SMM Morning Comments (Dec 5): Base Metals Closed All with Gains on Improving Market Expectations

SHANGHAI, Dec 5 (SMM) – LME and SHFE base metals closed with gains. As investors took profits ahead of the weekend and US Fed officials delivered speeches on the market outlook, the US dollar pared some of its previous gains and closed down 0.14%, which was bullish for metal prices.

In China, the measures for covid control have been adjusted across the country.

LME copper gained 1.34%, aluminium added 3.27%, lead jumped 1.42%, and zinc advanced 1.44%.

SHFE copper gained 1.09%, aluminium added 0.6%, lead inched jumped 1.11%, and zinc advanced 0.82%.

Copper: LME copper opened at $8,345/mt last Friday, once hitting the lowest and highest of $8,255.5/mt and $8,480/mt respectively. At last, the contract closed at $8,472/mt, up 1.34%. The trading volume was 22,000 lots, and open interest stood at 242,000 lots.

The most traded SHFE 2301 copper opened at 65,950 yuan/mt last Friday night and climbed to 66,670 yuan/mt after falling to 65,590 yuan/mt. At last, it closed at 66,550 yuan/mt, up 1.09%. The trading volume was 49,000 lots, and open interest stood at 144,000 lots.

On the macro front, the number of new jobs created in the US in November far exceeded expectations and wages also increased. The market began to doubt the expected slow pace of rate hikes. But as investors took profits ahead of the weekend and US Fed officials delivered speeches on the market outlook, the US dollar pared some of its previous gains and closed down 0.14%, which was bullish for copper prices.

On the fundamentals, as of last Friday December 2, SMM copper inventories in major Chinese markets decreased by 1,300 mt to 112,700 mt from last Monday. The arrivals of imported and domestic copper were limited last week, and downstream companies increased their purchases in December. Consumption may improve somewhat with the relaxation of COVID-19 control measures in various regions, but companies expect little change in consumption towards the end of the year. Improved macro factors may support the copper prices even though the supply and demand are both weak, thus the short-term prices will fluctuate with some upward potential.

Aluminium: The most-traded SHFE 2301 aluminium contract opened at 19,190 yuan/mt overnight and hit the highest since July at 19,365 yuan/mt before closing at 19,295 yuan/mt, up 115 yuan/mt or 0.6%.

LME aluminium opened at $2,477/mt last Friday and closed at $2,556/mt, an increase of $81/mt or 3.27%.

The optimisation of domestic pandemic controls may drive downstream consumption to recover a certain extent. Favorable real estate policies will also boost the demand for aluminium in the construction sector. Despite increasing production, the aluminium inventory hit a new low and will stay at a low level due to limited arrivals. Driven by positive macro sentiment and low inventories, it is expected that SHFE aluminium will rise further in the short term.

Lead: Last Friday, LME lead opened at U$2,174/mt, and the transactions in the morning were thin. LME lead basically fluctuated between $2,165-2,175/mt. After the US dollar index weakened, prices of base metals mostly rebounded, and LME lead also rose. Coupled with the low inventory, LME lead once rose to the highest point at $2,213/mt and finally closed at $2,213/mt, an increase of 1.42%.

Last Friday, driven by the destocking of domestic lead ingots, the most-traded SHFE 2301 lead contract opened at 15,770 yuan/mt and finally closed at 15,915 yuan/mt after hitting the highest point at 15960 yuan/mt, an increase of 1.11%. The open interest totalled 86843 lots, up 6,008 lots from the previous trading day.

Zinc: LME zinc closed at $3,107/mt last Friday, up $44/mt or 1.44%. The open interest fell 252 lots to 200,000 lots. LME zinc inventory fell 875 mt to 40,350 mt.

The most traded SHFE 2301 zinc contract closed at 24,710 yuan/mt last Friday night, up 200 yuan/mt or 0.82%. The open interest fell 757 lots to some 124,000 lots. On the supply side, the zinc ingot arrivals were delayed by the pandemic, and the social inventory kept falling. On the consumption side, the downstream operating rates remained low amid spreading pandemic, and the average operating rate in the galvanising sector has dropped significantly to 58.27%. In the spot market, the market players were mostly wait-and-see amid high zinc prices. On the whole, SHFE zinc will remain rangebound with constant boost from the macro front with easing pandemic control measures across the country.

On Friday, US seasonally-adjusted non-farm payrolls added 263,000 in November, against an estimate of 200,000 and a previous value of 261,000, putting an end to three consecutive months of decline. The unemployment rate remained unchanged at 3.7% for the third consecutive month. Richmond Fed President Balkin said the US economy could enter a phase of prolonged labour supply constraints, which could put continued upward pressure on inflation. The G7, along with Australia and EU member states, announced on the same day a price cap of US$60 per barrel on oil exported by sea from Russia. The Russian side said it would not accept the price cap on oil exports. The strikes continued in many parts of the world: French rail operations were affected, and UK says it is considering using the army; Korean president will have a meeting on truckers' strike. In China, the experts in Chongqing and Guangzhou were analysing the local pandemic situation, both mentioning that the virulence of COVID is significantly weaker. The measures for covid control have been adjusted across the country.

Tin: SHFE tin fell to around 185,000 yuan/mt after opening at last Friday’s night session, but then moved upwards and closed at 190,000 yuan/mt. Both longs and shorts exited. Last week, the domestic tin ingot social inventories accumulated sharply. Trades in the spot market were poor, causing spot discounts to expand. LME tin inventory fell slightly. Overseas premiums rose again. The price difference between imported tin and domestic brands narrowed. It is expected that SHFE tin will move sideways at lows amid inventory accumulation.

Nickel: On the macro front, on November 30, Federal Reserve Chairman Powell said that the pace of interest rate hikes may slow down as early as at the December meeting. In addition, on the evening of November 30, the United States released the ADP payrolls in November, which is also known as "non-farm employment forecast". The US ADP payrolls in November stood at 127,000, far lower than the forecast value of 200,000, which may restrict the interest rate hikes in December and benefit the commodity prices. On December 1, the Indonesian government did not reach a final agreement on the taxation of NPI and the taxation is expected to be postponed for 2 years, hence this news had no negative effect on the nickel prices. On the supply side, the SHFE/LME price ratio remained low, and the imports of spot pure nickel continued to suffer losses and the domestic spot supply of pure nickel was tight. In terms of NPI, the NPI inventory increased further. However, the NPI plants were reluctant to ship under the high costs. On the demand side, a steel rolling mill in south China plans to undertake annual maintenance from December 15, 2022 to January 29, 2023, during which time its cold-rolling production lines will be suspended, hence the market supply of cold-rolled coil may decline further. In terms of the alloy, orders for civil alloy were still weak, while military sector still had rigid demand for pure nickel. To sum up, the supply of pure nickel continues to be tight, and the nickel prices are expected to remain volatile.

[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.]