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SMM Morning Comments (Dec 7): Base Metals See Narrower Price Drop amid China RRR Cut
Dec 7, 2021 09:59CST
Shanghai base metals prices closed mixed overnight. The declines in the prices narrowed amid the RRR cut by the People’s Bank of China (PBOC).

SHANGHAI, Dec 7 (SMM) – Shanghai base metals prices closed mixed overnight. The declines in the prices narrowed amid the RRR cut by the People’s Bank of China (PBOC).

LME copper rose 1.7%, aluminium edged down 0.84%, lead rose 46%, and zinc gained 0.49%.

SHFE copper rose 0.33%, aluminium rose 0.32%, lead dipped 0.34%, zinc rose 0.81%, and nickel fell 1.04%.

Copper: LME copper prices rose 1.7% to end at $9,577/mt last night. Trading volumes stood at 8,908 lots and open interest stood at 258,000 lots. The most-active SHFE 2201 copper contract prices rose 0.33% to close at 69,560 yuan/mt in overnight trading.  Trading volume was 38,000 lots, and open interest was 147,000 lots. On the macro front, preliminary data from South Africa, the epicentre of the Omicron variant, showed that the hospitalisation rate has not seen a surge, and the market’s concerns about the pandemic have eased. WTI and Brent crude oil prices rose more than 5%. The People's Bank of China decided to lower the deposit reserve ratio of financial institutions by 0.5 percentage point on December15, releasing about 1.2 trillion yuan in long-term funds. The RRR cut is good for the development of the real economy, and the market has expectations for the stablisation of China's economy. In terms of spot markets, imported sources continued to flow in, and the shortage of the market has temporarily eased. But downstream consumption is weak and the downstream acceptance of the current offer is not high. This combined with the backwardation of 350 yuan/mt between the SHFE front-month and next-month contract prompted the sellers to liquidate stocks. Downstream buyers purchased as needed. SHFE copper prices are expected to move between 69,100-69,700 yuan/mt today, and LME copper will trade between $9,500-9,600/mt. Spot premiums are likely to move between 50-210 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2201 aluminium contract opened at 18,770 yuan/mt, with the highest and lowest prices at 18,810 yuan/mt 18,660 yuan/mt before closing at 18,770 yuan/mt, up 60 yuan/mt or 0.32%. Open interest rose 592 lots to 192,000 lots, and trading volume was 121,000 lots.

LME aluminium opened at $2,622.5/mt on Monday and ranged between 2,581.5-2,633/mt before closing at $2,594/mt, a drop of $22/mt or 0.84%. Open interest fell 1,667 lots to 665,000 lots, and trading volume was 11,593 lots.

Aluminium output remains low. Domestic aluminium ingot social stocks continued to fall yesterday. In the short term, SHFE aluminium is expected to continue to move within a narrow range.

Lead: Overnight, LME lead rose 46% to close at $2,206.5/mt, the third consecutive day of decline. SHFE 2201 lead contract prices dipped 0.34% to end at 14,860 yuan/mt last night, with open interest down 3,393 lots to 44,650 lots.

Zinc: Three-month LME zinc gained 0.49% to settle at $3,173/mt last Friday, with open interest increasing 1,707 lots to 264,000 lots. LME stocks across LME-listed warehouses fell by 700 mt or 0.46% to 152,650 mt. LME zinc is expected to fluctuate between $3,150-3,190/mt today.

The most-traded SHFE 2201 zinc rose 0.81% or 185 yuan/mt to settle at 22,910 yuan/mt, with open interest decreasing by 2,275 lots to 74,156 lots. The pressure from falling TCs and rising electricity prices on smelters were increasing. Some smelters in Hunan planned to control their output amid cost pressure. North China is subject to air pollution warning, suppressing consumption for galvanised zinc products. The most-traded zinc contract is expected to move between 22,900-23,400 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 30-40 yuan/mt over the SHFE 2201 zinc contract.

Tin: Overnight, the SHFE 2201 tin contract hovered sideways after opening slightly higher. Supply and demand in the spot market remained stable. More open interest was reduced overnight than the open interest that was added in the previous trading day. SHFE tin is likely to continue to hover at current highs.

Nickel: SHFE 2112 nickel contract prices fell 1,540 yuan/mt or 1.04% to end at 146,420 yuan/mt overnight. Trading volume was 104,000 lots, and open interest decreased by 12,000 lots to 160,000 lots.  Recently, the nickel-based spot market has performed sluggishly. The drop in stainless steel prices has put pressure on raw material prices. NPI prices have continued to fall. The demand for nickel from ternary sector has weakened marginally, and there is a potential output cuts for nickel sulphate amid the cost pressure. The nickel prices will continue to fluctuate widely today.


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