LIVE FUTURES REPORT 01/02: SHFE base metals prices rangebound ahead of China’s week-long holiday

Base metals prices on the Shanghai Futures Exchange were mixed within narrow ranges during Asian morning trading on Friday February 1, the last trading day ahead of the Chinese New Year holidays on February 4-10.

Despite positivity stemming from better-than-expected Chinese data on Thursday and signs that trade talks between China and the United States are progressing well, persistent fears of a slowdown in the Chinese economy continue to dictate a more cautious approach to trading this morning.

On Thursday, China’s manufacturing purchasing managers’ index (PMI) for January came in at 49.5, though still in contractionary territory, it surpassed an expected reading of 49.3.

A reading above 50.0 indicates industry expansion, while below that level signals contraction.

China’s non-manufacturing PMI, at 54.7 for January, performed even better as it outstripped forecast and previous readings of 53.9 and 53.8 respectively.

“While the release of [Chinese PMI data] for January came in better than market expectation, market participants feel the data is far from reassuring and suggests the economy has lost momentum,” Fastmarkets analyst Andy Farida said.

Indeed, China’s Caixin manufacturing PMI released early on Friday showed that the country’s manufacturing sector shrank more than expected in January; the index fell for a second straight month to 48.3 to reached its worst reading since February 2016.

The latest data added to the gloomier outlook in the market, but the reaction has so far been limited in the base metals with prices moving within narrow ranges amid relatively quiet conditions ahead of the week-long holiday in China next week.

The most-traded March copper contract on the SHFE dropped to 48,020 yuan ($7,166) per tonne as at 10.11am Shanghai time, down by 70 yuan per tonne or 0.2% from Thursday’s close.

Open interest for the March copper contract was at 168,314 lots on Friday, compared with 190,720 lots
a week ago.

Nickel was, comparatively speaking, the best performer across the SHFE base metals complex during Asian morning trading on Friday, supported by declining stocks and expectations of growing post-holiday demand.

The most-traded May nickel contract on the SHFE rose by 190 yuan per tonne or 0.2% to 98,020 yuan per tonne as at 10.11am Shanghai time.

Nickel stocks at SHFE-approved warehouses fell by 1,191 tonnes to 12,693 tonnes on January 25. This is down by 77.6% from 56,742 tonnes on January 26, 2018.

“Ferro-nickel supply [in China] is a bit tight, while the expectation of a ramp-up in stainless steel production is likely to boost demand,” analysts with Citic Futures Research said in a morning note.

Base metal prices

  • The SHFE March copper contract price declined by 70 yuan per tonne to 48,020 yuan per tonne.
  • The SHFE March aluminium contract price fell by 115 yuan per tonne to 13,395 yuan per tonne.
  • The SHFE March zinc contract price rose by 30 yuan per tonne to 22,210 yuan per tonne.
  • The SHFE March lead contract price ticked up by 15 yuan per tonne to 17,425 yuan per tonne.
  • The SHFE May tin contract price dipped by 130 yuan per tonne to 148,110 yuan per tonne.
  • The SHFE May nickel contract price increased by 190 yuan per tonne to 98,020 yuan per tonne.

Currency moves and data releases

  • The dollar index was up 0.08% to 95.63 as of 10.11am Shanghai time.
  • In equities, the Shanghai Composite was up 0.73% to 2603.46 at morning close.
  • In data on Thursday, the European Union’s gross domestic product (GDP) grew by 0.2% in the fourth quarter of 2018 compared with the previous quarter, according to preliminary flash estimates, while the unemployment rate in the euro area stood unchanged at 7.9% in December last year. Spanish GDP registered growth of 0.7% in the final quarter of 2018 compared with the prior quarter.
  • In US releases on Thursday, Challenger job cuts for January were up by 18.7% from December 2018, unemployment claims rose more than expected in the week ended January 26 at 253,000 – 215,000 had been forecast. The Chicago purchasing managers’ index dropped to 56.7 in January, down 7.1 points from last December’s downwardly adjusted 63.8, while new home sales were better than expected at 657,000 units in November 2018, beating the forecast 569,000 units.
  • In data on Friday, we have manufacturing PMI releases out across China, Europe and the United States. The EU’s core CPI estimate is also expected, while other US releases of note scheduled for Friday include the jobs report, revised University of Michigan consumer sentiment and inflation expectations, construction spending, wholesale inventories, ISM manufacturing prices and total vehicle sales.

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