SMM Morning Comments (Nov 24): Base Metals Closed Mostly with Gains on Expectations of Easing US Rate Hike

SHANGHAI, Nov 24 (SMM) – LME and SHFE base metals closed mostly with gains overnight. On the macro front, the economic data released on Wednesday increased the market expectations for the Fed to slow down interest rate hikes, followed by the Fed's November meeting minutes, which showed that most Fed policymakers agreed to slow down the pace of interest rate hikes soon.

LME copper rose 0.4%, aluminium lost 1.89%, lead added 1.97%, and zinc gained 0.5%.

SHFE copper fell 0.2%, aluminium lost 0.13%, lead added 0.54%, and zinc gained 0.64%.

Copper: LME copper opened at $8,005/mt on Wednesday and then dropped to a low of $7,956/mt before climbing to $8,038.5/mt. At last, the contract closed at $8,027.5/mt, up 0.4%. Trading volume was 10,000 lots, and open interest stood at 243,000 lots.

SHFE 2301 copper opened at 64,630 yuan/mt overnight and rose to 65,080 yuan/mt before hitting a low of 64,380 yuan/mt. At last, it closed at 64,580 yuan/mt, down 0.2%. Trading volume was 25,000 lots, and open interest stood at 139,000 lots.

On the macro front, the economic data released on Wednesday increased the market expectations for the Fed to slow down interest rate hikes, followed by the Fed's November meeting minutes, which showed that most Fed policymakers agreed to slow down the pace of interest rate hikes soon. The dollar index eventually closed down 0.96% overnight.

On the fundamentals, the inventory in Guangdong fell again, and the spot premiums in south China kept rising amid scarce sources available in the market. The premiums of standard-quality copper once hit a high of 750 yuan/mt, attracting cargoes from Shanghai to Guangdong, and the premiums in Shanghai remained firm as well. On the consumption side, downstream orders on rigid demand picked up after copper prices fell, but the increase was limited. Meanwhile, the resurging pandemic further weighed on the consumption.

Aluminium: The most-traded SHFE 2212 aluminium contract opened at 18,820 yuan/mt overnight and rose to 18,990 yuan/mt before closing at 18,925 yuan/mt, down 25 yuan/mt or 0.13%.

LME aluminium opened at $2,433/mt on Wednesday and closed at $2,390/mt, down $46/mt or 1.89%.

There has been little disturbance to the domestic supply and demand side recently. Production resumptions of smelters remained slow, while downstream buyer still restocked as needed. In the short term, market players need to monitor any possible change in domestic supply-demand balance. It is expected that aluminium prices will fluctuate weakly today.

Lead: LME 3M contract opened at $2,092/mt, and then hit a low of $2,083/mt before rising to the high of $2,123.5/mt in Asian trading hours. The contract finally closed at #2,123/mt, up 1.97%. The open interest added 415 lots to 99,309 lots.

Overnight, the most-traded SHFE 2301 opened at 15,660 yuan/mt, and then dropped to 15,610 yuan/mt. The contract then rallied to 15,800 yuan/mt before closing at 15,665 yuan/mt, up 0.54%. The open interest added 4,189 lots to 92,063 lots.

Zinc: LME zinc closed at $2,908/mt on Wednesday, up $14.5/mt or 0.5%. The open interest rose 482 lots to 203,000 lots. Overnight LME inventory lost 100 mt to 41,975 mt.

The most traded SHFE 2301 zinc contract closed at 23,690 yuan/mt overnight, up 150 yuan/mt or 0.64%. The open interest added 6,698 lots to some 102,000 lots. On the supply side, SHFE/LME grew to a high again, and the import profits of zinc concentrate remained at 500-1,000 yuan/mt in theory. Based on the restocking pace of smelters, most smelters will have abundant raw materials until the first quarter of 2023 if they lock the price ratio in advance.

Overnight, the minutes of the Fed's November meeting showed that the "vast majority" of officials believe that slowing the pace of interest rate hikes "will soon be appropriate" and that the ultimate target for the federal funds rate has become more important than the speed of rate increases. With interest rates expected to peak at higher levels, the three major U.S. stock indexes ended the session with gains. The EU is considering imposing a price cap of $65-70 per barrel on Russian oil. The Eurozone's preliminary manufacturing PMI registered 47.3 in November, remaining in the contraction zone for five months in a row, dragging on overall economy down, but it was better than the expected value of 46. The US Markit preliminary manufacturing PMI came in at 47.6 in November, a 30-month low.

Tin: SHFE tin fell overnight, but found support at 180,000 yuan/mt. Capital continued to exit from the most-traded SHFE tin contract, while the increase in the open interest of distant month contracts slowed down. Domestic tin inventory under warrants remained stable. Spot premiums barely changed. Trades in the spot market declined. LME tin inventories dropped slightly, contributed by Asia and North America. Overseas premiums fell back, and the import window was still closed. Given the stable fundamentals and poor market sentiment, SHFE tin may hover at lows. 

Nickel: On the supply side, the spot transactions were muted amid high SHFE zinc yesterday morning, and the imports still suffered losses amid wide SHFE-LME spread. For NPI, domestic NPI market was squeezed by the large inflow of Indonesian NPI, and the prices were further weighed on by the weakening demand. On the demand side, the transportation of raw materials and finished stainless steel was both hindered by the repeating pandemic across the country, and the terminal demand remained poor. For alloy, the military alloy sector still had rigid demand, but the civil alloy was contained by high nickel prices. To sum up, weak supply and demand of pure nickel are unable to firmly support 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.]