SMM Morning Comments (Dec 27): Base Metals Closed with Gains amid Recovering Market Sentiment

SHANGHAI, Dec 27 (SMM) – SHFE base metals closed mostly with gains overnight, while LME was closed for Christmas holiday. On the macro front, the Governor of the Bank of Japan pointed out on Monday that there was no possibility of cancelling the ultra-loose monetary policy in the short term, and said that under the yield curve control (YCC) policy, the loose monetary policy will be maintained to achieve the price target steadily with the salary increase.

Copper: The LME was closed on Monday. SHFE 2302 copper opened at 65,850 yuan/mt, once climbing to 66,540 yuan/mt. At last, the contract closed at 66,310 yuan/mt, up 0.81%. The trading volume was 15,000 lots, and open interest stood at 103,000 lots.

On the macro front, the Governor of the Bank of Japan pointed out on Monday that there was no possibility of cancelling the ultra-loose monetary policy in the short term, and said that under the yield curve control (YCC) policy, the loose monetary policy will be maintained to achieve the price target steadily with the salary increase.

On the fundamentals, as of Monday December 26, SMM copper inventories in major Chinese markets added 3,500 mt to 79,700 mt compared with last Friday. Since the middle of last week, the operating rates of downstream factories across China have declined to varying degrees because of the spread of COVID-19 outbreaks. In addition, approaching the year-end, smelters increased their shipments to dump their inventories. The overall consumption remained weak amid the impact of COVID-19 outbreaks and the companies’ fund withdrawal near the year-end. Copper prices will still move rangebound in the short term.

Aluminium: Overnight, the most-traded SHFE 2301 aluminium contract opened at 18,695 yuan/mt, with its low and high at 18,655 yuan/mt and 18,820 yuan/mt before closing at 18,770 yuan/mt, up 55 yuan/mt or 0.29%. The LME was closed on Monday due to the Christmas holiday.

The increase in domestic aluminium production may be lower than expected in December due to power rationing in south-west China. On the demand side, domestic downstream processing sectors are currently in the off-season. With more employees being infected with COVID and unable to go to work, the operating rates of downstream enterprises declined. Aluminium ingot social inventory accumulated slightly this week, but it is still at a low level. The short-term aluminium prices are expected to maintain a rangebound trend, and attention should be paid to downstream pre-holiday stocking and inventory changes.

Lead: LME (London Metal Exchange) is closed on December 26 and December 27 amid the Christmas holiday.

Overnight, the most-traded SHFE 2302 lead contract opened at 15,975 yuan/mt, and hit the highest point at 16,075 yuan/mt at the beginning of the session, then fell back and fluctuated around 16,030 yuan/mt. The most-traded SHFE 2302 lead contract finally closed at 16,040 yuan/mt, up 0.47%. The open interest increased 216 lots to 72,201 lots compared with the previous trading day.

Zinc: The most-traded SHFE zinc contract was relatively stable after opening, and rose quickly near the end of the night session with the activeness of longs, before closing at 23,680 yuan/mt, up 70 yuan/mt or 0.3%. SHFE zinc rebounded subject to the recovering market sentiment, hence is unlikely to rise substantially. However, the market is not quite active approaching the New Year’s Day holiday, and the social inventory is likely to accumulate. Nonetheless, the low inventory will offer some support to SHFE zinc price.

Tin: SHFE tin rebounded rapidly after opening slightly lower overnight, and closed at around 197,000 yuan/mt. The domestic tin inventory under SHFE warrants recorded a significant increase. Trades in the spot market were still poor. The LME was closed for Christmas holiday. Import losses are expected to narrow significantly. To sum up, under the background of weak supply and demand, as well as cautious sentiment, it is expected that tin prices will hover sideways at highs.

Nickel: On the supply side, shipments from upstream companies improved, slightly easing the supply tightness of spot pure nickel. In terms of NPI, due to a large number of transactions in the early stage, orders for Indonesia NPI have been signed, and the traders saw relatively few goods available in the market. On the demand side, #304 stainless steel trading was sluggish, and the prices dropped slightly. Spot prices in the Foshan market fell greatly because of the companies’ fund withdrawals and huge inventory pressure near the year-end. In the alloy sector, some manufacturers begin to restock towards the end of the year. To sum up, the downstream demand for pure nickel has picked up slightly. The spot imports still suffered losses, while the supply tightness has been eased. SMM believes that the 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.]