LIVE FUTURES REPORT 07/05: SHFE base metals prices rebound on news that US-China trade talks will go ahead; Cu up 0.8%

Base metals prices on the Shanghai Futures Exchange staged a broad rebound during morning trading on Tuesday May 7, with the market finding relief from news that a Chinese delegation will travel to Washington this week to continue trade talks with the United States.

The news was welcomed by markets amid fears that trade talks had been derailed following US President Donald Trump’s threat to raise tariffs on $200 billion of Chinese goods to 25% on Friday because US-China trade negotiations are moving “too slowly”.

With fears somewhat alieved and trade talks going ahead as planned, the base metals responded positively on Tuesday morning.

On the SHFE, only lead failed to secure any significant gains as it was up just 0.1% as at 9.31 am Shanghai time. The rest of the complex were considerably stronger, led by gains of 0.8% in nickel and copper.

The most-traded July copper contract rose to 48,370 yuan ($7,159) per tonne as at 9.31am Shanghai time, up 380 yuan per tonne from Monday’s close of 47,990 yuan per tonne.

“Markets got a bit of reprieve overnight on news that [Chinese Vice Premier Liu He] would travel to Washington this week for negotiations, with China appearing to be seeking a middle ground,” Cherelle Murphy, analyst at Australia and New Zealand Banking Group (ANZ), said in a morning note.

Providing further support to the SHFE base metals was an announcement by China’s central bank that it would cut reserve requirement ratios (RRRs) to release about 280 billion yuan for some small and medium-sized banks.

Aluminium also shrugged off a potential increase in US import tariffs on Chinese aluminium products, boosted by a steady drawdown in on-exchange stocks and expectations of firmer demand in the second quarter of the year.

The most-traded June aluminium contract price on the SHFE rose to 14,025 yuan per tonne at 9.31am Shanghai time, up 100 yuan per tonne or 0.7% from Monday’s close of 13,925 yuan per tonne.

Prior to the Labor Day holiday in China (May 1-4), SHFE aluminium stocks fell by 27,037 tonnes to 638,030 tonnes. This is down from 722,092 tonnes in early April.

Meanwhile, spot demand should remain strong during the traditional peak consumption season in the second quarter of the year.

“Aluminium stocks [in SHFE sheds] have dropped significantly. Meanwhile, downstream demand is strong during the traditionally peak consumption season. All of this is lending good support to aluminium prices,” an analyst with Chinese broker Guotai Jun’an Futures said.

“In the spot market, overall the liquidity is good as some traders are active in purchasing the metal,” the analyst added.

Other highlights

– Lead gave the worst performance of the SHFE base metals so far this morning. The most-traded June lead contract price on the SHFE rose to 16,395 yuan per tonne, up only 15 yuan per tonne from Monday’s close of 16,380 yuan per tonne.
– The weakness in lead comes despite recent drawdowns in on-exchange stock levels; SHFE lead stocks totaled 28,987 tonnes on April 30, down from 34,630 tonnes on April 4.
– The economic agenda is light today with Job Openings and Labor Turnover Survey (JOLTS) and IBD/TIPP economic optimism from the US of note.
– Market participants will also be eagerly awaiting any developments from the US-China trade talks scheduled for Wednesday.

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