LIVE FUTURES REPORT 03/09: Weakness across SHFE base metals complex; lead prices buck trend

An escalation in the trade spat between China and the United States shook sentiment in the base metals market, with reports late last week that US President Donald Trump is planning to implement fresh tariffs on $200 billion worth of Chinese goods this week.

“[Trump] also criticised the [Chinese] government’s management of the yuan, saying they have devalued the currency in response to recent slowdown in economic growth,” ANZ Research noted on Monday.

“This weighed on sentiment in the base metals sector,” it added.

Adding further fuel to investors’ concerns was the stalling of trade talks between the US and Canada and subsequent series of tweets from Trump with a threat to exclude Canada from the North American Free Trade Agreement if more favorable terms were not met.

“The markets have made a nervous start in the Asian session as once more a presidential tweet has unnerved investors. This time it was the threat of excluding Canada from Nafta if terms were not more favorable to the USA or indeed that if Congress interferes with negotiations President Trump states that he will simply terminate the whole Nafta agreement,” Kingdom Futures director and chief executive Malcolm Freeman said in a morning note.

“This of course has ignited further tensions about a possible further escalation of the tariff ‘war’ between the USA and China…” Freeman added.

In addition, a stronger dollar has added to the downside pressure currently forcing base metals prices on the SHFE lower; the dollar index stood at 95.18 as at 10am Shanghai time, this compares with a reading of 94.77 at roughly the same time last Friday.

As a result the SHFE base metals were broadly down in the early session, with nickel leading the complex lower. Nickel’s most-traded November contract fell to 104,700 yuan ($15,327) per tonne as at 10am Shanghai time, down by 2.7% or 2,900 yuan per tonne from last Friday’s close.

“The main reason for the decline was the global trade tensions, which fueled negative sentiment in the market,” a Shanghai-based nickel analyst.

Copper also fell heavily during the morning session, with the red metal’s most-traded October contract sliding 1% to 48,080 yuan per tonne.

Bucking the general weakness was lead which drifted higher as it found support from tightness in the Chinese secondary lead market following a shutdown of a number of refineries in China during environmental inspections last month.

“The Chinese lead market is a little bit isolated from the international one. The main reason for its prices edging higher is the reduced output from secondary lead smelters in China. The new round of environmental inspections in the country affected many smelters in major lead-producing provinces,” a Shanghai-based lead analyst told Metal Bulletin.

Base metals prices

• The SHFE lead October contract rose 145 yuan per tonne to 18,955 yuan per tonne.
• The SHFE October copper contract declined 500 yuan per tonne to 48,080 yuan per tonne.
• The SHFE October aluminium contract dipped 45 yuan per tonne to 14,845 yuan per tonne.
• The SHFE October zinc contract retreated 240 yuan per tonne to 21,325 yuan per tonne.
• The SHFE January tin contract fell 730 yuan per tonne to 145,650 yuan per tonne.

Currency moves and data releases

• The dollar index was up by 0.08% at 95.18 as at 10am Shanghai time.
• In other commodities, Brent crude oil was up 0.23 % at $77.48 per barrel as at 10.00 am Shanghai time.
• In equities, the Shanghai Composite dropped 0.94 % to 2,699.66 as at 11.34 am Shanghai time.
• In data last Friday, China’s manufacturing purchasing managers’ index (PMI) for August was better than expected at 51.3, while the non-manufacturing PMI surprised to the upside with a print of 54.2, exceeding a forecast reading of 53.8.
• In the United States, the Chicago PMI came in at 63.6, above the forecast of 65. University of Michigan consumer sentiment and inflation expectations stood at 96.2 and 3% respectively.
• In data today, China’s Caixin manufacturing PMI for August was slightly below expectations at 50.6, compared with a forecast reading of 50.7.
• Later, there is a host of manufacturing PMI data out across Europe and German Bundesbank President Jens Weidmann is speaking.
• There is no US data scheduled for Monday due to the Labor Day holiday in the country.