SMM Morning Comments (Nov 21): Base Metals Closed Mostly with Gains

SHANGHAI, Nov 21 (SMM) – LME and SHFE base metals closed mostly with gains last Friday. On the macro front, the US dollar rose following US bond yields, mainly because the hawkish remarks of US Fed weakened the market’s expectations for a suspension of rate hikes.

LME copper fell 1.01%, aluminium rose 0.84%, lead added 0.82%, and zinc gained 0.48%.

SHFE copper fell 1.03%, aluminium rose 0.05%, lead added 0.35%, and zinc gained 0.86%.

Copper: LME copper opened at $8,062.5/mt last Friday and once dropped to the lowest of $8,023/mt. At last, the contract closed at $8,036/mt, down 1.01%. The trading volume was 18,000 lots, and open interest stood at 246,000 lots.

SHFE copper 2212 copper opened at 65,510 yuan/mt and trended lower to 65,150 yuan/mt. At last, the contract rose slightly and closed at 65,180 yuan/mt, down 1.03%. The trading volume was 39,000 lots, and open interest stood at 142,000 lots.

On the macro front, the US dollar rose following US bond yields, mainly because the hawkish remarks of US Fed weakened the market’s expectations for a suspension of rate hikes, which was bearish for copper prices. In terms of crude oil, due to concerns about the decline in demand in China and the continuous rise of the US dollar, Brent Crude fell 2.4%, and US oil dipped 1.9%, which was also bearish for copper prices.

On the fundamentals, LME did not restrict the delivery of Russian metals. LME copper inventory rose to 90,000 mt, and the proportion of registered warrants increased while that of cancelled warrants fell. The backwardation structure of the LME cash to 3M spread was shifted to the contango structure, and the risk of a short squeeze was lifted. SMM survey showed that as of last Friday, the social inventory across major Chinese markets totalled 128,000 mt, up 10,900 mt from last Monday. The support for copper prices from the fundamentals weakened. On the demand side, the decline in copper prices boosted downstream purchases on rigid demand, but the terminal consumption did not improve. New orders from the State Grid and real estate declined, and those from the NEVs industry also dropped due to the approaching cancellation of the NEVs subsidy. Copper prices will remain rangebound in the near future amid the easing macro factors and the weaker fundamentals.

Aluminium: The most-traded SHFE 2212 aluminium contract opened at 19,160 yuan/mt at last Friday’s night session and rose to 19,245 yuan/mt before closing at 19,080 yuan/mt, up 10 yuan/mt or 0.05%.

LME aluminium opened at $2,395/mt last Friday and closed at $2,415/mt, an increase of $20/mt or 0.84%.

Recently, the domestic pandemic situation has worsened, and the transportation efficiency declined. Stimulated by domestic favourable policies, aluminium prices jumped above 19,000 yuan/mt. However, higher prices and poor orders discouraged downstream purchases with arrival of the traditional off-season. SHFE aluminium is expected to remain firm in the short term, with market attention being focused on demand and impact of the pandemic.

Lead: LME lead opened at $2,140/mt and grew 0.82% to $2,158.5/mt last Friday, after hitting the lowest point at $2,134.5/mt and the highest point at $2,189/mt. The open interest increased 554 lots to 101,000 lots from the previous trading day.

The most-traded SHFE 2212 lead contract opened at 15,795 yuan/mt and closed at 15,720 yuan/mt, up 0.35%, after briefly hitting the highest point at 15,850 yuan/mt. The open interest decreased 1,084 lots to 43,712 lots from the previous trading day.

Zinc: LME zinc closed at $3,022.5/mt last Friday, up $14.5/mt or 0.48%. The open interest rose 2,338 lots to 203,000 lots. Overnight LME inventory lost 50 mt to 42,700 mt. Constantly falling LME inventory offered support to LME zinc.

The most traded SHFE 2212 zinc contract closed at 24,515 yuan/mt last Friday night, up 210 yuan/mt or 0.86%. The open interest added 1,097 lots to some 85,000 lots. Zinc smelting in Sichuan and Qinghai was cut to varying degrees due to pandemic and environmental-protection related restrictions, and tightening supply attracted the engagement of longs. On the whole, SHFE zinc is likely to be supported by relatively low inventory, but the consumption side and open import window will weigh on the prices to some extent.

Last Friday, the MLF steadily preceded, and Chinese one-year LPR rate in November is likely to remain unchanged, while the bet on the fall in five-year rate is roughly 20%. The U.S. October home sales fell 5.9% from a year earlier, falling for the ninth month in a row; home prices rose for a record 128 months in a row. US Federal Reserve Bank of Atlanta President Bostic said on Saturday that he was prepared to "forgo" a 75 basis point rate rise at the Fed's December meeting and believes the Fed's target policy rate needs to be raised by no more than one percentage point to deal with the inflation. Three ECB policymakers hinted at a slower pace of rate hikes, but an earlier start to tapering.

Tin: SHFE tin rebounded after opening lower at last Friday’s night session, and moved mostly at above 180,000 yuan/mt. Longs and shorts exited the market amid intensified wait-and-see sentiment. Last week, the domestic tin ingot social inventory continued to accumulate sharply. Trades in the spot market were weak. LME tin inventory fell slightly last week, mainly contributed by Asia. Overseas premiums fell back slightly. The import profit window was closed, but quotations of imported tin remained stable. With little disturbance to the supply and demand side and stronger caution, SHFE tin is expected to hover sideways at lows.

Nickel: On the macro front, on the evening of November 17, the US Department of Labour released that the number of initial claims for unemployment benefits in the US stood at 222,000, which was lower than the forecast of 225,000 and was lower than the previous value. This shows that the current US economy is still good and the interest rate hikes may not slow down, which is unfavourable for the prices of commodities. On the supply side, the SHFE/LME price ratio has not yet recovered. The imported spot pure nickel continued to suffer losses. Although SHFE nickel prices fell sharply, the spot prices of domestic pure nickel were still high, and shipments were not smooth. In terms of NPI, with the emergence of transactions that could be taken as guide prices and the weakening of the downstream market, the quotations offered by NPI plants dropped slightly. However, due to the possibility of losses, NPI plants were still less willing to lower their prices. NPI prices are likely to fall in the short term. On the demand side, according to SMM research, the spot prices of stainless steel in Wuxi and Foshan dropped slightly. As most processing plants were affected by the pandemic, downstream customers refrained from picking up the goods for the time being. Meanwhile, the output of steel mills increased significantly in October. Therefore, the inventory of traders increased. In terms of alloy sector, the orders for civil use were relatively small. In summary, the supply and demand of pure nickel continued to be weak, which can hardly provide support for the high nickel prices.

[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.]