LIVE FUTURES REPORT 05/03: SHFE base metals prices slide on dollar rebound, lackluster China data

Disappointing economic data from China early on Tuesday renewed concerns among market participants regarding a slowdown in global economic growth, prompting a more cautious approach to trading.

China’s Caixin services purchasing managers’ index (PMI) eased to a four-month low of 51.1 in February, falling short of the expected 53.5 and the previous 53.6. A reading above 50 signals industry expansion, while below that level indicates contraction.

Adding further downward pressure to the base metals market was a firmer US dollar; the dollar index stood at 96.69 as at 10.15am Shanghai time on Tuesday, up from 96.41 at a similar time on Monday and last Friday’s low of 96.06.

As a result of this less friendly environment toward risk, the base metals prices on the SHFE were down across the board, with aluminium leading the falls.

The most-traded May aluminium contract on the SHFE stood at 13,565 yuan ($2,023) per tonne as at 10.15am Shanghai time, down by 170 yuan per tonne or 1.2% from Monday’s close of 13,735 yuan per tonne.

The weakness in SHFE aluminium prices follows a similarly weak performance by the three-month price on the London Metal Exchange, which plunged by more than 2% at the close of trading on Monday.

“Optimism that a China-US trade deal is near has failed to offset the continued evidence of slowing global growth momentum, which is negative for the broader fundamentals [of the aluminium market],” Fastmarkets analyst James Moore said.

In wider market news, China’s Premier Li Keqiang announced plans on Tuesday to cut the value-added tax (VAT) rate that covers the manufacturing sector to 13% from 16% as part of efforts to support the country’s slowing economy.

Speaking at the opening session of the National People’s Congress in Beijing, Li also announced that the Chinese government is targeting economic growth of 6-6.5% in 2019 – less than the 6.6% gross domestic product growth reported last year.

Base metals prices

• The SHFE May copper contract plunged 410 yuan per tonne to 49,530 yuan per tonne
• The SHFE April lead contract tumbled 135 yuan per tonne to 17,575 yuan per tonne.
• The SHFE April zinc contract declined 250 yuan per tonne to 21,875 yuan per tonne.
• The SHFE May nickel contract price fell 700 yuan per tonne to 104,210 yuan per tonne.
• The SHFE May tin contract price plummeted 1,180 yuan per tonne to 149,120 yuan per tonne.

Currency moves and data releases

• The dollar index was up by 0.04% to 96.69 as at 10.15am Shanghai time.
• In equities, the Shanghai Composite fell 0.25% to 3,020.03 as at 10.33 am Shanghai time.
• In data on Monday, the number of unemployed people in Spain rose by 3,300 in February, lower than the forecast increase of 5,000.
• Meanwhile, the EU Sentix investor confidence for the February period improved to -2.2 from -3.7 previously, beating expectations of a fall to -3.1. The UK’s construction PMI over same period was worse however, falling from 50.6 previously to 49.5, and now in contraction territory.
• Elsewhere, US construction spending fell by 0.6% in December 2018, worse than the expected 0.2% gain.
• In data already out on Tuesday, China’s Caixin services PMI declined to 51.1 in February, down from 53.6 previously.
• Later there is services PMI data out across Spain, Italy, France, Germany, the European Union, the United Kingdom and the United States.
• Other US releases of note on Tuesday include the Institute for Supply Management non-manufacturing PMI, new home sales, the IBD/TIPP economic optimism and the federal budget balance.
• In addition, US Federal Open Market Committee member Eric Rosengren and Bank of England governor Mark Carney are speaking.