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SMM Morning Comments (Nov 23): Base Metals Closed Mixed on Falling Crude Prices and US Dollar
Nov 23, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mixed overnight on falling crude oil prices as well as the US dollar index. Today the market needs to pay attention to the US manufacturing PMI index, which can be regarded as one of the basis for the US Fed's next rate hike.

SHANGHAI, Nov 23 (SMM) – LME and SHFE base metals closed mixed overnight on falling crude oil prices as well as the US dollar index. Today the market needs to pay attention to the US manufacturing PMI index, which can be regarded as one of the basis for the US Fed's next rate hike.

LME copper rose 1.27%, aluminium gained 2.35%, lead lost 1.28%, and zinc shed 0.77%.

SHFE copper rose 0.7%, aluminium gained 0.58%, lead edged up 0.03%, and zinc shed 0.64%.

Copper: LME copper opened at $8,019/mt on Tuesday and dropped to a low of $7,978.5/mt after climbing to $8,090/mt. At last, the contract closed at $7,995.5/mt, up 1.27%. Trading volume was 17,000 lots, and open interest stood at 245,000 lots.

SHFE 2301 copper opened at 64,640 yuan/mt overnight and declined to 64,680 yuan/mt after hitting a high of 65,080 yuan/mt. At last, it closed at 64,750 yuan/mt, up 0.7%. Trading volume was 33,000 lots, and open interest stood at 134,000 lots.

On the macro front, the US dollar lost some of its gains on Tuesday and closed down by 0.6%, which was bullish for copper prices. Today the market needs to pay attention to the US manufacturing PMI index, which can be regarded as one of the basis for the US Fed's next rate hike. WTI closed up by 1.32%, and Brent Crude closed up by 0.64%, which also boosted copper prices.

On the fundamentals, LME copper inventories added 625 mt to around 91,900 mt. SMM weekly inventory data suggested that domestic inventory also bounced back to around the 120,000 mt, easing the tightness of inventory. However, due to the tight supply of copper cathode in Guangdong, the premiums in south China remained high, expanding the spread between Shanghai and Guangdong. Volume of orders grew driven by the downstream rigid demand amid the falling copper prices this week. Yesterday, the spot market trading was vigorous, and the downstream buying interest was strong. Copper prices may fall further with weaker fundamental support even though the prices have rebounded because of the weakening of US dollar index.

Aluminium: The most-traded SHFE 2212 aluminium contract opened at 18,960 yuan/mt overnight and rose to 19,075 yuan/mt before closing at 19,040 yuan/mt, up 110 yuan/mt or 0.58%.

LME aluminium opened at $2,387/mt on Tuesday and closed at $2,436/mt, an increase of $56/mt or 2.35%.

Recently, the domestic pandemic has worsened, thus transportation will continue to be hampered. Production was little affected by the pandemic. Supply was ample in some regions, but trades were poor. Downstream buyers restocked mainly as needed. SHFE aluminium is expected to fall back amid poor demand.

Lead: LME lead opened at $2,109/mt and dropped 1.28% to $2,082/mt last night, after hitting the highest point at $2,128.5/mt. The open interest decreased 1,620 lots to 98,894 lots from the previous trading day.

The most-traded SHFE 2301 lead contract opened at 15,700 yuan/mt and closed at 15,740 yuan/mt, up 0.03%, after briefly hitting the lowest point at 15,650 yuan/mt and the highest point at 15,800 yuan/mt. The open interest increased by 2,084 lots to 95,661 lots from the previous trading day.

Zinc: LME zinc closed at $2,893.5/mt on Tuesday, down $22.5/mt or 0.77%. The open interest rose 305 lots to 203,000 lots. Overnight LME inventory lost 350 mt to 42,075 mt. Constantly falling LME inventory offered some support to LME zinc.

The most traded SHFE 2212 zinc contract closed at 23,365 yuan/mt overnight, down 150 yuan/mt or 0.64%. The open interest added 7,842 lots to some 90,000 lots. On the supply side, the smelters that were closed due to environmental protection reasons gradually resumed the production this week. On the consumption side, Guangdong, a major producing area of die-casting zinc alloy, was marginally affected by the resurging pandemic, and the demand for zinc ingot was reduced. In the spot market, the current supply was able to meet the demand. On the whole, the fundamentals weakened slightly from a day ago, but could still offer some support to SHFE zinc.

Overnight, the World Steel Association said global crude steel production in October 2022 was flat year-on-year at 147.3 million mt. The global crude steel production from January to October 2022 was 1,552.7 million mt in aggregate, down 3.9% year-on-year. Among them, Chinese crude steel production was 79.8 million mt in October, an increase of 11% year-on-year. The China National Energy Administration said that by the end of October, the country's cumulative installed power generation capacity was about 2.50 billion kilowatts, an increase of 8.3% year-on-year. EU plans to relax Russian oil price cap, giving a 45-day grace period and easing shipping terms. The oil price cap level may be set at around $60/bbl, which will be announced as early as this Wednesday night. The European Commission raised its benchmark natural gas price cap to 275 euros per megawatt hour, but the proposed cap still needs to be approved by EU governments.

Tin: SHFE tin went up after opening higher overnight, and rose to around 183,000 yuan/mt. Investors continued to roll their positions onto distant-month contract. Domestic tin inventory under warrants declined. After tin prices fell, transactions in the spot market picked up, while spot premiums remained stable. LME tin inventories dropped again. Overseas premiums fell back, and the import window was closed. Given the stable supply-demand dynamics and low willingness of investors to enter the market, SHFE tin is expected to move sideways.

Nickel: In terms of fundamentals, the spot prices of pure nickel stood high amid the surging futures prices yesterday, but the upstream shipments were not smooth. Spot imports still suffered losses even though the SHFE/LME price ratio rose to 7.96. In terms of NPI, the imports of Indonesia NPI will grow as Indonesia steel mills cut their production. However, under the weak market demand, NPI supply will be in surplus. On the demand side, according to SMM research, the agent volume of Delong cold-rolled and hot-rolled coils in the Wuxi market has decreased. And the current spot supply can meet downstream demand. Recently, a number of steel mills have started to reduce their production, mainly due to the continuous sluggish downstream demand. They suffered huge cost pressure and got high in-plant inventories. Orders from civil producers were still fewer. In general, the downstream demand 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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