LIVE FUTURES REPORT 04/04: SHFE zinc prices outperform amid trade optimism, healthy fundamentals

Zinc prices on the Shanghai Futures Exchange outperformed with an increase of 1.1% during morning trading on Thursday April 4 amid optimism over US-China trade talks and the metal’s solid fundamentals.

Hopes of an imminent trade deal between the United States and China had boosted sentiment across commodities markets, including those for the base metals, on Wednesday.

“Sentiment in the base metal sector was boosted after US and China appeared to be closing in on trade deal. White House economic advisor, Larry Kudlow, said that negotiators are making good headway,” Daniel Been, analyst at Australia and New Zealand Banking Group (ANZ), said in a morning note.

But with China’s chief negotiator, Liu He, scheduled to meet with US President Donald Trump later today, a degree of caution has crept back into the market and investors seemingly want to see further developments before deciding to chase prices higher.

This has not affected zinc prices on the SHFE too much, however, while the metal continues to benefit from a positive fundamental backdrop.

The most-traded May zinc contract on the SHFE rose to 23,150 yuan ($3,449) per tonne as at 9.59am Shanghai time, up by 1.1% or 245 yuan per tonne from Wednesday’s close of 22,905 yuan per tonne.

“Relatively solid fundamentals in zinc remain supportive to prices in the short term,” a Shanghai-based analyst said.

“Stronger seasonal demand in the second quarter, coupled with smelter maintenance, is likely to put visible stocks under further pressure. Price risks remain skewed to the upside in the short to medium term,” Fastmarkets analyst James Moore also said.

Meanwhile, London Metal Exchange zinc stocks continue to drop, hovering near their lowest level on record at 43,150 tonnes on-warrant.

Zinc stocks in SHFE-approved warehouses started to fall two weeks ago; stocks totaled 109,804 tonnes in the week ended March 29, down by 11.5% from the 124,038 tonnes recorded on March 15.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was little changed from the previous day’s close at 97.09 as at 11.11am Shanghai time.
  • Apart from zinc, the other SHFE base metals prices were mostly little changed this morning, the exceptions being lead and tin that were both down by 0.4%.
  • In US data on Wednesday, ADP non-farm employment change in April came in at 129,000, below the forecast of 184,000. The final services purchasing managers’ index (PMI) for March came in at 55.3, besting the 54.8 estimate.
  • In US data scheduled for Thursday, we have weekly unemployment claims. That said, market participants should primarily be focused on whatever developments may come out of ongoing US-China trade talks which continue later.