SMM Evening Comments (Dec 1): Shanghai Nonferrous Metals Closed Mixed amid Hawkish Rhetoric from US Fed and Positive China PMI

SHANGHAI, Dec 1 (SMM) – Shanghai nonferrous metals closed with mixed performance as the hawkish rhetoric from US Federal Reserve Chair Powell supressed the market, while the November Caixin PMI in China was relatively positive than before.

Shanghai copper lost 0.29%, aluminium rose 0.66%, lead dropped 0.88%, zinc gained 0.48%, tin edged up 0.18%, and nickel advanced 0.43%.

Copper: The most-traded SHFE 2201 copper closed down 0.29% or 200 yuan/mt to 69650 yuan/mt, with open interest down 518 lots to 154776 lots.

On the macro front, the Federal Reserve Chair Powell said yesterday that the Fed is considering to end the massive stimulus program in advance, and will no longer describe the inflation as “temporal”. The hawkish rhetoric from Powell heightened the market expectation of interest rate hike, which pushing down the WTI and Brent oil prices. The overnight metals market moved under pressure, which constrained the upside momentum of copper. While intraday copper has recovered from the overnight sluggish sentient, and moved up slightly. Meanwhile, the API crude reserves in the week of November 26 reduced 747,000 mt from the previous session, boosting the US oil prices by more than 3%, showing the direction for copper prices.

In China, the Caixin manufacturing PMI for November recorded 49.9, 0.7 lower than the estimate, indicating a slowing manufacturing recovery. But the market optimism improved from October, pushing up copper prices.

Tonight, the market shall watch the November manufacturing index in Eurozone, and moves of LME market.

Aluminium: The most-traded SHFE 2201 aluminium closed up 0.66% or 125 yuan/mt to 19120 yuan/mt, with open interest down 7821 lots to 195647 lots.

On the supply side, domestic aluminium supply is unlikely to rise significantly, and aluminium smelters in north China is expected to reduce their output in the heating season and during the Beijing Winter Olympics, supporting aluminium prices. On the demand side, the shipments of aluminium ingot and aluminium billet from warehouses have been inspiring, and the inventory is likely to keep falling in the short term. However, the longs are still hesitating.

Lead: The most-traded SHFE 2201 lead closed down 0.88% or 135 yuan/mt at 15280 yuan/mt, with open interest down 1243 lots to 40756 lots.

In spot market, the primary lead smelters mostly quoted with premiums at 0 – 50 yuan/mt over SMM #1 lead; the mainstream quotes in major trading market in Zhejiang and Jiangsu were in premiums of 0 – 30 yuan/mt over SHFE 2112. The offers from secondary lead smelters were mostly in wide discounts, which stood at 170 – 250 yuan/mt over SMM #1 lead.

The smelters became more willing to sell after the lead prices reversed the upside trend, as they worry that the prices may drop further, leading to more supplies in the market. The downstream is provided with more choices, but they mostly purchased on rigid demand. Hence, the transactions could hardly improve.

Lead prices are likely to keep falling in the near time due to slowly recovering supply and shrinking downstream demand.

Zinc: The most-traded SHFE 2201 zinc closed up 0.48% or 110 yuan/mt at 23025 yuan/mt, with open interest down 906 lots to 77797 lots.

On the fundamentals, overseas energy prices kept soaring, and some officers in Italy suggested there might be power outrage in Europe. Hence, the overseas smelting market is still facing great risks. Meanwhile, the LME inventory has still been at a low level, supporting zinc prices to some extent. In China, the sluggish downstream demand generated bearish factors to the market.

Tin: The SHFE 2201 tin closed up 0.18% or 510 yuan/mt at 287800 yuan/mt, with open interest down 1366 lots to 43312 lots.

In terms of daily chart, the capitals have been leaving the board, indicating a cooling market. On the fundamentals, the supply and demand remain stable, and the warrants were still falling. Spot premiums stayed high, and market shipments were less changed.

Nickel: The most-traded SHFE 2202 nickel closed up 0.43% or 640 yuan/mt to 149090 yuan/mt, with open interest up 29541 lots to 163529 lots.

The SHFE nickel shadowed the moves of SS2201 and broadly rising ferrous metals. And the rising LME market also supported SHFE nickel. The fundamentals have been stable recently, hence the nickel prices are likely to move rangebound in the near term.