SMM Morning Comments (Dec 27): Base Metals Dropped amid Expectations of Fed’s Tightening Monetary Policies

SHANGHAI, Dec 27 (SMM) – Shanghai base metals mostly trended higher on Monday morning. LME market is closed for Christmas holiday today.

LME metals closed with losses in the trading last Friday. Copper dropped 0.44%, aluminium fell 0.98%, and zinc lost 0.03%.

SHFE metals closed mixed in the overnight trading last Friday. Copper inched up 0.07%, aluminium fell 0.74%, lead dropped 0.58%, zinc rose 0.14%, and nickel shed 1,000 yuan/mt.

Copper: Three-month LME copper opened at $9,605/mt in the overnight trading last Friday, hitting the lowest and highest levels at $9,561.5/mt and $9,607/mt respectively, and closed 0.44% lower at $9,597/mt. The trading volume was 2,429 lots, and the open interest was 248,000 lots. LME market is closed for Christmas holiday today.

The SHFE 2202 copper contract opened at 69,770 yuan/mt last Friday night, falling to the lowest point at 69,490 yuan/mt and then rebounding to 69,920 yuan/mt. It closed at 69,840 yuan/mt, up 0.07%. The trading volume was 20,000 lots, and the open interest was 142,000 lots. SHFE copper is expected to trade between 69,300-70,000 yuan/mt today, with spot prices between a discount of 20 yuan/mt and a premium of 60 yuan/mt.

The global economic market will be closed frequently for Christmas and New Year holidays. SHFE copper moved downward on the expectations of the Fed’s tightening monetary policy. The spots holders desired to collect funds at the end of the year, and the market demand of current-month invoices declined. The premiums shrank rapidly to around the flat level. However, the holders refused to lower the prices further to discounts on the last trading day of long-term orders in the year. Therefore, the prices stood at narrow premiums despite scarce transactions.

Aluminium: Three-month LME aluminium opened at $2,845/mt last Friday and closed at $2,820/mt, a decrease of $28/mt or 0.98%.

The most-traded SHFE 2202 aluminium contract opened at 20,265 yuan/mt during last Friday’s night session, with the lowest and highest at 19,960 yuan/mt and 20,275 yuan/mt before closing at 20,035 yuan/mt, down 150 yuan/mt, or 0.74%.

The cost of electricity, raw materials and auxiliary materials for domestic aluminium smelters has declined. In December, the prices of thermal coal and alumina continued to fall, and the cost of smelters fell below 18,000 yuan/mt. The bulls lack confidence. However, in the short term, aluminium prices will remain high under the support of overseas production cuts and the continued destocking of domestic social inventories. Aluminium prices may also face downside risks. It is necessary to be alert to the potential easing of the natural gas shortfalls in the future and supply from regions where energy costs are lower.

Lead: LME market will be closed during December 27-28 for Christmas holiday.

The most-liquid SHFE 2201 lead contract opened at 15,465 yuan/mt and hit the lowest point at 15,320 yuan/mt, before closing at 15,360 yuan/mt, down 0.58%. The open interest increased 1,333 lots to 43,871 lots.

Zinc: Three-month LME zinc fell 0.03% to settle at $3,517/mt last Friday, with open interest increasing 2,005 lots to 249,000 lots. LME stocks across LME-listed warehouses declined by 175 mt or 0.09% to 203,225 mt. LME zinc fell slightly approaching the holiday, and transactions thinned.  

The most-liquid SHFE 2202 zinc contract rose 0.14% to settle at 24,395 yuan/mt, with open interest decreasing by 310 lots to 107,400 lots. The natural gas prices in Europe continued to rise. Smelters in Europe suspended the production amid the severe energy supply. Galvanising plants in north China were subject to environmental protection while the operating rates in Tangshan, Hebei fell sharply. The orders of die-casting plants declined amid high zinc prices. The absolute price will still be driven by overseas fundamentals on the whole. The most-traded zinc contract is expected to move between 24,000-24,500 yuan/mt today and #0 domestic Shuangyan zinc may trade at premiums of 10-30 yuan/mt over the January contract.

Tin: The SHFE 2201 tin contract surged after the opening during last Friday’s night session, but then quickly fell back, and fluctuated around 288,000 yuan/mt. Domestic inventories decreased significantly last week, while overseas inventories rebounded. It is expected that the overall supply and demand will maintain a balance.

SHFE tin will continue to hover sideways amid stable supply and demand.

Nickel: SHFE nickel contract shed 1,000 yuan/mt to end at 147,710 yuan/mt in the overnight trading. Trading volumes decreased 72,000 lots to 126,000 lots and open interest decreased 7,000 lots to 146,000 lots. SHFE nickel prices ended a four-day winning streak. From the current fundamental perspective, the import window is open and the supply of nickel in the spot market is increasing. On the demand side, the demand from stainless steel and nickel sulphate is expected to be weak. And the support for nickel prices is insufficient. SHFE nickel prices are expected to move between 143,000-151,000 yuan/mt this week and LME nickel prices are expected to fluctuate between $19,600-20,350/mt.