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SMM Morning Comments (Nov 28): Base Metals Closed Mixed on Expectations of Slowing Rate Hikes
Nov 28, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed mixed last Friday. On the macro front, the recent US economic data has generally performed poorly, and the minutes of the US Fed’s November monetary policy meeting was dovish. The market expects the Fed to slow down its rate hike in December.

SHANGHAI, Nov 28 (SMM) – LME and SHFE base metals closed mixed last Friday. On the macro front, the recent US economic data has generally performed poorly, and the minutes of the US Fed’s November monetary policy meeting was dovish. The market expects the Fed to slow down its rate hike in December.

LME copper fell 0.42%, aluminium lost 0.13%, lead slid 0.54%, and zinc rose 0.86%.

SHFE copper gained 0.02%, aluminium lost 0.61%, lead was flat, and zinc rose 0.34%.

Copper: LME copper opened at $8,136.5/mt last Friday, and once hit the highest and lowest of $8,141.5/mt and $7,984.5/mt respectively. At last, the contract closed at $7,990/mt, down 0.42%. Trading volume was 6,000 lots, and open interest stood at 244,000 lots.

The most traded SHFE 2301 copper opened at 65,360 yuan/mt last Friday night and fell to 64,870 yuan/mt after climbing to 65,610 yuan/mt. At last, it closed at 65,030 yuan/mt, up 0.02%. The trading volume was 39,000 lots, and open interest stood at 147,000 lots.

On the macro front, the recent US economic data has generally performed poorly, and the minutes of the US Fed’s November monetary policy meeting was dovish. The market expects the Fed to slow down its rate hike in December. In addition, benefiting from the hawkish remark of the Bank of England, the pound rose sharply against the US dollar on a weekly basis, and the dollar fell 0.84% last week.

In terms of fundamentals, according to SMM research, Chinese smelters and Freeport set the copper concentrate TC and RC at $88/mt and $0.088/lb, up $23/mt from 2022, creating a new high since 2017. It can be seen that the supply of copper concentrate will be abundant in 2023, and the smelting output will increase with the commissioning of new smelters. On the demand side, orders from many companies began to fall towards the end of the month, and the recent stricter pandemic control measures in various places have had a greater impact on the real economy, reducing downstream consumption to a certain extent. In terms of prices, although the People's Bank of China lowered the deposit reserve ratio last Friday, the market is more worried about the damage to consumption caused by COVID-19, hence copper prices fell after surging. SMM expects this trend to continue this week, and copper prices are likely to fall.

Aluminium: The most-traded SHFE 2301 aluminium contract opened at 18,915 yuan/mt at last Friday’s night session and rose to 18,960 yuan/mt before closing at 18,780 yuan/mt, down 115 yuan/mt or 0.61%.

LME aluminium opened at $2,380/mt last Friday and closed at $2,365/mt, down $3/mt or 0.13%.

On the supply side, production in Sichuan and Guangxi resumed, slightly driving up the domestic operating capacity. On the demand side, orders in aluminium processing sectors were poor in the traditional off-season, which will hardly sustain the rise in aluminium prices. As the overall fundamentals are relatively stable, the short-term aluminium prices may move rangebound.

Lead: Last Friday, LME lead fell after opening. During the session, LME lead gradually increased, but finally dropped 0.54% and closed at $2,122/mt.

SHFE 2301 lead contract opened at 15,625 yuan/mt last Friday and hovered sideways during the session.

Zinc: LME zinc closed at $2,930.5/mt Last Friday, up $25/mt or 0.86%. The open interest fell 408 lots to 202,000 lots.

The most traded SHFE 2301 zinc contract closed at 23,700 yuan/mt last Friday night, up 80 yuan/mt or 0.34%. The open interest added 5,388 lots to some 109,000 lots. On the fundamentals, the downstream consumption remained poor, and the social inventory dropped further despite being low. In addition, the RRR cut had a limited boost to the market. And SHFE zinc is likely to remain rangebound for the lack of strong upside momentum.

Tin: SHFE tin fell after opening lower at last Friday’s night session, but found support at 180,000 yuan/mt and then rallied slightly. Capital continued to exit from the most-traded SHFE tin contract, but the increase in the open interest of distant-month contracts slowed down. The domestic tin ingot social inventory accumulated further last week. Transactions in the spot market were relatively weak. LME tin inventories fell last week. Overseas premiums remained low. The import window remained closed. Imported tin was still quoted at discounts. Given the stable supply-demand dynamics and low willingness of investors to enter the market, SHFE tin is expected to move sideways.

Nickel: SHFE nickel prices hovered around high levels last week. On the evening of November 23, the US Department of Labor announced that the number of initial jobless claims in the previous week was 240,000, higher than the forecast of 225,000 and the previous reading of 223,000. This indicates that the current US job market is in recession and the macro economy weakens. Expectations of slowing rate hikes in the future may enhance and the US dollar index will weaken, which will be bullish for commodity prices. On the news front, the Indonesian government plans to popularise the export tariff policy of NPI to the public this week. The proportion of tariffs will vary according to price fluctuations of coal and LME nickel, with the highest of 12%. On the supply side, SHFE nickel prices continued to fluctuate. The spot premiums in Shanghai remained stable, hindering upstream shipments. In terms of NPI, because of the potential production cut of steel mills in Indonesia, the inflow of Indonesia NPI to China will increase further while the downstream consumption will be sluggish. Therefore, the Indonesian tariff may not strongly prop up NPI prices. On the demand side, in Wuxi, the amount of Delong cold-rolled and hot-rolled stainless steel held by agents decreased, and the goods were shipped to the Foshan market for delivery. The current spot supply could meet the downstream demand. In the alloy sector, high nickel prices still suppressed the demand for pure nickel from civil alloy producers. To sum up, the supply and demand of pure nickel remained weak last week, and the Indonesian tariff has not yet been implemented. Short-term nickel prices will remain rangebound.

[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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