SMM Morning Comments (Dec 15): Shanghai Base Metals All Trended Lower amid Surging US PPI

SHANGHAI, Dec 15 (SMM) – Shanghai and LME base metals all closed in the negative territory as the US PPI for November recorded new high in terms of YoY growth, strengthening market expectations of an early warp up of the stimulus package.

LME copper dropped 0.81%, aluminium lost 1.35%, zinc slid 1.53%, and lead declined 0.44%.

SHFE copper fell 0.52%, aluminium lost 0.31%, nickel dropped 0.19%, lead decreased 0.42%, and zinc slid 0.85%.

Copper: Three-month LME copper opened at $9,442/mt last night and dropped 0.81% to close at $9,388/mt after hitting the lowest point at $9,385/mt. The trading volume was 9,261 lots, and the open interest was 257,000 lots. Three-month LME copper is expected to trade between $9,350-9,450/mt today.

The SHFE 2201 copper contract opened at 69,100 yuan/mt, hitting the lowest levels at 68,550 yuan/mt, and closed 0.52% lower at 68,550 yuan/mt. The trading volume was 34,000 lots, and the open interest was 133,000 lots. SHFE copper is expected to trade between 68,300-68,900 yuan/mt today, with spot prices between a discount of 120 yuan/mt and a premium of 10 yuan/mt.

On the macro front, the US PPI for November released last night rose 9.6% YoY, recording new highs again. US dollar index rallied to the weekly high after market’s expectation of faster taper of bond purchases heightened, pressuring copper futures. In the spot market, the downstream consumption was sluggish amid resurging COVID pandemic in Zhejiang and Jiangsu. Meanwhile, the SHFE front month – next month spread was still in a backwardation structure, which stood between 200-320 yuan/mt, and the quotes were also as low as in discount of 100 yuan/mt, at which price the traders purchased on dips.

Aluminium: LME aluminium opened at $2,655/mt last night and closed at $2,622/mt, down 1.35% or $36/mt.

During last night’s night session, the most-traded SHFE 2201 aluminium contract opened at 19,135 yuan/mt, with the highest and lowest prices at 19,245 yuan/mt and 19,110 yuan/mt before closing at 19,160 yuan/mt, down 60 yuan/mt or 0.31%.

On the supply side, aluminium output was still at a low level. And the market shall watch how the Winter Olympics will affect the production in Inner Mongolia. On the demand side, the downstream consumption was relatively stable, which is likely to push down the social inventory. The sustainability of demand is worth of attention.

Lead: Three-month LME lead opened at $2,290/mt, hitting the lowest and highest points at $2,277.5/mt and $2,307/mt respectively, and closed 0.44% lower at $2,280.5/mt.

The most-liquid SHFE 2201 lead contract opened at 15,550 yuan/mt and hit the lowest point at 15,460 yuan/mt, before closing at 15,485 yuan/mt last night, down 0.42%.

Zinc: Three-month LME zinc dropped 1.53% or $51/mt to settle at $3,285/mt last night, with open interest decreasing 9,717 lots to 250,000 lots. Zinc stocks across LME-listed warehouses gained 18,275 mt or 9.57% to 209,175 mt. Short-term overseas delivery of warrants raised the concerns over invisible inventory. However, the delivery was still mostly happened in Asia, and the supply in Europe was still tight, supporting zinc prices. LME zinc is expected to move between $3,280-3,330/mt today.

The most-liquid SHFE 2201 zinc contract lost 200 yuan/mt or 0.85% to settle at 23305 yuan/mt in last night, with open interest increasing 99 lots to 184,700 lots. LME zinc inventory rose for three trading days in a row by 58,800 mt or 39%, mainly contributed by the warehouses in Singapore. According to SMM research, the downstream consumption from galvanizing and die-casting alloy sectors weakened, while the zinc dioxide sector was relatively stable. In the spot market, the supply picked up, but downstream demand was sluggish, hence the spot transactions thinned. However, the low domestic zinc inventory will offer some support to zinc prices. The most-traded SHFE zinc contract is expected to move between 23100-23600 yuan/mt today, and spot premiums for domestic #0 Shuangyan will be seen at 120-130 yuan/mt over the December contract.

On the macro front, oil prices dropped to the $73/barrel level, with Brent down $0.69/barrel or 0.93% to settle at $73.7/barrel as the rising COVID cases and the discovery of omicron COVID variant constrained global oil demand. WTI crude also dropped $0.56/barrel or 0.79% to $70.73/barrel.

Nickel: SHFE nickel prices closed at 142,500 yuan/mt last night, a drop of 190 yuan/mt or 0.19%, from the settlement price of the previous trading day. The market shall watch the support at 140,000 yuan/mt.

Tin: The SHFE 2201 tin contract opened at a low level and then trended lower last night. On the fundamentals, though the supply of tin ore was tight due to the pandemic in Myanmar, the production of smelters were stable as a whole. And according to SMM research, downstream solder manufacturers maintained normal production, and purchased on demand.