LIVE FUTURE REPORT 31/07: SHFE base metals prices retreat on Trump’s trade comments, weak China data; lead slides 1.7%

In a reversal of the previous day’s show of strength, base metals prices on the Shanghai Futures Exchange were down across the board during morning trading on Wednesday July 31.

Lead was the worst performer of the complex with a drop of 290 yuan ($42) per tonne, or 1.7%, in its most-traded September contract to 16,545 yuan per tonne as at 10.11am Shanghai time, compared with Tuesday’s close of 16,835 yuan per tonne.

Losses were more tempered in the others: September zinc (-1.2%), September copper (-0.9%), September tin (-0.5%), October nickel (-0.3%) and September aluminium (-0.2%).

The broad-based weakness comes amid a mixture of poor economic data from China this morning and dampened expectations of a positive outcome from US-China trade talks after US president Donald Trump criticized China on its trade practices via posts on social media platform Twitter on Tuesday.

In data on Wednesday morning, China’s manufacturing purchasing managers’ index (PMI) for July remained in contractionary territory at 49.7, which although was slightly better than the forecast reading of 49.6, continues to reflect that trade war tariffs are hurting the Chinese manufacturing sector.

China’s non-manufacturing PMI for July disappointed at 53.7, dropping from 54.2 previously and missing an expected reading of 54.0.

Adding to the downward pressure were comments from President Trump on Tuesday in which he criticized China and downplayed any chances of a trade deal. The news dampened the growing enthusiasm surrounding the resumption of trade talks between China and the United States seen at the start of the week.

“China is doing very badly… my team is negotiating with them now, but they always change the deal in the end to their benefit,” President Trump said on Twitter. “The problem with [China] waiting, however, is that if and when I win, the deal that they get will be much tougher than what we are negotiating now… or no deal at all.”

“President Trumps aggressively tinged trade tweet sent equity markets toppling while providing a stark reminder to investors that the US and China are no closer to an agreement and in fact, might be drifting farther apart,” Stephen Innes, managing partner from Vanguard Markets, said in a morning note.

In lead, the more pronounced weakness comes amid a softening in the London Metal Exchange’s three-month price overnight after fresh 12,250-tonne inflow into LME global sheds. Deliverable LME lead stocks are now up by 21.4% at 67,325 tonnes from 55,475 tonnes on July 26.

The latest inflows into LME sheds have compounded a weakening fundamental backdrop for lead which is already facing weak downstream demand in China and a possible increase in supply once Nyrstar Port Pirie smelter in Australia comes on stream.

“The underlying fundamentals appear supportive but have begun to soften. The International Lead & Zinc Study Group (ILZSG) pegged the refined lead market in a 42,000-tonne deficit in the first five months of 2019; still, the market recorded a modest 13,400-tonne surplus in May. And the latest ILZSG are less supportive, predicting forecasts a 71,000-tonne surplus in 2019 after an 81,000-tonne deficit in 2018,” Fastmarkets analyst James Moore said.

“Downstream signals from the global automotive sector remain weak, with global light vehicle sales dropping 6.6% year on year in the first half of 2019, according to LMC Automotive. The China Association of Automobile Manufacturers (CAAM) also now expects automobile sales in China in 2019 to fall by 5% in 2019 as a whole compared with the 1% contraction forecast previously,” Moore added.

Other highlights

  • The Shanghai Composite index edged down by 0.71% to 2,931.48 as at 11.12am Shanghai time.
  • The dollar index was up 0.02% at 98.06 as at 10.11am Shanghai time.
  • The much-awaited minutes from the US Federal Open Market Committee’s (FOMC) meeting are due on Wednesday. An interest rate cut is also widely expected at the meeting, with a cut of 25 basis points seen as most likely.
  • The ADP non-farm employment change and the Chicago PMI are also of note on Wednesday.