SMM Evening Comments (Nov 25): Shanghai Nonferrous Metals All Closed with Gains amid Heightened Interest Rate Hike Estimate

SHANGHAI, Nov 25 (SMM) – Shanghai nonferrous metals all closed with gains as the market’s expectation for an interest rate hike in the US was heightened again, and the oil prices also stood high though the release of strategic crude reserves has been decided.

Shanghai copper rose 1.18%, aluminium ticked up 1.82%, lead jumped 0.53%, zinc gained 0.53%, tin added 2.12%, and nickel advanced 2.47%.

Copper: The most-traded SHFE 2201 copper closed up 1.18% or 840 yuan/mt to 71970 yuan/mt, with open interest up 11989 lots to 188075 lots.

On the macro front, the initial jobless claims dropped to a historical low since 1969, while the inflation gauge also set the fastest YoY growth in 30 years. The November consumer confidence index plunged to the lowest in the past decade. US San Francisco Federal Reserve Bank CEO Daly said that if the inflation stood high and the employment market remained positive, she will hold an open mind to accelerating the tapering of Fed’s bond purchases, which heightened market estimate of interest rate hike.

In terms of oil, the US will release strategic crude reserves as early as in late December, and the market believed that such actions will not completely resolve the issue of tight supply, though it will make up for the supply shortage in the short term. And the OPEC+ member countries are still able to offset the strategic release effects by reducing their output. As a result, the oil prices have still been hovering at high levels, support copper prices as a whole.

On the fundamentals, LME copper inventory rose only 625 mt yesterday, and the low inventory supported LME copper.

Tonight, the market shall watch the European Central Bank’s monetary policy meeting minutes as well as the LME moves.

Aluminium: The most-traded SHFE 2201 aluminium closed up 1.82% or 350 yuan/mt to 19560 yuan/mt, with open interest up 8351 lots to 216545 lots.

The market tilted to the bullish side after Indonesia announced to impose export ban on bauxite. However, SMM believes that it will not have significant impacts on domestic market. On the demand side, the seasonal low in north China dragged on aluminium prices; but the broad demand side was quiet. SHFE aluminium is likely to fluctuate in narrow rangebound in the short term.

Lead: The most-traded SHFE 2201 lead closed up 0.53% or 80 yuan/mt at 15275 yuan/mt, with open interest up 6615 lots to 49122 lots.

In spot market, primary lead premiums pulled back slightly, which stood at 80 – 150 yuan/mt over SMM 1# lead. While in the trading market, the traders’ mainstream quotes were flat with SMM 1# lead, and there were still quotes in premiums in some places. The discounts of secondary lead was expanding, which stood between 25 – 80 yuan/mt over SMM 1# lead.

The smelters’ quotes declined as lead prices have been rising for 4 trading days in a row. And the offerings from traders reduced as they have made large amounts of shipments in the previous sessions with high prices. Hence the total spot transactions dropped from a day ago.

However, from the fundamental front, the production in some places declined due to solid waste inspections and difficulties in purchasing raw materials, besides maintenance of several smelters. The market supply weakened as a whole, boosting lead prices.

Zinc: The most-traded SHFE 2201 zinc closed up 0.53% or 125 yuan/mt at 23780 yuan/mt, with open interest down 2184 lots to 88869 lots.

The zinc market was still reacting to the production cuts on overseas energy crisis and production suspension of Tara Mine due to an accident. On the supply side, overseas zinc ingot supply remained tight, and spot premiums were at a high level. And the LME zinc inventory dropped 2,650 mt. On the demand side, the production activities of galvanising companies in Tangshan were restricted by around 50% amid orange alert regarding heavy air pollution in the region. Thus, the downstream sector only purchased on rigid demand, coupled with high zinc prices recently. In the spot market, the traders have continuously lowered their premiums to make shipments amid sluggish demand caused by rising zinc prices.

To sum up, the recent rise in zinc prices was mainly a result of overseas production cuts, and the prices are unlikely to decline greatly.

Tin: The SHFE 2201 tin closed up 2.12% or 6010 yuan/mt at 289340 yuan/mt, with open interest up 10557 lots to 43953 lots.

On the fundamentals, short-term supply is likely to be tight due to still closed Myanmar customs and production cuts in Gejiu, Yunnan out of environmental protection-related causes. The demand side was stable as the downstream purchased on demand, and reacted negatively to high tin prices. The tin prices are likely to hover at high levels amid stable warrant inventory, placid spot transaction prices, and narrowing spread between most-trade SHFE contract and spot on the back of weak supply and demand pattern.

Nickel: The most-traded SHFE 2202 nickel closed up 2.47% or 3720 yuan/mt to 154540 yuan/mt, with open interest up 45945 lots to 135719 lots.

Currently, the fundamental front was comparatively balanced, hence the nickel prices lacked strong support. In other words, SHFE nickel is more affected by the macro front. The pure nickel inventory has been low and declining at the same time, while the apparent demand sustained. Nickel prices are likely to stay high.