LIVE FUTURES REPORT 03/02: SHFE base metals sell off as participants return from holiday; Cu plummets 6.3%

Base metals prices on the Shanghai Futures Exchange were all down heavily at close of morning trading on Monday February 3, the first trading day after China’s extended Lunar New Year holiday.

The weakness comes amid heightened risk aversion stemming from a worsening coronavirus outbreak, which has resulted in a slump across most sectors this morning.

“The virus outbreak uncertainty and its impact on economic activity has resulted in a big pullback in risk appetite with sharp falls in equity markets, commodities and rates,” Rodrigo Catril, currency strategist at the National Australia Bank, said on Monday.

According to the World Health Organization’s latest update, the novel coronavirus (2019-nCoV) which originated in the Chinese city of Wuhan has now spread to 27 countries, with 17,387 confirmed cases in total at the time of writing. The death toll currently stands at 362.

Investors are concerned that the impact of the coronavirus outbreak could negate the economic rebound that had been expected in China this year, with this reflected in the broad sell-off seen across the SHFE base metals this morning.

Copper led the decline, with the red metal’s most-traded March contract slumping to 44,980 yuan ($6,481) per tonne at the close of the morning session, down by 3,040 yuan per tonne or 6.3% from a close of 48,020 yuan per tonne on January 23.

“Copper remains unloved, with prices recording their largest monthly decline since 2015,” ANZ Research analyst Daniel Been said in a morning note.

“In a worrying sign for industrial demand, the State Grid Corp of China deferred tenders to purchase copper in provinces such as Henan, Beijing, Jiangsu and Hubei. With China consuming more than half the world’s copper, the impact of an extended shutdown in such areas could be significant,” Been added.

Elsewhere, the March aluminium contract fell by 3.1% to 13,665 yuan per tonne, the March zinc contract dived by 4.6% to 17,330 yuan per tonne, the March lead contract dropped by 3.8% to 14,285 yuan per tonne, the June tin contract retreated by 4.4% to 131,280 yuan per tonne and the April nickel contract declined by 3.6% to 101,930 yuan per tonne.

On Sunday, the People’s Bank of China announced that it would inject 1.2 trillion yuan worth of liquidity into markets via open market reverse repo operations. The bank said that the overall liquidity in the system will be 900 billion yuan more than at the same time last year.

The move has so far had a limited effect in shoring up the weakening commodity markets, however.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was up by 0.12% at 97.48 as at 12.22pm Shanghai time. This compares with a reading of 97.54 at a similar time on January 23 – the last trading day before China’s Lunar New Year break.
  • The Shanghai Composite Index plunged 8.13% at 2,734.66 as at 11.30 am Shanghai time.
  • In data on Friday, China’s manufacturing purchasing managers’ index (PMI) slid to 50 in January from 50.2 a month earlier, while the country’s non-manufacturing PMI exceeded analysts’ expectations at 54.1.
  • Meanwhile, data out of the United States on Friday showed the Chicago PMI plunge to 42.9 in January from 48.9 previously.
  • There is a raft of manufacturing PMI data out on Monday, including China’s Caixin reading that was better than expected at 51.1 and Japan’s final manufacturing PMI that disappointed at 48.8, coming in below the expected 49.3. Other regions scheduled to release final manufacturing PMI readings later include France, Germany, the Europe Union, the United Kingdom and the US.
  • Total vehicle sales from the US are also of note today.