SMM Evening Comments (Dec 6): Shanghai Nonferrous Metals All Closed with Losses amid Market Pessimism

SHANGHAI, Dec 6 (SMM) – Shanghai nonferrous metals all closed with losses as the market was pessimistic amid accelerated tapering progress of US Federal Reserve and lower US GDP estimate in 2022; however, the China central bank’s decision to reduce RRR rate, announced in the afternoon trade, has boosted the market to some point.

Shanghai copper slid 0.22%, aluminium lost 0.45%, lead shed 2.56%, zinc retreated 1.54%, tin plunged 3.32%, and nickel dropped 2.11%.

Copper: The most-traded SHFE 2201 copper closed down 0.22% or 150 yuan/mt to 69080 yuan/mt, with open interest down 3276 lots to 149335 lots.

On the macro front, the US non-farm payrolls for November were released last Friday, which added 210,000, the lowest since last December. However, the unemployment rate beat the expectation, and dropped to 4.2%. St. Louis Fed Chair Bullard said that the unemployment rate is expected to move down quickly to 4%, and he expected the Fed to hike the interest rate two times. The contradiction between non-farm payrolls and unemployment rate have haunted the market for some time, but the market was generally positive based on the Fed’s reaction. US dollar index advanced on the lingering hawkish stance, suppressing copper prices.

On the fundamentals, the customs clearance volume by end of November recorded a new high in three months, indicating easing supply shortage of copper, which pressured copper prices as well. The People's Bank of China announced in the afternoon to lower the RRR rate for financial institutions by 0.5 percentage point (excluding financial institutions that have adopted 5% RRR rate), which greatly pushed up LME copper in Europe trade.

Tonight, the market shall watch the LME board and December Sentix investor confidence index in Eurozone.

Aluminium: The most-traded SHFE 2201 aluminium closed down 0.45% or 85 yuan/mt to 18710 yuan/mt, with open interest down 85 lots to 191461 lots.

On the supply side, there is no significant increase in the market. On the demand side, SMM domestic aluminium ingot social inventory dropped 24,000 mt from last Thursday December 2, sustaining the downside trend in the short term. The processing companies have not yet been palpably affected by the heating season or Winter Olympics. However, the market is still expecting some production restrictions in the north by year-end.

Lead: The most-traded SHFE 2201 lead closed down 2.56% or 390 yuan/mt at 14820 yuan/mt, with open interest up 7552 lots to 48043 lots.

In spot market, the quotes from the smelters has rose from discounts last week to flat levels or even small premiums as intraday lead prices have fallen greatly, the goods traders tended to refrain from selling. The spot market was generally sluggish as the downstream and upstream are both busy withdrawing funds in December. And the increasingly strong estimate of Fed’s accelerating the tapering process have weighed on LME lead.

Zinc: The most-traded SHFE 2201 zinc closed down 1.54% or 355 yuan/mt at 22725 yuan/mt, with open interest down 2016 lots to 76431 lots.

On the macro front, US Fed will accelerate the tapering progress, and Goldman Sachs lowered the US GDP estimate in 2022 due to omicron uncertainty. Meanwhile, the People’s Bank of China reduced the RRR rate, increasing market liquidity.

On the fundamentals, the weekly treatment charges dropped by 100 yuan/mt, and the rising electricity prices underpinned zinc prices. The production costs of smelters stood at 22500 yuan/mt. Meanwhile, some of them were planning to control the output due to high costs. On the demand, the environmental protection policies in north China has suppressed the consumption. The galvanising output will also decline due to environmental protection reasons.

However, the zinc prices are unlikely to drop significant amid support from the cost side.

Tin: The most-traded SHFE 2201 tin closed down 3.32% or 9480 yuan/mt at 276410 yuan/mt, with open interest up 2196 lots to 45665 lots.

On the fundamentals, the supply and demand were still weak approaching the year-end, and the market supply was still stable. The declining SHFE tin today showed that the market was digesting the fears over high prices. The recent tin prices are likely to still hover at high levels, but with wider fluctuations.

Nickel: The most-traded SHFE 2202 nickel closed down 2.11% or 3140 yuan/mt to 145660 yuan/mt, with open interest down 7802 lots to 171046 lots.

Nickel prices slumped in afternoon trade. On the fundamentals, the support of nickel prices still came from the low and falling inventory. However, the marginal demand of nickel dropped, and demand from the stainless steel and nickel sectors was both weak. Ferronickel prices declined as there were stainless steel and nickel sulphate companies suspending the production, weakening the support to nickel prices.