LIVE FUTURES REPORT 02/03: SHFE base metals prices bounce despite weak China data; nickel surges 3.7%

In data this morning, China’s Caixin manufacturing purchasing managers’ index (PMI) slid to 40.03 in February, down from 51.1 previous and well below the expected 46.1 after the Chinese manufacturing sector was impacted by efforts to contain the recent outbreak of the novel coronavirus (2019-nCoV). A reading below 50 indicates industry contraction.

Releases over the weekend were worse however; on Saturday, China’s official manufacturing PMI plunged to an all-time low of 35.7, according to the National Bureau of Statistics (NBS). This is down from 50.0 previously and was also significantly lower than the forecast 45.1. The official non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – was similarly poor, dropping to 29.6 in February from 54.1 previously and is currently at its lowest since November 2011.

Despite this raft of poor data out of China, the base metals are holding up well on the first trading day of March, with risk sentiment benefitting from hopes of a recovery in Chinese manufacturing while transport and travel restrictions put in place to halt the spread of the coronavirus in the country continue to be lifted.

“If you’re wondering why the bounce in risk sentiment and oil bounding higher, look no further than business confidence, which rose on hopes of output recovering – firms are anticipating production to improve over the next year after coronavirus-related restrictions are lifted ramped up again,” Stephen Innes, chief Asia market strategist at foreign exchange brokerage Axitrader, said in a note on Monday.

“This is the crucial reason which explains why the Caixin PMI came in higher than the NBS one and the bounce higher across risk assets,” Innes added.

Another piece of positive news that could be supporting risk sentiment this morning is the fact that China’s central Hubei province reported only 196 new cases of the disease caused by the coronavirus (2019-nCoV) on Sunday, according to figures from the country’s National Health Commission. This is the lowest increase since January 24.

Against this less gloomy backdrop, the SHFE base metals registered considerable gains this morning, reversing some of the losses incurred over last week.

Nickel gave the best performance this morning, with its most-traded April contract surging to 101,840 yuan ($14,563) per tonne at the close of morning trading, up by 3.7% or 3,590 yuan per tonne from Friday’s close of 98,250 yuan per tonne.

“Although we envisage sellers to maintain their dominance of the complex in the short term, we believe that these lower nickel prices are starting to look attractive for long-term investors who wish to add to their bullish portfolios,” Fastmarkets analyst Andy Farida said.

Price gains were also seen in April lead at 14,620 yuan per tonne (+2%), April tin at 134,120 yuan per tonne (+1.8%), April copper at 45,160 yuan per tonne (+1.7%), April aluminium at 13,225 yuan per tonne (+0.9%) and April zinc at 16,120 yuan per tonne (+1.6%).

Other highlights

• The dollar index, which gauges the strength of the United States dollar against a basket of foreign currencies, was down 0.23% to 97.92 as at 11.30am Shanghai time. This is down from a reading of 98.48 at a similar time on Friday.
• The Shanghai Composite Index was up 2.94% to 2,956.11 as at 11.30am Shanghai time.
• In data on Monday, Japan’s final manufacturing PMI stood at 47.8 in February, slightly above the expected and previous readings of 47.6.
• A slew of final manufacturing PMI data is also expected from Europe and the United States later today.