LIVE FUTURES REPORT 05/09: SHFE base metals prices rise on easing trade tensions, softer dollar; Ni, Pb buck trend

With the exception of nickel and lead, base metals prices on the Shanghai Futures Exchange were up during the morning trading session on Thursday September 5, with the complex buoyed by improved risk sentiment following an easing of geopolitical tensions and softer dollar.

Investors’ appetite for risk has grown following favorable geopolitical events overnight that saw Hong Kong withdraw a controversial extradition bill, UK members of parliament vote to delay Brexit and Italy form a new government.

“Base metals were stronger… as easing tensions in Hong Kong seemed to lift sentiment towards risk assets,” ANZ Research analyst Felicity Emmett said in a morning note.

“Headlines out of China’s State Council meeting also supported prices. China wants a timely reduction in reserve ratios, as well as the use of other tools to support the economy,” Emmett added.

The improvement in risk sentiment has also led to a decline in the dollar, which is further supporting the base metals this morning.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was up 0.09% at 98.49 as at 10.07am Shanghai time. But this is down considerably from a recent two-year high of 99.03 on August 30.

Benefitting from the positive backdrop and mirroring the strength witnessed on the London Metal Exchange on Wednesday, zinc was the biggest gainer of the SHFE base metals in percentage terms this morning.

The galvanizing metal’s most-traded October contract on the SHFE rose to 19,075 yuan ($2,665) per tonne as at 10.07am Shanghai time, up by 290 yuan per tonne – or 1.5% – from Wednesday’s close of 18,785 yuan per tonne.

“Spot treatment charges (TCs) for zinc concentrate, cif China rose to $275-305 per tonne on August 30 from $265-290 per tonne on July 26,” Fastmarkets’ analyst Andy Farida said.

“A negative Chinese arbitrage and well-supplied smelters means global supply of zinc concentrates is plentiful and comes amid planned Chinese smelter outages over June-August,” Farida added, adding there is less zinc ingots available because of the high treatment costs and outages.

“That said, production is set to return to normal from this month onward,” Farida concluded.

The rest of the complex were mostly little changed to up: October copper (+0.8%), October aluminium (unchanged), September tin (+0.3%). Nickel led on the downside with a 3.1% drop in its most-traded November contract, while the October lead contract slid by 0.2%.

The more pronounced weakness in nickel follows weeks of price gains after Indonesia announced it would ban the export of nickel ore from January 2020.

Other highlights

  • The Shanghai Composite Index was up 1.56%, at 3,003.44 as at 11.30am Shanghai time.
  • In European data on Wednesday, the United Kingdom’s services purchasing managers’ index (PMI) came in at 50.6 for August, missing an expected 51. In contrast, the European Union’s final services PMI over the same period was better than expected at 53.5 – beating the forecast 53.4.
  • In data on Thursday, German factory orders and a host of US releases including ADP non-farm employment change, revised non-farm productivity, revised unit labor costs, unemployment claims, final services PMI, the Institute for Supply Management (ISM) non-manufacturing PMI, factory orders and crude oil inventories are due.