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SMM Morning Comments (Dec 1): Base Metals Closed with Gains on Powell Suggesting Slowing US Rate Hikes
Dec 1, 2022 10:00CST
Source:SMM
LME and SHFE base metals closed with gains overnight. On the macro front, Powell confirmed a slower pace of interest rate hikes from December at the earliest, supporting continued rate hikes and peak interest rates potentially higher than expected.

SHANGHAI, Dec 1 (SMM) – LME and SHFE base metals closed with gains overnight. On the macro front, Powell confirmed a slower pace of interest rate hikes from December at the earliest, supporting continued rate hikes and peak interest rates potentially higher than expected.

LME copper gained 3%, aluminium rose 4.6%, lead jumped 2.06%, and zinc advanced 3.51%.

SHFE copper gained 1.16%, aluminium added 1.89%, lead rose 0.19%, and zinc advanced 1.8%.

Copper: LME copper opened at $8,178/mt on Wednesday and climbed after dropping to $8,165/mt. At last, the contract closed at $8,285/mt, up 3%. Trading volume was 22,000 lots, and open interest stood at 241,000 lots.

SHFE 2301 copper opened at 65,620 yuan/mt overnight, hitting the highest and lowest of 65,710 yuan/mt and 65,150 yuan/mt. And then, it fluctuated upward narrowly. At last, it closed at 65,540 yuan/mt, up 1.16%. The trading volume was 59,000 lots, and open interest stood at 148,000 lots.

On the macro front, US Fed Chairman Powell said in his speech yesterday that the Fed is preparing to slow down rate hikes at the December meeting, and the market reacted immediately. The US dollar index closed down sharply by 0.78%, which was bullish for copper prices. In terms of crude oil, the US API and EIA crude oil inventories announced yesterday dropped by 7.85 million barrels and 12.58 million barrels respectively, surpassing expectations. US oil closed up by 2.93%, and Brent Crude closed up by 2.98%, which also boosted copper prices.

In terms of fundamentals, according to SMM research, two newly expanded smelters in central and south China have recently produced a small amount of copper cathode. It is expected that the monthly output in China will increase month-on-month in December. On the demand side, the aided real estate policies and the relaxation of COVID-19 control measures failed to boost the processing industry. On the contrary, some manufacturers have early holidays due to the approach of the CNY holiday. Copper prices remained rangebound with some ups yesterday owing to the favourable real estate-related policy and the relaxed COVID-19 control measures even though the supply was in surplus. It is expected that copper prices will fluctuate with some upward potential.

Aluminium: The most-traded SHFE 2301 aluminium contract opened at 19,025 yuan/mt overnight and rose to 19,180 yuan/mt before closing at 19,150 yuan/mt, up 355 yuan/mt or 1.89%.

LME aluminium opened at $2,377.5/mt on Wednesday and closed at $2,491/mt, an increase of $109.5/mt or 4.6%.

The domestic operating aluminium capacity rose slightly in recently. Orders in the aluminium processing sectors continued to fall in the traditional off-season. Although relaxed pandemic controls boosted market sentiment, relatively poor fundamentals will prevent aluminium prices from rising. Thus, the short-term aluminium prices may move rangebound.

Lead: LME lead remained low after opening on Wednesday, and the then rose before hovering around $2,196/mt. The contract finally closed the session with an increase of 2.06%.

The most traded SHFE 2301 contract fell quickly after opening moderately high, and then stayed low. The contract closed the night session at 15,770 yuan/mt up 0.19%.

Zinc: LME zinc closed at $3,034.5/mt on Wednesday, up $103/mt or 3.51%. The open interest added 1,114 lots to 203,000 lots. LME zinc inventory fell 125 mt to 41,300 mt.

The most traded SHFE 2301 zinc contract closed at 24,275 yuan/mt overnight, up 430 yuan/mt or 1.8%. The open interest added 8,043 lots to some 118,000 lots. On the supply side, the arrivals in the market were affected by the pandemic to some extent, but the supply is expected to remain stable considering the cargoes in transport. On the consumption side, the boost from real estate needs to be vilified. On the whole, SHFE zinc is likely to rise in the near term with booming sentiment on expected easing pandemic control measures in China.

Overnight, Xinhua News Agency distributed another article that it is necessary to keep prevention and control measures up to date with changes in the pandemic situation, with major adjustments in Beijing and Guangzhou. Powell confirmed a slower pace of interest rate hikes from December at the earliest, supporting continued rate hikes and peak interest rates potentially higher than expected. The US ADP employment rose by 127,000 in November, the lowest level in nearly two years. JOLTS job openings fell in October, with the voluntary resignation rate hitting the lowest since May 2021.

Tin: Overnight, SHFE tin hovered narrowly after opening slightly higher, and closed at around 186,000 yuan/mt. Capital continued to flow out of the market. The domestic tin inventory under SHFE warrants increased significantly. Trades in the spot market were poor. LME tin inventories remained unchanged. Overseas premium rose slightly. Import losses expanded. With weak supply and demand performance and cautious sentiment, SHFE tin is likely hover sideways.

Nickel: On the supply side, the difference between domestic and overseas nickel prices has not yet recovered, and imports of pure nickel suffered a large loss. End-of-month factor and the long-term import losses tightened the spot pure nickel supply in the market. NPI inventory kept growing in November, suppressing the NPI prices day by day. On the demand side, according to SMM research, the spot stainless steel trading was sluggish, and there was still a certain price difference between the traded prices and the traders’ quotes. The rigid demand for pure nickel from military alloy companies still existed, but the demand from the civil alloy sector remained poor. To sum up, the supply of pure nickel was tight. Indonesia's export tariff has not taken effect, so 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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