SMM Evening Comments (Dec 20): Shanghai Nonferrous Metals Mostly Closed with Losses amid Worries over Omicron

SHANGHAI, Dec 20 (SMM) – Shanghai nonferrous metals mostly closed in the negative territory as the omicron COVID variant worried the market again with surging confirmed cases and severe cases; and the central bank of many countries all warned against rising inflation.

Shanghai copper dropped 0.94%, aluminium gained 0.62%, lead slid 1.05%, zinc lost 1.84%, tin declined 0.85%, and nickel retreated 1.67%.

Copper: The most-traded SHFE 2202 copper closed down 0.94% or 650 yuan/mt at 68500 yuan/mt, with open interest up 4653 lots to 133,000 lots.

On the macro front, the market sentiment clamed to some extent after the Fed’s hawkish signal released at the interest rate meeting last week. Hence US dollar index trended lower after the Bank of England unexpectedly hiked its interest rate. The market was overwhelmed with hawkish rhetoric again as several central banks of the US and in the eurozone warned against rising inflation.

Among them, Christopher Waller, member of the Federal Reserve Board of Governors, indicated that the Fed may roll out the first rate hike in March next year. Key officers of the European Central Bank implied early tightening of monetary policy amid worries of high inflation. The market estimated that the Bank of England may raise the interest rate three times in 2020, and hike the benchmark rate to 1%. Besides, the number of severe omicron cases has been rising, and the daily confirmed omicron cases in England has exceeded 100,000. Copper prices were then suppressed by falling oil prices and rising US dollar index.

In China, the People’s Bank of China adjusted the LPR to 3.8%, down 5 base points from last month, which raised the market liquidity amid declining financing costs of entities. However, it offered limited support to copper prices as the move was in line with market estimate.

Tonight, the market shall watch the CBI industrial orders for December in England, as well as the moves of LME metals.

Aluminium: The most-traded SHFE 2201 aluminium closed up 0.62% or 120 yuan/mt to 19605 yuan/mt, with open interest down 9437 lots to 125679 lots.

Aluminium supply remained low, and the sound downstream demand kept pulling down the social inventory of aluminium ingot. However, the slowing decline in aluminium ingot inventory as well as the falling alumina prices have deprived SHFE aluminium of the upside momentum. Hence the near-term SHFE aluminium is likely to maintain only weak upside potential.

Lead: The most-traded SHFE 2202 lead closed down 1.05% or 165 yuan/mt at 15490 yuan/mt, with open interest up 874 lots to 331529 lots.

The spot trade continued to weaken approaching the end of the month, and the support from energy shortage was limited. The downstream was sluggish in demand as they were busy with collecting funds. The mainstream quotes of primary lead stood at discounts of 50-0 yuan/mt over SMM 1# lead, while secondary lead (tax included) was offered with discounts of 200 yuan/mt over SMM 1# lead. The mainstream offers in the trading market were in discounts of 50-0 yuan/mt against SHFE 2201. And spot trade was light. Some smelters began to deliver long-term orders and sign new orders near the end of the month, hence were reluctant to sell coupled with the falling lead prices.

Zinc: The most-traded SHFE 2201 zinc closed down 1.84% or 440 yuan/mt at 23480 yuan/mt, with open interest down 11481 lots to 61488 lots.

On the supply side, the electricity prices rose again in the eurozone, arising production cuts among smelters. And the output of domestic smelters also fell short. On the demand side, the zinc ingot inventory across seven major markets in China totalled 124,200 mt, flat from last Friday and down 2,300 mt from last Monday. The inventory dropped more slowly as the downstream sector was in seasonal low. And the companies were less interest in purchasing after the prices rose.

Tin: The most-traded SHFE 2201 tin closed down 0.85% or 2410 yuan/mt at 282180 yuan/mt, with open interest down 2717 lots to 31064 lots.

In terms of the daily chart, the capitals kept reducing their positions and left the market as the market moves were ambiguous recently, hence they maintained short-term speculation strategy.

On the fundamentals, domestic warrants inventory dropped palpably, but the spot transactions were stable both in volume and amount.

Nickel: The most-traded SHFE 2202 nickel closed down 1.67% or 2410 yuan/mt to 142120 yuan/mt, with open interest down 1957 lots to 150611 lots.

On the macro front, the COVID-19 pandemic situation was still discouraging, and the omicron variant has been found in many places, which worried the market. LME nonferrous metals dropped, and SHFE nickel declined therewith. On the fundamentals, the stainless steel market stabilised, signalling more demand for nickel; NPI prices also stabilised for the moment. The costs of nickel sulphate stood high, but was sold with low prices; thus the manufacturers lowered their output.