SMM Morning Comments (Dec 9): Base Metals Closed Mostly with Gains on Falling US Dollar

SHANGHAI, Dec 9 (SMM) – LME and SHFE base metals closed mostly with gains as the US dollar closed the night session in the negative zone. On the macro front, as of November 26, the number of continuing jobless claims in the US was higher than expected. The market expects the Fed to raise interest rates by 50 basis points next week, but this does not mean that the Fed’s policies have turned to dovish ones.

LME copper rose 0.48%, aluminium added 0.1%, lead fell 0.36%, and zinc advanced 0.42%.

SHFE copper rose 0.89%, lead added 0.13%, and zinc fell 0.22%.

Copper: LME copper opened at $8,503.5/mt on Thursday and edged lower after climbing to $8,593/mt. At last, the contract closed at $8,548.5/mt, up 0.48%. The trading volume was 14,000 lots, and open interest stood at 244,000 lots.

SHFE 2301 copper opened at 66,660 yuan/mt overnight and once hit the highest and lowest of 66,920 yuan/mt and 66,350 yuan/mt respectively. At last, it closed at 66,610 yuan/mt, up 0.89%. The trading volume was 33,000 lots, and open interest stood at 145,000 lots.

On the macro front, as of November 26, the number of continuing jobless claims in the US was higher than expected. The market expects the Fed to raise interest rates by 50 basis points next week, but this does not mean that the Fed’s policies have turned to dovish ones. The Fed may accept low economic growth and high interest rates in 2023. The US dollar index closed down 0.3% overnight, which was bullish for copper prices.

In terms of fundamentals, near the end of the year, the holders’ demand for the withdrawal of funds increased, but downstream consumption was poor. The spot trading was sluggish even though the spot prices were quoted at discounts. The inventory in Guangdong has dropped for five consecutive days, and the premiums declined along with the falling premiums in Shanghai, which failed to boost the downstream purchases. The consumption may continue to weaken owing to the transmission cycle of the bullish factors and the end of the year. Copper prices are expected to remain rangebound with occasional ups before the release of the Fed’s rate hikes.

Aluminium: The most-traded SHFE 2211 aluminium contract opened at 19,190 yuan/mt overnight and rose to 19,330 yuan/mt before closing at 19,210 yuan/mt, up 20 yuan/mt or 0.1%.

LME aluminium opened at $2,500/mt on Thursday, and fluctuated around its opening price before closing at $2,500/mt.

On the supply side, the domestic operating aluminium capacity continued to rise in December, driven by restarts in Sichuan and Guangxi, as well as release of new capacity in Inner Mongolia and Gansu. And because of winter and approaching New Year’s Day, aluminium smelters raised the proportion of ingots. On the demand side, the downstream consumption was poor in the traditional off-season. Some aluminium processing plants plan to close early for the Chinese New Year. Therefore, aluminium ingot inventory, albeit still at a low level, may accumulate in the future, putting aluminium prices at risk of pulling back.

Lead: Overnight, LME Lead opened at $2,211.5/mt. At the beginning of the session, the market transactions were light and LME Lead basically fluctuated between $2,210-2,215/mt. As the US dollar index fell, LME lead prices rose to the highest point at $2,233.5/mt. As the inventory remained stable for many days, LME lead cash to three month was in discounts, dragging LME lead to fall. LME lead finally closed at $2,205/mt, a decrease of 0.36%.

The most-traded SHFE 2301 lead contract opened at 15,785 yuan/mt. Due to the environmental protection incidents of secondary lead and the slight decline in SHFE lead inventory, SHFE lead rose to the highest point at 15,810 yuan/mt. But the lead consumption remained week, and the supply and demand both declined. Therefore, in the second half of the session, SHFE lead stood at 15,750-15,785 yuan/mt, and finally closed at 15,750 yuan/mt, an increase of 0.13%. The open interest increased 55 lots from the previous trading day to 71,221 lots.

Zinc: LME zinc closed at $3,288.5/mt on Thursday, up $13.5/mt or 0.42%. The open interest fell 863 lots to 199,000 lots. LME zinc inventory fell 175 mt to 38,400 mt.

The most traded SHFE 2301 zinc contract closed at 24,735 yuan/mt overnight, down 55 yuan/mt or 0.22%. The open interest fell 842 lots to some 119,000 lots. On the supply side, SMM expects Chinese refined zinc output to add 20,900 mt to 545,600 mt in December, which is expected to be the year-to-date high. On the consumption side, downstream players reported poor orders, and are likely to be closed early for Chinese New Holiday which begins earlier than in previous years. In the spot market, the transactions were muted, and downstream players mainly stood on the sidelines. But relatively tight supply of spot cargoes will support SHFE zinc to move rangebound.

Overnight, Keystone, the main pipeline between Canada and the US Gulf, was shut down because of a crude oil spill. US Treasury Secretary Yellen said she believed the US could avoid a recession because no wage-price spiral was in sight and supply chain bottlenecks have begun to ease. The LME said it might raise transaction booking fees on the OTC market. President Xi Jinping met with Saudi Arabia's King Salman at the Riyadh Royal Palace. The Chinese and Saudi heads of state personally signed the Agreement on Comprehensive Strategic Partnership between the People's Republic of China and the Kingdom of Saudi Arabia, agreeing to hold a meeting between the heads of state alternately in the two countries every two years. Li Keqiang said that with the optimisation and adjustment of relative measures and regulations, Chinese economic growth will continue to pick up and the RMB exchange rate will be maintained at a reasonable and balanced level. The Ministry of Transport: to remove checks on cross-regional travellers on nucleic acid testing results.

Tin: Overnight, SHFE tin hovered at highs of 195,000-200,000 yuan/mt. A large amount of capital left the market at the opening, but entered the market later. The domestic tin inventory under SHFE warrants increased sharply. Trades in the spot market were still poor. LME tin inventories rose slightly. Overseas premium fell slightly. The price difference between imported tin and domestic brands narrowed significantly. It is expected that the demand will improve in the future. SHFE tin may still hover around 200,000 yuan/mt.

Nickel: On the supply side, spot imports of pure nickel suffered huge losses as the price difference between domestic and overseas markets did not show signs of recovery. In terms of NPI, affected by favourable macro policies, domestic steel mills’ expectation of the market outlook of stainless steel improved, thus they raised their offer for raw material prices. And domestic NPI inventories fell gradually with the improvement in shipments. On the demand side, the total output of stainless steel in China in December may rose slightly from the previous month. Steel mills resumed their production of the 300-series stainless steel due to its improved profit margins and better spot trading. As for the alloy sector, the output of major domestic nickel-based alloy manufacturers totalled 8,795 mt in November, a month-on-month increase of 2.55%, due to better orders from nuclear power and military companies. The consumption of pure nickel stood at 4,229 mt, an increase of 2.87%. To sum up, the current supply of pure nickel remained tight, but the downstream demand has shown signs of recovery and is expected to boom. If the SHFE/LME nickel price ratio continued to fall, nickel prices would fluctuate with some upward potential.

[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.]