LIVE FUTURES REPORT 04/06: Weak dollar, positive fundamentals push SHFE copper up by 0.4%

Copper outperformed its peers on the Shanghai Futures Exchange with an uptick of 0.4% during morning trading on Tuesday June 4, with a sharp fall in the dollar overnight providing support to the red metal.

But lingering concerns over global trade disputes, that continue to weigh on overall market sentiment, are capping any meaningful gains in copper prices and are keeping the rest of the complex under downward pressure this morning.

The red metal’s most-traded July contract climbed to 46,320 yuan ($6,707) per tonne as at 09:27 am Shanghai time, up by 190 yuan per tonne from Monday’s close of 46,130 yuan per tonne.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, fell sharply overnight to 97.20 as at 9.27am Shanghai time, the lowest level since mid-May, following dovish comments from US Federal Open Market Committee (FOMC) member James Bullard.

“A massive rates rally across the curve occurred on Monday as rate cut bets grew following both very dovish comments from the St Louis Fed Chief Bullard and concerns that global trade wars will continue to worsen. The dollar fell against all its major trading partners after rate cut expectations surged for the Fed to cut rates at the July FOMC meeting,” Edward Moya, senior market analyst at Oanda, said in a morning note.

Meanwhile, China’s stronger-than-expected Caixin manufacturing purchasing managers’ index (PMI) for May, at 50.2, was flat with the prior month’s reading but beat the forecast reading of 50. This, to some degree, is buoying copper prices, according to an analyst with Chinese broker Guotai Jun’an.

Furthermore, a decline in on-exchange copper inventories is also providing support to red metal prices.

In the refined market, global exchange inventories (London Metal Exchange, SHFE, Comex) dropped by around 77,000 tonnes or 16% last month, according to Fastmarkets MB research analyst Boris Mikanikrezai.

In other supply news, employees at the Chuquicamata division of Chilean copper miner Codelco have continued to work while trying to secure a deal with the company, despite having voted for industrial action. The development is partially offsetting the positive backdrop for copper.

Other highlights

  • Zinc exhibited the most pronounced weakness of the SHFE base metals, with the metal’s most-traded July contract falling to 20,235 yuan per tonne as at 09:27 am Shanghai time, down by 245 yuan per tonne, or 1.2%, from Monday’s close of 20,480 yuan per tonne.
  • In data on Monday, the final manufacturing PMI in the EU was in line with expectations at 47.7, remaining in contraction territory, while the United Kingdom’s manufacturing PMI disappointed at 49.4 versus an expected 52.5.
  • In US data, the ISM manufacturing PMI data for the May period was recorded at 52.1, down from 52.8 previously but remaining in expansionary territory, while the US’ final manufacturing PMI data over the same period showed a level of 50.5, down from 50.6 previously.
  • In data on Tuesday, the UK’s construction PMI, EU consumer price index flash estimate and US factory orders are of note.
  • In addition, FOMC member John Williams and US Federal Reserve chairman Jerome Powell are speaking.