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SMM Morning Comment For SHFE Base Metals December 18

iconDec 18, 2023 09:53
LME copper prices opened at $8590/mt and closed at $8525/mt last Friday evening, a drop of 0.07%, with the low-end of $8471/mt and the high-end of $8605/mt.

SHANGHAI, December 18 (SMM) –
LME copper prices opened at $8590/mt and closed at $8525/mt last Friday evening, a drop of 0.07%, with the low-end of $8471/mt and the high-end of $8605/mt. Trading volume was 20,000 lots, and open interest stood at 289,000 lots. The most active SHFE 2401 copper contract prices opened at 68610 yuan/mt and finished at 68670 yuan/mt last Friday evening, down 0.03%, with the low-end of 68330 yuan/mt and the high-end of 68750 yuan/mt. Trading volume was 21,000 lots and open interest stood at 146,000 lots. On the macro front, Williams, the "third in command" of the Federal Reserve and President of the New York Fed, strongly criticized the market's interest rate cut expectations, saying that the Federal Reserve has not really discussed cutting interest rates and it is too early to consider cutting interest rates in March next year. However, the rebound of the U.S. index has been limited. In addition, ECB policymakers are not expected to change their message on stabilizing interest rates before next March's meeting, with policymakers saying it would be difficult to cut interest rates before June. On the fundamentals, as of Friday December 15, SMM copper inventories in major Chinese markets decreased 1,700 mt to 63,000 mt from last Monday, up 5,400 mt from two Fridays ago. Although there is a replenishment of imported copper in East China, due to lower premiums and discounts, downstream purchasing enthusiasm was acceptable, lowering the inventory; in South China, domestic copper arrivals increased, but due to the high price spread between front-month and next-month contracts before delivery, downstream demand was weak. Downstream purchases will pick up to a certain extent after the delivery of the deliveries to SHFE front-month contract. The copper prices will meet resistance.
Overnight, the most-traded SHFE 2401 aluminum contract opened at 18860 yuan/mt, with its low and high at 18775 yuan/mt and 18950 yuan/mt before closing at 18915 yuan/mt, up 175 yuan/mt or 0.93%. LME aluminum opened at $2214/mt last Friday, with its high and low at $2269.5/mt and $2193/mt respectively before closing at $2241/mt, up 1.40%.
The Fed held rates at 5.25%-5.50% in December, as expected, lifting market confidence. China's social financing and credit improvements signal support for the real economy. Positive global macroeconomic conditions boost market sentiment. Supply remains stable in China's southwest, but watch for potential aluminium production cuts. On the demand side, the aluminium processing industry has shown a decline in December, but the demand for electricity remains strong, which is unusual for the off-season. Logistics delays and restocking have slashed inventories below 500,000 mt, pressing short sellers out. Near-term prices are likely to be firm and volatile approaching delivery.
Last Friday, LME lead opened at $2,069/mt. During the European period, LME lead stocks continued to be depleted, and LME lead climbed rapidly, and even reached a maximum of $2,102/mt, the highest level in the past week. The contract closed at $2,075/mt, an increase of 0.31%.
The most active SHFE 2402 lead contract prices opened at 15605 yuan/mt last Friday evening and finally closed at 15630 yuan/mt, up 0.35%. Open interest increased 2649 lots to 52675 lots.
LME zinc opened at $2486.5/mt last Friday evening, and hit a high of $2543/mt before closing at $2531.5/mt, an increase of $48.5/mt or 1.95%. The trading volume decreased to 10459 lots, and open interest decreased 1124 to 204,000 lots. LME zinc rose for five consecutive days last week. LME zinc stocks fell by 1575 mt or 0.75% to 208475 mt. Last Friday, boosted by macroeconomic sentiment due to expectations of an interest rate cut by the Federal Reserve.
The most-traded SHFE 2402 zinc contract opened at 20895 yuan/mt last Friday and fell to 20770 yuan/mt. It eventually settled up 100 yuan/mt or 0.48% at 20890 yuan/mt. Trading volume were 43806 lots, and open interest increased by 2381 lots to 75281 lots. Driven by optimism about macro interest rate cuts, the trend of Shanghai zinc is relatively strong. However, domestic consumption is still in the seasonal off-season, and imported zinc ingots are flowing in, increasing pressure on the supply side, limiting the upward space for zinc prices.
SHFE 2401 tin contract fell to 206670 yuan/mt at last Friday’s night session, closing at 207510 yuan/mt, up 1.2%.
During the early trading last Friday, spot premiums and discounts in domestic spot market for various tin ingot brands were as below. Small brand tin ingots were offered at premiums of 0-400 yuan/mt over SHFE 2401 tin contract, versus premiums of 200-800 yuan/mt for delivery brands, premiums of 800-1100 yuan/mt for Yunxi brand, and discounts of 200-1000 yuan/mt imported brand tin ingots. Tin prices opened high and then moved lower last Friday. Traders reported that downstream companies' willingness to inquire and place orders was sluggish.
Nickel prices saw a slight retreat last week, closing at 132,080 yuan/mt. Despite a minor decline in nickel prices, the drop in nickel sulphate was more significant, leading to an expansion of the price difference between nickel sulphate and pure nickel to around 15,000 yuan/mt. However, the actual transaction price difference in the spot market is even larger, primarily due to the continuous decrease in the nickel sulphate coefficient. According to SMM research, electrowinning nickel companies are currently inquiring about nickel salt prices due to a price difference exceeding ten thousand yuan. On the macro level, on the evening of December 13, the Federal Reserve announced that it would hold the key federal funds rate in a target range between 5.25%-5.5%, in line with market expectations. The recent dovish remarks from the Federal Reserve, combined with the latest dot plot, strongly suggest that the current interest rates may have already reached or come close to the peak of the Federal Reserve's current cycle of rate hikes. This has led to increased market expectations of three rate cuts next year, each potentially being a 0.25 percentage point reduction. In terms of fundamentals, pure nickel production is expected to rebound in December compared to November, mainly because some enterprises reduced production in November due to equipment maintenance. It is anticipated that maintenance will be completed in December, leading to a recovery in production. From the demand side, military orders for alloys remain steady, but civilian orders have dropped compared to before. Therefore, the support for pure nickel is limited. In December, there was an increase in production of 300 series stainless steel by some major factories, and some companies ramped up their scheduling. As a result, compared to October, there is increased support from steel mills for pure nickel. The electroplating orders remained relatively stable since entering Q4, with no significant growth observed so far. In summary, the current macro positive sentiment is supporting nickel prices, but there is still pressure on nickel prices from the fundamental perspective.

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