SMM Morning Comment For SHFE Base Metals (Dec 18)

SHANGHAI, Dec 18 (SMM) –

Copper

US Economic Data Exceeds Expectations, Pressuring Copper Prices; Market Awaits US Fed Meeting [SMM Copper Morning Comment Dec 18]

Overnight, LME copper opened at $8,984/mt, briefly bottomed at $8,964/mt in early trading, and then fluctuated rangebound throughout the session, reaching a high of $9,010/mt near the close and finally settling at $9,006.5/mt, down 0.65%. Trading volume reached 15,000 lots, and open interest stood at 270,000 lots. Overnight, the most-traded SHFE copper 2501 contract opened lower at 74,020 yuan/mt, briefly peaked at 74,150 yuan/mt in early trading, and then declined to a low of 73,910 yuan/mt before fluctuating rangebound throughout the session, ultimately closing at 74,090 yuan/mt, down 0.63%. Trading volume reached 21,000 lots, and open interest stood at 133,000 lots. Macro side, US November retail sales month-on-month rose by 0.7%, the highest since September, exceeding expectations. The US dollar hovered at highs, pressuring copper prices, while uncertainty over future domestic policies also weighed on copper prices. On the fundamentals, during long-term contract negotiations, premiums were supported at the lower end, but overall market activity remained subdued. In summary, the market is awaiting the outcome of the US Fed meeting and potential favorable policies from China. Before the conclusion of the Fed meeting, the market is likely to remain cautious, and copper prices are expected to fluctuate downward today.

Aluminum

Regional Environmental Protection-Driven Production Restrictions Drag Down Aluminum Downstream Operating Rates; Focus on US Fed Interest Rate Decision Tonight [SMM Aluminum Morning Brief Dec 18]

Overnight, the most-traded SHFE aluminum 2502 contract opened at the highest point of 19,945 yuan/mt, hit a low of 19,875 yuan/mt, and closed at 19,935 yuan/mt, up 10 yuan/mt or 0.05% from the previous day. On Tuesday, LME aluminum opened at the highest point of $2,566/mt, reached a low of $2,526/mt, and closed at $2,537/mt, down $27.5/mt or 1.07%.

Summary: On the macro front, the US dollar index hovered at highs, closing up 0.088%, while metals broadly declined overnight. US PMI data showed a divergence between manufacturing and services sectors, with interest rate cut expectations remaining largely unchanged as investors awaited the US Fed's interest rate decision. Fundamentals side, high aluminum production costs led to production cuts in some capacities; on the demand side, domestic downstream aluminum demand entered a deeper off-season. Additionally, export orders dropped significantly due to the cancellation of export tax rebates, and recent environmental protection inspections in Zhengzhou caused multiple aluminum plate/sheet and strip producers to implement production restrictions as required, with no set timeline for resumption, further weakening downstream operating rates. Overall, the off-season consumption combined with the risk of aluminum ingot inventory buildup has led to pessimistic market sentiment. In the short term, aluminum prices are expected to remain weak and consolidate. Focus on the US Fed's final policy meeting of 2024 and the interest rate decision to be announced later today.

Lead

Year-End Output Surge in Battery Producers VS Expected Supply Tightening: Lead Prices Likely to Fluctuate at High Levels [SMM Lead Morning Comment Dec 18]

Overnight, LME lead opened higher at $2,004.5/mt, briefly touching a high of $2,012/mt during the Asian session before fluctuating downward. In the European session, it continued to weaken, hitting a low of $1,983/mt and finally closing at $1,985/mt, down 0.5%.

Overnight, the most-traded SHFE lead 2501 contract opened at a low of 17,595 yuan/mt, fluctuated upward in early trading to a high of 17,775 yuan/mt, and then dropped back slightly and fluctuated rangebound, closing at 17,665 yuan/mt, up 0.91%.

Macro side, US November retail sales month-on-month rose by 0.7%, the highest since September, exceeding market expectations of 0.5% growth. China's State-owned Assets Supervision and Administration Commission issued the "Opinions on Improving and Strengthening Market Value Management of Central State-Owned Enterprises' Publicly Listed Firms." China Securities Depository and Clearing Corporation announced that starting January 1, 2025, it will halve the dividend and interest distribution fees for A-shares in the Shanghai and Shenzhen markets.

Fundamentals, as year-end approaches, some large battery producers are ramping up production, with the overall operating rate of lead-acid batteries trending upward. Coupled with frequent smog alerts recently, multiple regions have issued Level 2 warnings, prompting secondary lead smelters in Anhui, Shandong, and other areas to halt production, significantly tightening supply. Lead prices are expected to fluctuate at high levels in the short term.

Zinc

LME Zinc Fluctuates Downward, Focus on US Fed Monetary Policy Meeting Decision [SMM Zinc Morning Comment Dec 18]

Overnight, LME zinc opened at $3,050.5/mt. At the beginning of the session, a tug-of-war between longs and shorts caused LME zinc to fluctuate around the daily moving average. Approaching the European trading hours, it reached a high of $3,070/mt, but shorts launched a high-level attack, driving LME zinc sharply downward to a low of $3,015/mt. Subsequently, shorts took profits and exited, allowing LME zinc to recover upward, recording a V-shaped reversal. During the night session, the center returned to the daily moving average for consolidation, with a slight decline at the end of the session. It ultimately closed down at $3,036.5/mt, a decrease of $9.5/mt or 0.31%. Trading volume increased to 9,992 lots, and open interest rose by 1,572 lots to 234,000 lots. Overnight, LME zinc formed a bearish candlestick, with the 40-day moving average providing resistance above and the 5-day moving average offering support below. Overnight, LME inventory decreased by 4,400 mt to 262,100 mt, a drop of 1.65%, continuing its downward trend. US retail sales data exceeded expectations overnight, strengthening the US dollar and pressuring zinc prices. Additionally, the ratio of LME cancelled warrants slightly pulled back from high levels, and short funds increased, causing the center of LME zinc to dip slightly. Focus today will be on the US Fed monetary policy meeting decision.

Overnight, the most-traded SHFE zinc 2502 contract opened at 25,350 yuan/mt. At the beginning of the session, a tug-of-war between longs and shorts caused SHFE zinc to fluctuate rangebound around the daily moving average, with an amplitude of no more than 200 yuan/mt. Toward the end of the session, shorts increased positions, pushing SHFE zinc sharply downward to close at the intraday low of 25,235 yuan/mt, a decrease of 185 yuan/mt or 0.73%. Trading volume decreased to 34,951 lots, while open interest increased by 604 lots to 125,000 lots. Overnight, SHFE zinc recorded three consecutive bearish candlesticks, with the 5-day and 10-day moving averages providing resistance above, and the KDJ indicator expanding downward. As supply-side constraints ease, the tight supply-driven logic has begun to weaken. However, demand remains better-than-expected in the off-season, inventory is at a seasonal low, and spot premiums are fluctuating at highs. Zinc prices are expected to have limited downside room.

Tin

SHFE Tin Remains Weak in Night Session, Downstream Enterprises Plan to Start Restocking [SMM Tin Morning News Dec 18]

In yesterday's night session, SHFE tin prices opened lower, slightly rebounded, and then pulled back, showing an overall weak trend. Downstream enterprises' purchasing enthusiasm declined. As prices rose during the daytime session yesterday, downstream enterprises adopted a wait-and-see approach, waiting for better purchasing opportunities. A few downstream enterprises are expected to start restocking at the level of 245,000 yuan/mt, and if prices continue to fall, they may increase the restocking volume. Smelting enterprises maintained a sentiment to stand firm on quotes at current price levels, with daytime quotes remaining relatively high. The overall trading atmosphere in the spot market was lukewarm, with most trading enterprises recording daily trading volumes of 10-20 mt, while a few trading enterprises reported daily trading volumes of 1-2 truckloads. The US Fed's interest rate meeting is approaching, and the market is paying close attention to this meeting, awaiting its guidance on tin price trends.

Nickel

Spot Premiums/Discounts: The mainstream spot premium for Jinchuan #1 nickel was 3,600-3,900 yuan/mt, with an average premium of 3,750 yuan/mt, down 100 yuan/mt compared to the previous trading day. The spot premium for Norilsk nickel was -300-0 yuan/mt, with an average premium of -150 yuan/mt, unchanged from the previous trading day.

Futures Market: On December 17, nickel prices fluctuated downward in the morning, with the midday closing price dropping by 1,640 yuan/mt to 125,170 yuan/mt, a decline of 1.29%, and the downward trend continued. The morning average price of SMM #1 refined nickel fell by 750 yuan/mt to 127,450 yuan/mt.

Spot Market: Currently, the fundamentals remain bearish with no structural changes, and the off-season sluggish demand in December has not shown significant improvement. Regarding spot premiums/discounts, the tight supply of Jinchuan brand nickel in the spot market has partially eased this week, with slight downward adjustments in premiums over the past two days. Other brand nickel plates showed relatively small changes overall.

Nickel Sulphate Price Spread: Nickel briquette prices were 125,000-125,200 yuan/mt, down 650 yuan/mt compared to the previous trading day. The price spread between refined nickel and nickel sulphate was 5,800 yuan/mt.