SMM Evening Comments (Dec 2): Shanghai Nonferrous Metals All Closed with Losses amid Spreading COVID Variant

SHANGHAI, Dec 2 (SMM) – Shanghai nonferrous metals all closed in the negative zone as the fears over COVID variant Omicron returned amid rising confirmed cases, and the hawkish signals from the Federal Reserve also supressed the market sentiment.

Shanghai copper lost 1.24%, aluminium slid 1.24%, lead dropped 0.39%, zinc shed 0.87%, tin was flat, and nickel declined 1.05%.

Copper: The most-traded SHFE 2201 copper closed down 1.24% or 860 yuan/mt to 68650 yuan/mt, with open interest up 1204 lots to 155980 lots.

On the macro front, US Fed Chair Powell emphasised that the market shall stay alert to inflation, and suggested for the second time in two days that it is appropriate to consider wrapping up the stimulus package. The hawkish speech boosted US dollar index.  

In terms of oil, overnight crude prices moved down amid the first known omicron case confirmed in California, US, as well as the US Department of Energy’s clarification that it will not modify the timeline or scale of releasing strategic crude reserves. But the oil prices revised up in the day, which constrained the downside room of copper.

Tonight, the market shall watch the US initial jobless claims in the week of November 27 and COVID-related news.

Aluminium: The most-traded SHFE 2201 aluminium closed down 1.24% or 235 yuan/mt to 18765 yuan/mt, with open interest up 4088 lots to 199735 lots.

The aluminium supply side was relatively stable with no news heard regarding reduced or resumed production. On the demand side, the downstream operating rates rallied recently amid loosening power rationing. But the market shall closely watch whether the air pollution control measures in the heating season and during Winter Olympics will bring down the operating rates again.

Lead: The most-traded SHFE 2201 lead closed down 0.39% or 60 yuan/mt at 15245 yuan/mt, with open interest up 192 lots to 40948 lots.

In spot market, primary lead smelters’ offers have been lowered from flat over SMM #1 lead to discounts, and mainstream quotes in trading markets in Zhejiang and Jiangsu were is discounts of 0 – 30 yuan/mt over SHFE 2112. The secondary lead smelters were active in making shipments, and the discounts over SMM #1 lead have expanded to 200 – 300 yuan/mt, as some smelters and traders are estimated to sell off. The downstream was less interest in making purchase, and has been waiting for further discounted secondary lead. Hence the spot transactions have been sluggish, which did not improve much from a day earlier.

The market was generally pessimistic, as the Fed is highly likely to advance tapering regardless of the impacts of inflation and COVID variant. However, the short-term supply is likely to stay low amid a new round of environmental protection-related inspections and disrupted production of smelters in north China due to poor weather; hence lead prices will gain support from the fundamentals and shake off the possibility of steep falls.

Zinc: The most-traded SHFE 2201 zinc closed down 0.87% or 200 yuan/mt at 22895 yuan/mt, with open interest down 2656 lots to 75141 lots.

The overseas COVID variant omicron, first spotted in South Africa with the first known case confirmed in California, US, has weighed on market sentiment, though bullish factors from overseas markets, including energy crisis and historical low LME inventory, still existed.

In China, the expected falling TCs indicated that ore supply has been shrinking. And the production of some manufacturers in north China was restricted by environmental protection policies. While the demand side posed no surprises. In other words, the domestic zinc market has been weak both in demand and supply.

Tin: The most-traded SHFE 2201 tin closed down 0.04% or 110 yuan/mt at 286320 yuan/mt, with open interest up 670 lots to 43982 lots.

On the fundamentals, the supply and demand remained stable, and warrants kept falling. The transaction prices and premiums in spot market also did not change much.

Nickel: The most-traded SHFE 2202 nickel closed down 1.05% or 1560 yuan/mt to 147390 yuan/mt, with open interest down 8085 lots to 155444 lots.

Intraday LME moved rangebound, and SHFE nickel followed the broad market. On the fundamentals, stainless steel prices kept falling, and the marginal growth of new energy sector declined; therefore, the market demand for nickel tumbled. Currently, pure nickel inventory was still low, offering some support to SHFE nickel.