LIVE FUTURES REPORT 05/07: Broad-based weakness continues in SHFE base metals prices; zinc leads retreat

Base metals prices on the Shanghai Futures Exchange were broadly down during Asian morning trading on Thursday July 5, with the complex continuing to come under pressure from growing trade concerns.

Zinc led the decline with its most-traded August contract on the SHFE sliding to 21,975 yuan ($3,313) per tonne as at 10.13am Shanghai time, down by 395 yuan per tonne or 1.8% from Wednesday’s close. Open interest for the contract dropped 8,320 positions to 167,082 positions on Thursday morning, compared with the previous day’s close.

Growing concerns of an uptick in US-China trade tensions continue to overshadow the market, denting sentiment for the base metals. Market participants will are likely to remain cautious in the run up to Friday, when China and the United States are set to implement reciprocal trade tariffs.

“Investors remained nervous, with China and the US preparing to initiate tariffs on a variety of goods later this week,” ANZ Research said. “With investors turning increasingly bearish, the momentum will be difficult to stop with the economic data also remaining soft.”

Last week, China’s official manufacturing purchasing managers’ index (PMI), a key indicator for the country’s economic growth, fell short of market expectations with a print of 51.5 in June – 51.9 had been called for. A reading above 50 indicates expansions, while below contraction.

The bearish sentiment has seen market participants taking up more short positions and liquidating long positions, further pressuring base metals prices.

In supply news, concerns over possible large in-flows of zinc from bonded warehouses offset domestic supply constraints resulting from the environmental crackdown seen across China in June.

Zinc stocks in the Shanghai-bonded zone remain high, with Metal Bulletin assessing inventories at 156,000-161,000 tonnes on Monday, up 38% or 44,000 tonnes from a year ago.

In copper, persistent worries over a weakened yuan against the dollar continued to stifle investors’ appetite for the red metal in China with SHFE prices falling below the 50,000-yuan-per-tonne level during the evening trading session on Wednesday.

According to exchange rate website, $1 was worth 6.63 yuan on Thursday, compared with 6.47 yuan two weeks ago.

Other base metals move lower; aluminium finds support

  • The SHFE August copper contract fell 390 yuan per tonne to 49710 yuan per tonne.
  • The SHFE August aluminium contract gained 10 yuan per tonne to 13,965 yuan per tonne.
  • The SHFE August lead contract dropped 240 yuan per tonne to 19,665 yuan per tonne.
  • The SHFE September nickel contract plunged 880 yuan per tonne to 111,780 yuan per tonne.
  • The SHFE September tin contract fell 1,390 yuan per tonne to 143,270 yuan per tonne.

Currency moves and data releases

  • The dollar index was down 0.1% at 94.57 as at 10.15am Shanghai time.
  • In other commodities, the Brent crude oil spot price was down 0.63% to $77.64 per barrel as at 10.15am Shanghai time.
  • In equities, the Shanghai Composite was down by 0.33% to 2,749.91 as at 11.11am Shanghai time.
  • In data on Wednesday, China’s Caixin services purchasing managers’ index (PMI) rose to 53.9 in June, from 52.9 in May. The United Kingdom’s services PMI was similarly strong last month, rising to 55.1 from 54.0 in the preceding month. There were no US releases on Wednesday due to the country’s Independence Day holiday.
  • The economic agenda is fairly light today with US data including ADP non-farm employment change, unemployment claims, final services PMI, ISM non-manufacturing PMI, crude oil inventories and the minutes from the Federal Open Market Committee’s June meeting of note.
  • In addition, Bank of England governor Mark Carney and German Bundesbank president Jens Weidmann are speaking.