prices.

Nickel: The most-traded SHFE 2202 nickel closed down 3.09% or 4780 yuan/mt to 149780 yuan/mt, with open interest down 4025 lots to 131694 lots.

The market was generally blue today as the COVID in South Africa worsened, pushing down non-ferrous metals. The marginal demand on the fundamental front weakened, which has been unable to support nickel prices, though pure nickel inventory has been low and declining at the same time. The spot transactions from stainless steel and new energy sectors were also sluggish. The nickel prices are likely to be weak in the short term in face of slack fundamentals.