LIVE FUTURES REPORT 08/01: SHFE base metals prices consolidate; lead weakens again

Most SHFE base metals were little changed with a slightly negative bias this morning, the exceptions being tin and zinc, with a firmer dollar weighing on the complex.

After falling to a multi-month low of 95.64 on Monday, the dollar index moved up by 0.16% to 95.80 as at 9.53am Shanghai time. The index remains far below the recent high of 97.71 reached on December 14, 2018, however.

“The renewed trade talks between China and United States, the world’s two largest economies, buoyed the overall market sentiment and thus lent support the dollar index,” Yinhe Futures Research said on Tuesday.

The weaker tone across the SHFE base metals complex comes despite positive comments from the director of China’s National Bureau of Statistics (NBS), Ning Jizhe, who said in an interview with Chinese state media that the country’s economic growth in 2018 is likely to meet the target of 6.5% set at the beginning of last year.

The NBS will hold a press conference on January 21 where it will release official figures on Chinese economic growth for 2018, according to local media reports.

In a second consecutive day of weakness, the most-traded February lead contract on the SHFE fell to 17,530 yuan ($2,557) per tonne as at 9.54am Shanghai time, down by 0.8% or 140 yuan per tonne from Monday’s close.

In addition to the downward pressure being exerted by a firmer dollar, lead is also contending with weak downstream demand, which is a further drag on prices.

“The downstream lead storage batteries industry has shown concern toward the market in the future, so their procurement is only based on their actual production needs,” Citic Futures Research said on Tuesday, adding that sufficient supply in the market is also pressuring lead prices.

On the other hand, lead’s sister-metal zinc was the top performer of the SHFE base metals thanks to the metal’s bullish fundamental backdrop.

The most-traded February zinc contract on the SHFE rose 0.3% or 65 yuan per tonne to 20,585 yuan per tonne as at 9.54am Shanghai time.

The International Lead and Zinc Study Group (ILZSG) pegged a sizeable market deficit of 301,000 tonnes in the first ten months of 2018. And the study group now estimates the deficit will expand to 322,000 tonnes by the end of 2018. But the study group predicts that rising global mine output could see the deficit contract to 72,000 tonnes in 2019.

Lending further support to zinc prices is data from China’s NBS that showed total refined zinc production in the country was down 3.7% year on year in 2018 amid curbed capacity utilization among major smelters.

Though the ILZSG expects global mined zinc output to grow by 2% to 13.03 million tonnes in 2018 and a further 6.4% to 13.87 million tonnes in 2019, “with no immediate sign that zinc smelters can produce enough metal yet, the structural deficit will continue in 2019 and should reduce the downside risks for now,” Fastmarkets research analyst Andy Farida said.

Base metals prices

• The SHFE March copper contract dropped by 60 yuan per tonne to 47,370 yuan per tonne.
• The SHFE March aluminium contract edged down by 15 yuan per tonne to 13,445 yuan per tonne.
• The SHFE May tin contract moved up by 360 yuan per tonne to 145,410 yuan per tonne.
• The SHFE May nickel contract declined by 110 yuan per tonne to 90,720 yuan per tonne.

Currency moves and data releases

• The dollar index edged up by 0.16% to 95.80 as at 09.53am Shanghai time.
• In equities, the Shanghai Composite was down by 0.32% to 2,525.02 as at 10.19am Shanghai time.
• In European data on Monday, German factory orders fell more than expected last November with a 1% month-on-month drop, compared with the forecast 0.2% decline. The country’s retail sales for the same month increased by 1.4% from last October, beating an expected month-on-month rise of 0.4%.
• The European Union’s Sentix investor confidence index fell to -1.5 in January from -0.3 previously, but this was better than the -2 forecast. EU retail sales ticked up by 0.6% in November 2018 from the prior month, beating estimates of a 0.2% increase.
• In US data on Monday, the Institute for Supply Management (ISM) non-manufacturing purchasing managers’ index for December stood at 57.6, missing an expected 59.6 and down from 60.7 previously.
• In data on Tuesday, there is German industrial production, the French trade balance, the Halifax house price index from the United Kingdom as well as US releases that include trade balance, JOLTS job openings and consumer credit of note.