SMM Morning Comments (Dec 17): Base Metals Were Boosted By BOE Interest Hike Overnight

SHANGHAI, Dec 17 (SMM) – Shanghai base metals all trended upward on Friday morning after Bank of England unexpectedly raised its benchmark interest rate. Meanwhile, their counterparts on LME mostly cruised higher.

LME base metals closed with gains in the trading on Thursday. Copper rose 2.38%, aluminium increased 3.08%, lead advanced 0.83%, and zinc gained 5.3%.

SHFE base metals performed similarly on Thursday. Copper increased 2.01%, aluminium rose 2.39%, lead went up 1.65%, and zinc gained 3.41%.

Copper: Three-month LME copper opened at $9,486/mt last night and fluctuated around $9,500/mt. It closed at $9,477.5/mt, up 2.38%. The trading volume was 16,000 lots, and the open interest was 253,000 lots. LME copper is expected to trade between $9,450-9,550 yuan/mt today.

The SHFE 2202 copper contract opened at 69,130 yuan/mt and increased 2.01% to settle at 69,040 yuan/mt last night. The trading volume was 42,000 lots, and the open interest was 126,000 lots. SHFE copper is expected to trade between 68,900-69,500 yuan/mt today, with spot premiums between 60-130 yuan/mt.

On the macro side, the US dollar index fell as the Bank of England unexpectedly raised its benchmark interest rate by 15 points and the European Central Bank took the first step in tightening the monetary policy. The Fed’s optimistic economic forecasts boosted the market sentiments, and the copper futures rebounded significantly. The market transactions were relatively thin approaching the end of the year. The market was less willing to accept the current prices amid Fed’s hawkish forecast. Although the import window is closed, some previously imported goods still arrived, weighing on the spot premiums.

Aluminium: LME aluminum opened at $2,605/mt on Thursday and closed at $2,690.5/mt, an increase of $80/mt or 3.08%.

Overnight, the most-traded SHFE 2201 aluminum contract opened at 19,215 yuan/mt, with the highest and lowest prices at 19,535 yuan/mt and 19,215 yuan/mt before closing at 19,515 yuan/mt, up 455 yuan/mt or 2.39%.

Domestic aluminum output remains low. Only one smelter in Ningxia may reduce output. There is lower possibility that smelters in Inner Mongolia will reduce output due to the Winter Olympics. On the demand side, downstream consumption is relatively stable. As of Thursday, social inventories of aluminum ingot fell by about 42,000 mt from a week ago to 910,000 mt. On the cost side, the most-traded thermal coal futures contract rose 5.03% yesterday to 744 yuan/mt, driving SHFE aluminum to rally by more than 2%. It is expected that SHFE aluminum will remain strong today, and it is still necessary to pay attention to the sustainability of consumption and cost changes.

Lead: Three-month LME lead opened at $2,305/mt yesterday, hitting the lowest level at $2,288/mt and advanced 0.83% to settle at $2,294/mt.

The most-active SHFE 2201 lead contract opened at 15,425 yuan/mt and rose 1.65% to close at 15,685 yuan/mt on Thursday.

Zinc: Three-month LME zinc gained 5.3% to settle at $3,457/mt overnight, with open interest decreasing 754 lots to 244,000 lots. Zinc stocks across LME-listed warehouses fell 750 mt or 0.36% to 206,825 mt. LME zinc is expected to move between $3,410-3,460/mt today. 

The most-liquid SHFE 2201 zinc contract gained 3.41% to settle at 23,940yuan/mt last night, with open interest increasing 17,623 lots to 192,700 lots. On the supply side, Xinxing Company will begin maintenance of its smelter in France from the first week of January 2022 to deal with the current and expected increase in electricity prices in France. The company announced on October 13 that it will reduce the production of its smelter in France by 50%, which has an annual production capacity of 150,000 mt due to the electricity price hike. Some downstream producers cut or suspended the production amid weak consumption and the COVID pandemic. Zinc prices are unlikely to fall in the short term due to tight electricity supply. The most-traded SHFE 2201 zinc contract is expected to move within a range of 23,700-24,200 yuan/mt today and spot premiums for domestic #0 Shuangyan will be seen at 100 yuan/mt over the January contract.

Nickel: SHFE nickel prices closed at 144,910 yuan/mt last evening, returning to the level seen early this week.

At present, the nickel spot market supply continues to be tight. The tight spot supply has caused the premiums to continue to rise. Jinchuan nickel premiums stood at 5000 yuan/mt. The nickel import window is gradually opening, and some sources may flow into the market in the near term. This combined with the delivery of SHFE nickel contracts under warrants, will increase the supply. The demand changes are small as the market purchases as needed amid low SHFE nickel prices.

It is expected that the market premiums will remain at a high level amid the recent tight nickel spot market.

Tin: Overnight, the SHFE 2201 tin contract rose to around 284,000 yuan/mt with open interest down. There is no clear direction for SHFE tin prices in the short term. Production of smelters is stable. Solder companies may resume production slightly.