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SMM Morning Comments (Nov 18): Base Metals Closed Mostly with Losses on Hawkish Signs Delivered by US Fed Official
Nov 18, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mostly with losses as St. Louis Fed President Bullard’s hawkish speech on Thursday led to a rebound in the US dollar of 0.36% overnight, which was bearish for base metals prices.

SHANGHAI, Nov 18 (SMM) – LME and SHFE base metals closed mostly with losses as St. Louis Fed President Bullard’s hawkish speech on Thursday led to a rebound in the US dollar of 0.36% overnight, which was bearish for base metals prices.

LME copper fell 1.74%, aluminium lost 0.62%, lead slid 0.88%, and zinc shed 1.57%.

SHFE copper fell 0.8%, aluminium rose 1.01%, lead slid 0.13%, and zinc gained 0.27%.

Copper: LME copper opened at $8,216/mt on Thursday and consolidated after falling to $8,101/mt. At last, the contract closed at $8,118/mt, down 1.74%. The trading volume was 18,000 lots, and open interest stood at 264,000 lots.

SHFE 2212 copper opened at 66,210 yuan/mt overnight and once dropped to the lowest of 65,650 yuan/mt. At last, it closed at 65,750 yuan/mt, down 0.8%. The trading volume was 41,000 lots, and open interest stood at 153,000 lots.

On the macro front, St. Louis Fed President Bullard’s hawkish speech on Thursday led to a rebound in the US dollar of 0.36% overnight, which was bearish for copper prices. Demand concerns and the rebound of the US dollar have suppressed the oil prices, thus the US oil and Brent Crude closed down by 4.12% and 3.02% respectively, which was also bearish for copper prices.

In terms of fundamentals, LME copper stocks increased by 250 mt to 89,925 mt. In China, as the SHFE/LME copper price ratio continued to decline, the import market trading was slack, hence the inflow of imported copper will be relatively limited. On the demand side, copper prices have bounced back in recent days, gradually arousing downstream buying interest, but downstream buyers lowered their prices due to the bearish outlook. In terms of spots, the delivery warrants did not flow out in large quantities, and the spot traders preferred the deliverable goods. Besides, the supply of high-quality and standard-quality copper remains tight, which offers certain support to the spot premiums. Recently, copper prices have temporarily lost the gains and remain rangebound.

Aluminium: Overnight, the most-traded SHFE 2212 aluminium contract opened at 18,915 yuan/mt, with its low and high at 18,880 yuan/mt and 19,170 yuan/mt before closing at 19,065 yuan/mt, up 190 yuan/mt or 1.01%.

LME aluminium opened at $2,412/mt on Thursday, with its high and low at $2,419.5/mt and $2,361/mt respectively before closing at $2,379/mt, a drop of $15/mt or 0.62%.

With the suspension of production reduction and the continued production resumption, the bullish expectations have weakened. Coal prices have been under pressure recently, thus cost support has also declined. The driving force for aluminium prices will come from the improvement of macro sentiment and expected demand recovery. As the domestic bullish factors continue to be digested, the short-term aluminium prices are expected to fluctuate around 19,000 yuan/mt before the US Fed raises interest rate again.

Lead: LME lead opened at $2,164.5/mt last night and fell $19/mt or 0.88% to $2,141/mt, after hitting the lowest point at $2,135/mt and the highest point at $2,169.5/mt.

The most-traded SHFE 2212 lead contract opened at 15,635 yuan/mt and fell 20 yuan/mt or 0.13% to 15,600 yuan/mt overnight, after briefly hitting the highest point at 15,720 yuan/mt.

Zinc: LME zinc closed at $3,008/mt on Thursday, down $48/mt or 1.57%. The open interest remained flat at 214,000 lots. Overnight LME inventory lost 50 mt to 42,750 mt, down 0.12%.

The most traded SHFE 2212 zinc contract closed at 24,310 yuan/mt overnight, up 65 yuan/mt or 0.27%. The open interest lost 933 lots to 85,706 lots. On the supply side, the November refined zinc output is likely to add merely 5,000 mt to 519,100 mt due to environmental protection requirements in Sichuan and pandemic in Qinghai, and the new forecast was 18,200 mt less than the previous one. On the consumption side, the sales of galvanized pipe contracted due to falling stainless steel prices, and the finished production inventory accumulated. In the spot market, the transactions picked up slightly after zinc ingot ices fell, but the trading market in north China was still muted. On the whole, SHFE zinc price is likely to rise to some extent with less-than-expected output growth and low inventory.

Overnight, Xi Jinping: we oppose the politicisation and weaponisation of economic and trade relations, and the Asia-Pacific region should not become a gladiatorial arena for major powers. The Fed's Bullard: the peak interest rate is likely to be between 5%-7%. The US initial jobless claims fall last week, tech firm’s extensive layoffs did not change the tight job market. The UK tax hike looms and the living standards face record blow. The Russian missiles hit hard as Russian forces step up attacks on Ukraine's energy infrastructure.

Tin: Overnight, SHFE tin went down after opening slightly lower, but closed above 180,000 yuan/mt. A large amount of capital left the market. Affected by weak transaction in the spot market, the domestic tin inventory accumulated further. LME tin inventories remained stable. Overseas premiums dropped slightly, and the import profit window has gradually closed. The continuous arrival of imported tin will intensify supply pressure. Poor sentiment and increasing inventory will prevent tin prices from rising.

Nickel: On the supply side, spot imports of pure nickel suffered losses as the SHFE/LME price ratio did not rise. In terms of domestic pure nickel, spot prices remained high even though the nickel prices slumped, which hindered the upstream shipments. In terms of NPI, with the emergence of guided transaction prices and the weakening of the downstream market, the quotations of NPI factories dropped slightly, but with the approaching losses, the NPI plants were less willing to ship. NPI prices are expected to remain rangebound with some declines in the short term. On the demand side, according to SMM research, the spot prices of stainless steel in the Wuxi and Foshan markets fell slightly due to the pandemic outbreaks. Besides, stainless steel output increased a lot in October, and the production pace was normal, so the traders’ inventory gradually accumulated. Orders from the civil alloy sector were fewer. In general, the supply and demand are slightly weakened, which may not prop up nickel prices strongly.

[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.]


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