SMM Morning Comments (Dec 20): Base Metals Closed Mostly with Losses on Subsiding Market Sentiment

SHANGHAI, Dec 20 (SMM) – LME and SHFE base metals closed with losses overnight. On the macro front, a survey released on Monday showed that despite the energy crisis and high inflation, the economic outlook for Germany, Europe's largest economy, has improved, with German business confidence rising more than expected in December to support the euro and put some pressure on the safe-haven dollar.

LME copper fell 0.27%, aluminium slid 0.38%, and zinc dropped 0.8%.

SHFE copper inched up 0.09%, aluminium slid 0.48%, and zinc dropped 1.94%.

Copper: LME copper opened at $8,363.5/mt on Monday and once climbed to a high of $8,376/mt. At last, the contract closed at $8,280.5/mt, down 0.27%. The trading volume was 10,000 lots, and open interest stood at 250,000 lots.

SHFE 2301 copper opened at 65,410 yuan/mt overnight, once hitting the highest and lowest of 65,650 yuan/mt and 65,180 yuan/mt respectively. At last, it closed at 65,370 yuan/mt, up 0.09%. The trading volume was 18,000 lots, and open interest stood at 120,000 lots.

On the macro front, a survey released on Monday showed that despite the energy crisis and high inflation, the economic outlook for Germany, Europe's largest economy, has improved, with German business confidence rising more than expected in December to support the euro and put some pressure on the safe-haven dollar.

On the fundamentals, SMM copper social inventory in mainstream markets dropped 12,400 mt from last Friday to 81,900 mt on Monday December 19, a new low in the same period in history, mainly due to limited inflow of imported copper and robust downstream restocking after copper prices fell. On the consumption side, it was once again hit by the loosening pandemic control, and the demand is expected to remain low as the market players are preparing to close the accounts. In terms of SHFE copper price, it is expected to fall further subject to the sentiment front.

Aluminium: The most-traded SHFE 2301 aluminium contract opened at 18,530 yuan/mt overnight, with its high and low at 18,595 yuan/mt and 18,475 yuan/mt before closing down 90 yuan/mt or 0.48%.

LME aluminium opened at $2,394/mt Monday, with its high and low at $2,402.5/mt and $2,358.5/mt respectively before closing at $2,370/mt, a drop of $9/mt or 0.38%.

On the supply side, Guizhou Huaren and Zunyi Aluminium have basically completion production cuts that were caused by power rationing, with an estimated loss of over 200,000 mt of annualised production capacity. However, Guizhou Yuanhao put its new project into operation, with an annualised production capacity of about 20,000 mt in the first phase. As of today, the overall production reduction in Guizhou was relatively limited, and thus offering little upward momentum to aluminium prices. Aluminium ingot inventory has begun to accumulate slightly as the consumption has entered the traditional off-season. Downstream purchases in the spot market were sluggish amid growing COVID infections. SHFE aluminium will have little room to rise or fall amid poor demand and historical low inventory.

Lead: Yesterday, the LME 3M lead contract rose slightly after opening. After gradually rose to $2,187/mt, LME lead fell and finally lost all the gains.

Last night, the SHFE 2301 lead contract fell slightly after opening, and quickly rebounded after hitting the lowest point at 15,480 yuan/mt. The SHFE 2301 lead contract gradually rose to the highest point at 15,565 yuan/mt and then fell back quickly and closed at 15,490 yuan/mt.

Zinc: LME zinc closed at $3,025/mt on Monday, down $24.5/mt or 0.8%. The open interest fell 372 lots to 202,000 lots. The export losses of Chinese zinc ingot were as much as 2,000 yuan/mt, while overseas smelters have no plans to resume the production. Coupled with the relatively tight supply and low inventory, LME zinc is unlikely to post significant changes.

The most traded SHFE 2301 zinc contract closed at 23m470 yuan/mt overnight, down 465 yuan/mt or 1.94%. The open interest fell 3,890 lots to 71,000 lots. SMM zinc ingot social inventory dropped again slightly to 56,000 as of Monday December 19. The consumption improved in some places, as some downstream players restocked actively after zinc prices fell. But the consumption side remained poor as a whole. SHFE zinc is likely to fall further with weak consumption.

Overnight, European energy ministers reached an agreement on Monday to impose an emergency cap on gas prices. The ministers agreed to set a cap of €180/MWh on gas prices for the coming month on the EU's main trading hub, compared to €275/MWh proposed in the October, people familiar with the matter said. Russian Energy Minister Shulginov said Russia would take the same decision as the oil price cap in response to the EU's gas price cap.

Tin: Overnight, SHFE tin opened slightly higher and closed at around 192,000 yuan/mt. The open interest of the most-traded SHFE tin contract continued to decline. Domestic tin inventory under SHFE warrants fell sharply thanks to pick-up of warrants and improved spot trades. LME tin inventories remained stable. Overseas premiums hovered at lows. Import losses shrank. Considering the stable supply and demand, and wait-and-see sentiment, tin prices may continue to move sideways.

Nickel: On the supply side, imported pure nickel kept suffering losses, and domestic pure nickel social inventory fell 2,700 mt as of last Friday, keeping the spot supply tight. The spot premiums were also high. For NPI, the supply in the spot market was still ample at present. On the demand side, the spot stainless steel prices in Wuxi and Foshan fell along with falling futures contract prices. And the deteriorating pandemic situation across the country weighed on the terminal consumption, and the operating rates of downstream fabricators were also low. In the alloy sector, the consumption of pure nickel is likely to fall as the sector has entered the off-season. To sum up, SHFE nickel price is likely to stay on the mild downward track amid weak demand but supported by falling pure nickel inventory.

[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.]