SMM Morning Comments (Dec 24): SHFE Base Metals Closed Mixed Overnight

SHANGHAI, Dec 24 (SMM) – Shanghai base metals closed mixed. SHFE aluminium and LME aluminium prices diverged.

LME copper dipped 0.03%, aluminium edged up 0.92%, lead fell 1.15%, and zinc fell 0.25%.

SHFE copper inched up 0.1%, aluminium decreased 0.05%, lead dropped 1.15%, zinc rose 0.14%, and nickel rose 0.45%.

Copper: LME copper prices dipped 0.03% overnight and closed at $9,639/mt. Trading volume was 8,089 lots and open interest stood at 249,000 lots. SHFE 2202 copper contract inched up 0.1% to close at 70,030 yuan/mt in overnight trading. Trading volumes stood at 47,000 lots and open interest stood at 142,000 lots. On the macro front, the US durable goods orders in November and the Consumer Confidence Index of the University of Michigan announced yesterday were better than expected, and their views on the economic and financial prospects improved. Moreover, the number of initial jobless claims last week remained people at a low level, and market sentiment boosted the copper prices. In terms of spot markets, the rising SHFE copper prices depressed the weak downstream buying interest. The sellers liquidated stocks. Spot quotes inched down. SHFE copper prices are expected to move between 69,700-70,300 yuan/mt today, and LME copper will trade between $9,570-9,670/mt. Spot copper will be quoted with discounts of 20 yuan/mt to premiums of 80 yuan/mt.

Aluminium: The most-traded SHFE 2202 aluminium contract opened at 20,240 yuan/mt overnight, with the highest and lowest prices at 20,285 yuan/mt and 20,085 yuan/mt before closing at 20,255 yuan/mt, down 10 yuan/mt or 0.05%.

LME aluminium opened at $2,817.5/mt on Thursday and closed at $2,850/mt, an increase of $26/mt or 0.92%.

The soaring natural gas and electricity prices caused by the natural gas shortages in Europe boosted the prices of aluminium at home and abroad. From a global perspective, the power shortage in Western Europe is expected to affect less than 6% of global aluminium capacity and reduce production by 500,000 mt, which is still lower than new capacity outside China in 2022. SMM believes that there will be no systematic shortage of aluminium ingots outside of China and Western Europe in 2022. The short-term aluminium ingot supply gap in Western Europe can be supplemented by inventory in other regions. In the short term, SHFE and LME aluminium will show the same trend, and may face downside risks at high prices. It is necessary to be alert to the potential easing of the natural gas shortfalls in the future and supply from regions where energy costs are lower.  

Lead: LME lead prices closed at $2,267/mt, down $55.5/mt or 2.39%. The most-active SHFE 2202 lead contract closed at 15,475 yuan/mt, down 180 yuan/mt or 1.15%.

Zinc: Three-month LME zinc fell 0.76% to settle at $3,518/mt overnight, with open interest increasing 2,267 lots to 247,000 lots. Zinc stocks across LME-listed warehouses dropped by 500 mt or 0.25% to 203,400 mt. LME zinc is expected to move between $3,500-3,550/mt.

The most-liquid SHFE 2202 zinc contract rose 0.14% to settle at 24,455 yuan/mt overnight, with open interest increasing by 235 lots to 108,734 lots. The production costs at smelters increased amid the energy crisis in Europe, pushing higher zinc prices. Companies intended to reduce the output amid falling profits and collection of funds at the end of the year. Zinc prices are unlikely to fall amid high electricity prices in Europe. The most-traded zinc contract is expected to move between 24,000-24,500 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 10-30 yuan/mt over the January contract.

Tin: The SHFE 2202 tin contract became the most-traded contract and rose overnight. Domestic warrant inventories decreased slightly, while overseas inventories rebounded. The SHFE 2202 tin contract is expected to hover sideways amid stable spot market.

Nickel: European energy issues have driven the prices of aluminium and zinc to continue to rise, while nickel prices lacked impetus to rise yesterday. The SHFE 2202 nickel contract closed at 148,140 yuan/mt, an increase of 670 yuan/mt or 0.45% from the settlement price of the previous trading day.  Trading volume was 102,000 lots and open interest was 149,000 lots. From the current nickel fundamentals, there is no reversal of low inventory and weak consumption. Therefore, the nickel prices have continued to fluctuate widely in the past two months. Therefore, the nickel prices are expected to remain rangebound before there is a clear directional guidance. However, due to macro factors, the nickel price volatility will rise today.