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SMM Morning Comment For SHFE Base Metals December 11

iconDec 11, 2023 09:55
LME copper prices opened at $8444.5/mt and closed at $8438/mt in last Friday trading, a gain of 0.81%, with the low-end of $8409/mt and the high-end of $8498/mt.

SHANGHAI, December 11 (SMM) –
LME copper prices opened at $8444.5/mt and closed at $8438/mt in last Friday trading, a gain of 0.81%, with the low-end of $8409/mt and the high-end of $8498/mt. Trading volume was 24,000 lots, and open interest stood at 285,000 lots. The most active SHFE 2401 copper contract prices opened at 68260 yuan/mt and closed at 68540 yuan/mt last Friday evening, up 1.11%, with the high-end of 68800 yuan/mt and the low-end of 68260 yuan/mt. Trading volumes stood at 40,000 lots and open interest stood at 153,000 lots. On the macro front, the U.S. non-farm payrolls increased by 199,000 in November after seasonally adjustment, which was higher than market expectations of 180,000. The unemployment rate dropped to 3.7% from a nearly two-year high of 3.9%. The strong employment data dampened market expectations. Expectations for the Federal Reserve to cut interest rates next year. Domestically, data showed that the CPI fell by 0.5% year-on-year and 0.5% month-on-month in November. The market expects that subsequent RRR cuts may still be possible. SMM data showed that as of Friday December 8, copper inventory across major Chinese markets stood at 57,600 mt, up 3,600 mt from last Monday and up 2,700 mt from two Fridays ago. The arrivals of imported copper in East China increased, while downstream procurement enthusiasm has been low due to high price premiums and price spread between front-month and next-month contracts, resulting in an increase in inventory; arrivals and demand in South China were small, and the overall inventory has not changed much. In terms of consumption, as delivery is approaching and the price spread between front-month and next-month contracts is high, the overall market demand is expected to be weak. There will be limited room for copper price increases.
At last Friday’s night session, the most-traded SHFE 2401 aluminum contract opened at 18470 yuan/mt, with its lowest and highest at 18380 yuan/mt and 18530 yuan/mt before closing at 18395 yuan/mt, down 95 yuan/mt or 0.51%. LME aluminum opened at $2137/mt last Friday, with its high and low at $2161.5/mt and $2130/mt respectively before closing at $2134/mt, up 0.14%.
On the macro front, the market is beginning to bet on the Federal Reserve to cut interest rates next year. There are growing expectations for the release of favorable policies in China at the end of the year, but it will still take time to transmit to the manufacturing industry and other sectors. In terms of fundamentals, there are no further changes expected on the supply side in the short term, and market trading logic generally focuses on the resilience of consumer demand in the off-season. Aluminum prices may be relatively weak, but should find support from falling stocks.
LME lead opened at $2024/mt last Friday evening and rose by 0.3% to close at $2023/mt, with the lowest point at $2020/mt and the highest point of $2053.5/mt.
The most active SHFE 2401 lead contract prices opened at 15490 yuan/mt last evening, and closed at 15550 yuan/mt last Friday evening, an increase of 0.52%, with the high-end of 15700 yuan/mt and the low-end of 15485 yuan/mt.
LME zinc opened at $2407/mt last Friday evening, and hit a high of $2438/mt before falling back to $2382.5/mt, and closed at $2389.5/mt, a decrease of $16.5/mt or 0.69%. Trading volume rose to 12232 lots, and open interest added 1379 lots to 200,000 lots. LME zinc inventory dropped by 3100 mt or 1.42% to 215450 mt. The number of non-farm jobs in the United States increased by 199,000 in November, which was higher than expected. The unemployment rate fell to 3.7% from 3.9% in the previous month. Strong labor market fundamentals suggest that the Federal Reserve may cut interest rates too early. As expectations for interest rate cuts change, London zinc is under pressure to decline.
The most active SHFE 2311 prices opened at 20725 yuan/mt and lost 155 yuan/mt or 0.75% to settle at 20570 yuan/mt in last Friday evening trading with the high-end of 20800 yuan/mt and the low-end of 20530 yuan/mt. Trading volumes decreased to 40471 lots and open interest fell 232 lots to 85629 lots. China's CPI fell by 0.5% year-on-year in November, being negative for two consecutive months. PPI fell by 3% year-on-year in November, the largest single-month decline in three years. Demand continued to be sluggish under increasing deflationary pressure, and zinc prices are under macro pressure.
SHFE 2401 tin contract fell to 206640 yuan/mt at last Friday’s night session and closed at 207170 yuan/mt, down 0.16%.
During the early trading last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands did not changes much. Small brand tin ingots were offered at premiums of 0-400 yuan/mt over SHFE 2401 tin contract, versus premiums of 500-800 yuan/mt for delivery brands, premiums of 800-1100 yuan/mt for Yunxi brand, and discounts of 200-800 yuan/mt imported brand tin ingots. Downstream producers mostly took a wait-and-see stance and barely made inquiries.
Nickel prices bounced back due to positive macro sentiment, pushing them above 130,000 yuan/mt. The highest rebound reached 135,450 yuan/mt last week. On the macro side, The ADP National Employment report showed private payrolls increased by 103,000 jobs in November, below market expectation of 130,000. Additionally, on the evening of December 7, the US weekly initial jobless claims were reported. The figure rose slightly to 220,000, which was slightly below the expected 222,000 but higher than the previous week's 219,000. The data reflects a surprising decline in the US job market. This has increased speculation in the market about a December interest rate cut by the Federal Reserve. Such a move could have a positive impact on commodities and the non-ferrous sector. In terms of fundamentals, based on SMM research, pure nickel production in November decreased by 3.9% compared to the previous month. The decline in production this month is primarily attributed to the downward trend in nickel prices since October, which first squeezed the profits of enterprises producing electrowinning nickel from externally sourced raw materials. In November, with nickel prices accelerating downward, some enterprises slightly reduced production due to cost pressures. However, this production reduction cannot reverse the current situation of oversupply in pure nickel. According to SMM research, pure nickel social inventory accumulated by 1,180 mt last week. The recent spot market activity has shown some improvement. In terms of demand, the stainless steel sector has witnessed an increase in overall monthly production due to major factories concluding maintenance, which provides some support to pure nickel demand. However, in the alloy sector, due to pre-holiday inventory clearance combined with the traditional off-season in the industry, there has been a slight decrease in pure nickel demand from alloy sector. Overall, the current demand for pure nickel remains weaker compared to the supply side. Taking all these factors into account, the current macro situation seems favorable, but the fundamental support for nickel prices appears limited.

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