LIVE FUTURES REPORT 03/07: Weakness persists in SHFE base metals; Zn most resilient

Base metals prices on the Shanghai Futures Exchange were broadly down during morning trading on Wednesday July 3, with the complex down by an average of 0.8%.

Tin led the decline with a drop of 2.3%, which follows the 7% fall in the London Metal Exchange’s three-month tin price on Tuesday. The others, barring zinc, were down between 0.2% for nickel and 0.8% for lead. Zinc was the most resilient of its peers and the lone SHFE base metal to secure a gain this morning, with an increase of 0.6%.

Optimism following a trade truce between China and the United States being announced on the sidelines of the Group of 20 (G20) summit over the weekend has faded, with investors instead focusing on a slew of weak manufacturing data releases from China and Europe earlier this week.

The growing risk aversion in the market was compounded by the overnight release of the United Kingdom’s construction purchasing managers’ index (PMI) which plunged to 43.1 in June, from 48.6 in May and well below the 50.0 mark, which indicates industry contraction.

While in data this morning, China’s Caixin services PMI for June disappointing at 52, down from the prior month’s 52.7. The Caixin composite index slid to 50.6 last month from 51.5 in May.

“The release of global PMIs presented a gloomy picture for manufacturing activity and thus metals demand. The indexes fell across Asia and Europe, while growth in the US was limited. This was enough for investors to cut back on their recent bullish bets,” analysts with ANZ Research said in morning note.

Meanwhile, a firm US currency continues to add to the bearish backdrop for the base metals, deterring commodity investment. The dollar index, which measures the value of the US dollar against a basket of foreign currencies, was down by 0.03% at 96.70 as at 10.33am Shanghai time. This is considerably higher than the recent low of 95.84 on June 25.

In tin, prices face an additional headwind of rising concerns about downstream demand.

The most-traded September tin contract dropped to 131,450 yuan ($19,095) per tonne as at 10am Shanghai time, down by 3,860 yuan per tonne, or 2.9%, from Tuesday’s close of 135,310 yuan per tonne.

The price had fallen as low as 127,780 yuan per tonne over the morning session, the lowest since September 2016.

“Tin prices were also under pressure after a steep decline in sales of semiconductors raised concerns about demand from the solder sector,” analysts with ANZ Research said.

Other highlights

  • The Shanghai Composite Index was down by 0.7% at 3,022.73 as at 11.30am Shanghai time.
  • There is a host of US data out later on Wednesday that includes Challenger job cuts, the ADP non-farm employment change, trade balance, unemployment claims, ISM non-manufacturing PMI and factory orders.
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