SMM Morning Comments (Nov 11): Base Metals Closed Mostly with Gains on Mounting Expectations on Easing US Rate Hike

SHANGHAI, Nov 11 (SMM) – LME and SHFE base metals closed mostly with gains overnight. The US October CPI data released last night dropped to 7.7%, hitting a year-to-date low. The previous value was 8.2%, and the expected value was 7.9%. The market firmly believes that the US Fed will slow down the rate hikes.

LME copper added 2.25%, aluminium lost 0.45%, lead gained 1.6%, and zinc jumped 0.82%.

SHFE copper added 0.95%, aluminium rose 0.56%, lead gained 0.42%, and zinc jumped 0.25%.

Copper: LME copper opened at $7,996/mt on Thursday and fluctuated upward, once hitting $8,315/mt. At last, the contract closed at $8,263/mt, up 2.25%. Trading volume was 25,000 lots, and open interest stood at 246,000 lots.

The most traded SHFE 2212 copper opened at 66,550 yuan/mt overnight and climbed to 67,500 yuan/mt after dropping to 66,500 yuan/mt. At last, it closed at 67,270 yuan/mt, up 0.95%. Trading volume was 87,000 lots, and open interest stood at 200,000 lots.

On the macro front, the US October CPI data released last night dropped to 7.7%, hitting a year-to-date low. The previous value was 8.2%, and the expected value was 7.9%. The market firmly believes that the US Fed will slow down the rate hikes. The US dollar slumped 2.31% overnight, which was bullish for copper prices. In terms of crude oil, the sharp drop in the US dollar also boosted the crude oil market, with US oil closing up 0.44% and Brent Crude closing up 0.72%.

On the fundamentals, LME copper inventories fell 950 mt to 80,025 mt on November 10. In China, the inventory in Guangdong fell sharply again, heading towards the year-to-date low level, and some imported copper failed to arrive on time this week. Therefore, the domestic copper supply remained tight. Terminal and downstream companies were reluctant to purchase as copper prices continue to maintain an upward trend. In terms of spots, approaching the delivery of the SHFE 2211 copper, some holders are waiting for warrant delivery, and the market witnessed few goods available. Copper prices are expected to remain rangebound at high levels amid easing pressure from the US dollar and supply tightness.

Aluminium: The most-traded SHFE 2212 aluminium contract opened at 18,490 yuan/mt overnight, with its low and high at 18,475 yuan/mt and 18,945 yuan/mt before closing at 18,695 yuan/mt, up 105 yuan/mt or 0.56%.

LME aluminium opened at $2,333.5/mt on Thursday, with its high and low at $2,335/mt and $2,317.5/mt respectively before closing at $2,323/mt, a decrease of $10.5/mt or 0.45%.

On the supply side, the operating capacity in Sichuan province has been slightly restored, but is unlikely to fully recover by the end of the year due to tight hydropower supply in the dry season. The resumption of idled capacity in Guangxi province was slow, and the release of new capacity in Guizhou and Inner Mongolia fell short of expectations. On the demand side, domestic aluminium downstream consumption is still weak. Operating rates of aluminium plate/sheet, strip, foil and extrusion enterprises have started to decline due to the pandemic and insufficient orders. However, domestic aluminium inventories have repeatedly hit new lows due to limited arrivals. It is expected that SHFE aluminium will stay firm in the short term.

Lead: Overnight, LME lead opened at $2,065/mt. During the Asian trading hours, LME lead prices fluctuated between $2,055-2,070/mt. In the European trading hours, the US dollar index was strong and prices of non-ferrous metals were suppressed. LME lead prices fell to around $2,030/mt. After the US CPI was released, US dollar index fell, and LME lead prices rebounded and closed at $2,094/mt, an increase of 1.6%.

The most traded SHFE 2212 lead contract opened at 15,555 yuan/mt overnight. As the inventory of SHFE lead warrants increased as expected, the SHFE lead fell rapidly to 15,455 yuan/mt. But boosted by the LME lead, SHFE lead stood at 15,500-15,550 yuan/mt and finally closed at 15,520 yuan/mt, up 0.42%, with the open interest down 693 lots to 58,660 lots. The warrants inventory of SHFE lead ingot was 33,156 mt yesterday, up 402 mt from the previous day.

Zinc: LME zinc closed at $2,879.5/mt on Thursday, up $23.5/mt or 0.82%. The open interest fell 2,035 lots to 198,000 lots. Overnight LME inventory fell 575 mt to 43,050 mt, staying low.

The most traded SHFE 2212 zinc contract closed at 23,640 yuan/mt overnight, up 60 yuan/mt or 0.25%. The open interest fell 221 lots to 94,649 lots. On the supply side, the smelters gradually resumed the production on improving profits, but the social inventory of zinc ingot rose quite slowly, with palpable accumulation expected in the future. The consumption side remained weak. In the spot market, sources available in the market picked up slightly, hence the premiums fell. The market players were generally wait-and-see. To sum up, SHFE zinc is supported by the macro front and low inventory, and is likely to keep rangebound in the near future. The supply side is worth attention.

Overnight, the unadjusted U.S. October CPI recorded an annual rate of 7.7%, a nine-month low; core CPI growth also fell from September's 40-year high. The Wall Street Journal reporter Nick Timiraos: October's inflation report may make the Fed on track to a 50 basis point hike in interest rates next month. Officials have hinted that they are somewhat insensitive to recent inflation data and want to slow down the pace of rate hikes. The US Treasury said that some recent foreign exchange reserves by some countries were justified and that the dollar's appreciation was mainly driven by US economic development and that no country has been designated as a manipulator of the exchange rate. A report by the Russian Energy Development Centre showed that Russian oil production could fall by 1.5-1.7 million barrels per day to 9 million barrels per day in December. The Standing Committee of the Political Bureau of the Central Committee of the Communist Party of China held a meeting to hear a report on the prevention and control of the COVID pandemic and launched twenty measures to further optimise the prevention and control work.

Tin: SHFE tin climbed above 170,000 yuan/mt overnight as more longs entered. The domestic tin inventory under warrants fell. Spot premiums remained low. LME tin inventories fell significantly, mainly driven by Asia. Overseas premiums rose. Import profit may decline sharply, and the import window is likely to gradually close. The price rally was driven by lower inventory. However, due to poor demand, tin prices may still hover at lows.

Nickel: On the supply side, the spot prices of pure nickel bounced back to 200,000 yuan/mt. Due to the high nickel prices, upstream shipments were poor. Imports losses continued amid the fluctuations of domestic and overseas futures prices. In terms of NPI, the NPI plants’ insistence on high quotes weakened amid the weak downstream demand. On the demand side, according to SMM research, with steel mills’ restriction on low quotes of #304 in the Wuxi market, the spot prices slightly increased yesterday, but the prices were still lower than expected. With the cancellation of the price limit, the spot quotes continued to decline. In terms of alloys, nickel demand from the civil alloy decreased again as the civil alloy market entered the off-season and nickel prices remain high. Supply and demand of nickel are both weak, but the prices have been greatly affected by the macro factors and frequent news recently. Short-term nickel prices will fluctuate sharply.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]