LIVE FUTURES REPORT 02/04: SHFE base metals prices mixed on rising risk aversion

Base metals prices on the Shanghai Futures Exchange were mixed during the morning trading session on Thursday April 2, with the complex pressured by rising risk-off sentiment due to the ongoing Covid-19 pandemic.

“Selling returned to commodity markets as investors grappled with the long-term economic implications of the pandemic,” Daniel Been, head of foreign exchange strategy at ANZ Bank, said in a morning note.

This comes despite a slew of better-than-expected economic data out of China, Europe and the United States in recent days. The US’ final manufacturing purchasing managers’ index (PMI) stood at 48.5 in March, down from 49.2 previously but exceeding the forecast 48.2.

The US’ Institute for Supply Management manufacturing PMI also surprised to the upside, coming in at 49.1 in March, and surpassing analysts’ forecasts for a reading of 44.9.

PMI readings above 50 indicate expansion, while those below that level signal contraction.

The stronger-than-forecast readings out of the US follow similarly positive readings out of China earlier this week. Data on Wednesday showed China’s Caixin manufacturing purchasing managers’ index (PMI) stabilized in March; the index rose to 50.1 last month from a record low in February of 40.3.

This follows releases on Tuesday from the National Bureau of Statistics that showed China’s official manufacturing PMI rebounded to 52.0 in March from a reading of 37.5 in February, while the non-manufacturing PMI also underwent a strong recovery, bouncing up to 52.3 in March from 29.6 in the prior month.

But market participants continue to fixate on the negative headlines surrounding the Covid-19 pandemic and the economic fallout caused by various lockdowns around the globe to contain the virus’ spread, which is leading to some weakness across the SHFE base metals.

Still, supply disruptions arising from these lockdowns are providing some support.

In copper-related news, Teck Resources has suspended its 2020 production guidance due to the high degree of uncertainty associated with the Covid-19 pandemic and has reduced production at its Highland Valley Copper operations to 80-85% of normal levels.

The most-traded May copper contract rose to 39,170 yuan ($5,518) per tonne at the end of morning trading session on Thursday, up by 170 yuan per tonne or 0.4% from Wednesday’s close of 39,000 yuan per tonne.

Zinc was the only other base metal on the SHFE to record a gain in Thursday’s morning session; the most-traded May zinc contract was up by 75 yuan per tonne or 0.5% at 15,215 yuan per tonne.

The rest of the complex were unchanged to weaker this morning: May lead held at 13,680 yuan per tonne, unchanged from Wednesday’s close, while June nickel dropped by 0.9% to 91,860 yuan per tonne, June tin fell by 0.4% to 120,860 yuan per tonne and June aluminium slid by 0.6% to 11,375 yuan per tonne.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was slightly up by 0.16% at 99.62 as at 11.30 am Shanghai time.
  • The Shanghai Composite Index was up by 0.33% at 2,764.64 as at 11.30 am Shanghai time.
  • In data on Thursday, Challenger job cuts, unemployment claims, trade balance and factory orders from the US are of note.