SMM Morning Comments (Nov 29): Base Metal Closed with Losses after Discovery of New COVID-19 Variant

SHANGHAI, Nov 29 (SMM) – Shanghai base metals basically trended lower on Monday morning amid risk aversion sentiments after the discovery of a super strong variant of COVID-19 was discover last Friday. Meanwhile, their counterparts on LME all cruised higher.

LME metals all closed lower in the trading last Friday. Copper dropped 3.24%, aluminium fell 4.53%, lead decreased 0.24%, and zinc fell 3.85%.

SHFE metals basically fell across the board in the overnight trading last Friday. Copper dropped 2.39%, aluminium fell 3.27%, zinc decreased 3.24%, nickel shed 4%, and lead inched up 0.03%.

Copper: Three-month LME copper opened at $9,499/mt in the overnight trading last Friday, hitting the lowest and highest levels at $9,445/mt and $9,521/mt respectively, and closed 3.24% lower at $9,445/mt. the trading volume was 23,000 lots, and the open interest was 263,000 lots. Three-month LME copper is expected to trade between $9,480-9,580/mt today,

The most-active SHFE 2107 copper contract opened at 69,800 yuan/mt last Friday night and dropped 2.39% to settle at 69,360 yuan/mt after hitting the lowest point at 69,330 yuan/mt. The trading volume was 77,000 lots, and the open interest was 167,000 lots. SHFE copper is expected to trade between 69,400-70,000 yuan/mt today, with spot premiums between 130-380 yuan/mt.

A super strong variant of COVID-19 was discovered in South Africa on Friday. The market was worried that a new round of pandemic will directly affect economic recovery and threaten global demand. On Friday, the VIX panic index burst by over 50%. Amid risk aversion sentiments, US oil fell more than 13%, a record low since September 1. European and US stocks and commodities also fell sharply. The spot prices pulled back from high levels to around 70,000 yuan/mt, and the premiums returned to the level before the delivery of SHFE 2111 copper contract. The downstream purchase will pick up significantly this week. The traders will purchase goods at low prices at the end of November. The spot premiums will stand stable at low levels.

Aluminium: During last Friday’s night session, LME aluminium opened at $2,717.5/mt last Friday and closed at $2,592/mt, a drop of $123/mt or 4.53%.

The most-traded SHFE 2201 aluminium contract opened at 18,800 yuan/mt, with the highest and lowest prices at 18,865 yuan/mt and 18,625 yuan/mt before closing at 18,650 yuan/mt, down 630 yuan/mt or 3.27%.

Lower aluminium inventory supported aluminium prices. Under the influence of the traditional off-season, the orders in aluminium plate/sheet, strip, and aluminium alloy sectors declined, but the short-term operating rates may remain stable. In the short term, the market will closely watch changes in inventory and the impact of COVID-19 mutant strains.

Lead: Three-month LME lead opened at $2,273.5/mt and closed $8.5/mt or 0.24% lower at $2,276/mt in the overnight trading last Friday, after hitting the lowest and highest levels at $2,212/mt and $2,288.5/mt respectively.

The most-traded SHFE 2201 lead contract opened at 15,275 yuan/mt in the overnight trading last Friday, hitting the highest point at 15,415 yuan/mt, and closed at 15340 yuan/mt, up 5 yuan/mt or 0.03%.

Zinc: Three-month LME zinc fell 3.85% to end at $3,183/mt last Friday, with open interest falling1,163 lots to settle at 268,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,950 mt or 1.18% to 163,275 mt. The decline mainly came from Singapore. The mutant virus in South Africa has caused market concerns, and the pandemic in Europe has also worsened. LME zinc is likely to stand at $3,150-3,200/mt

The most-liquid SHFE 2201 zinc contract decreased 765 yuan/mt or 3.24% to settle at 22,835 yuan/mt last Friday, with open interest down 8,338 lots to 169,700 lots. The output is expected to stand at 538,400 mt in December, down 10,000 mt from the previous estimate. There are environmental protection warnings in north China. The consumption of natural gas has also been restricted in some regions. These impact will aggravate in December. The aversion sentiment increased, suppressing prices. But the correction of zinc prices would stimulate restocking by downstream producers. The supply problem still exists in Europe, boosting prices. The most-traded zinc contract is expected to move between 22,500-23,000 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 60-70 yuan/mt over the SHFE 2112 zinc contract.

Nickel: LME nickel prices fell over $700/mt, or a drop of nearly 4% during the European trading session last Friday. SHFE nickel fell 2.69% or 4,080 yuan/mt to end at 147,440 yuan/mt last Friday evening. At present, the contradiction between nickel supply and demand is not significant. The nickel import window is still closed, and pure nickel imports are limited. It is also difficult to see a large inflow of imported nickel this week;. The output of nickel sulphate and stainless steel is stable. There is no sign of marginal negative growth in demand, but the growth rate has slowed down. Trading is quiet. It is expected that the nickel prices will fluctuate rangebound this week, but we need to pay attention to the operation in the LME nickel market. SHFE nickel prices are expected to fluctuate between 146,000-152,000 yuan/mt this week, and LME nickel prices are expected to move between $19,800-20,600/mt.

Tin: During last Friday’s night session, the SHFE 2201 tin contract fell slightly with the exit of capital. The operating rates of mainstream tin smelters declined last week. The main reason is that some smelters in Yunnan and Jiangxi provinces were affected by environmental protection-linked production restrictions, but the impact is expected to be limited. The spot market did not see significant fluctuations amid stable supply/demand dynamics. The SHFE 2201 tin contract is likely to remain at high levels.