LIVE FUTURES REPORT 05/12: Uncertainty over US-China trade developments sinks most SHFE base metals prices

A series of tweets from US President Donald Trump on Tuesday suggested a trade war with China could resume next year despite claims of a truce and work on a long-term deal between the two nations.

“….I am a tariff man. When people or countries come in to raid the great wealth of our nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in tariffs. Make America rich again,” Trump tweeted.

In response, US stock markets fell heavily on Tuesday; the Dow Jones closed down by 800 points or 3.1% at 25,027, while S&P 500 declined 90 points or 3.2% to 2,700 and the Nasdaq slid 283 or 3.8% to 7,158.

The poor performance by US equities overnight, coupled with the uncertainty surrounding China-US trade developments has further dented risk sentiment, subsequently pressuring base metals prices this morning.

The most-traded February copper contract on the SHFE stood at 49,350 yuan ($7,209) per tonne as at 10.35am Shanghai time, down by 300 yuan per tonne from Tuesday’s close.

In addition to the trade uncertainty, copper is also contending with a softening of demand in China, reflected by weakness in regional premiums; the grade A copper cathode premium on a cif basis in Shanghai remains near its lowest level since the beginning of the year at $65-75 per tonne – down 36.4% from a peak of $110-115 per tonne in mid-September.

Shanghai-bonded copper stocks increased by 4% to 398,000-405,000 tonnes in November from October after consecutive declines in the five previous months due to a continued and growing import loss between the London Metal Exchange and the SHFE.

The negative import arbitrage has also encouraged the shipment of copper cathode produced by Chinese domestic smelters into the bonded area.

The rest of the SHFE base metals were broadly weaker, with lead the lone metal to secure any gains.

Base metals prices

• The SHFE January aluminium contract dipped by 35 yuan per tonne to 13,765 yuan per tonne.
• The SHFE January zinc contract fell by 75 yuan per tonne to 21,175 yuan per tonne.
• The SHFE January lead contract edged up by 90 yuan per tonne to 18,565 yuan per tonne.
• The SHFE January nickel contract fell by 1,070 yuan per tonne to 90,950 yuan per tonne.
• The SHFE January tin contract was up by 50 yuan per tonne to 145,420 yuan per tonne.

Currency moves and data releases

• The dollar index was up by 0.085% at 97.067 as at 10.52 am Shanghai time.
• In equities, the Shanghai Composite was down by 0.21% at 2,660.35 as at 11.30 am Shanghai time.
• In European data released on Tuesday, the United Kingdom’s construction purchasing managers index (PMI) for November came in at 53.4, beating expectations of a 52.5 print and surpassing October’s figure of 53.2.
• Meanwhile, the European Union’s producer price index (PPI) month on month for November hit 0.8%, surpassing both the expected figure at 0.5% and the previous reading of 0.6%.
• In the United States, the IBD/TIPP economic optimism figures for November settled at 52.6, much lower than both the expected 57.3 level, and October’s reading of 56.4.
• In data on Wednesday, China’s Caixin services PMI surprised to the upside at 53.8, beating an expected 50.7.
• Later there is a host of services PMI releases from Spain, France, Germany, the European Union and the UK.
• In the US, the Federal Open Market Committee’s Beige Book is due for release.