LIVE FUTURES REPORT 09/01: Trade optimism supports SHFE base metals prices

The most-traded March copper contract on the SHFE stood at 47,610 yuan ($6,944) per tonne as at 10.09am Shanghai time, up 270 yuan per tonne from Tuesday’s close.

Investors’ appetite for riskier assets, including base metals, has strengthened following positive developments in US-China trade talks, which are expected to extend into a third day.

“Reports were circulating on the US-China trade talks as the mid-level US and Chinese officials in Beijing have expected negotiations to the third day which is fueling investor optimism suggesting there might be a light at the end of the trade war tumultuous tunnel,” Stephen Innes, head of trading for Asia Pacific at Oanda, said.

“Certainly the evidence that the ongoing trade dispute is causing economic – and thus political – damage in both countries is accumulating, meaning both sides have an incentive to make progress,” ANZ Research said.

Sentiment received a further boost following US President Donald Trump’s post on social media website Twitter which said “talks with China are going very well”.

A softer US dollar also provided the SHFE base metals with some support; the dollar index stood at 95.81 as at 10.42am Shanghai time after a high of 96.03 on Tuesday. It also remains well below a recent high of 96.97 reached on January 2 – the first trading day of 2019.

In China, an announcement by the country’s central bank that it will cut the reserve requirement ratio by 100 basis points from mid-January has also fueled improved risk sentiment. The move is expected to free up to $116 billion for new lending.

Nickel was the outperformer of the SHFE base metals this morning, recording a 1% increase; the most-traded May nickel contract price moved up to 91,730 yuan per tonne as at 10.09am Shanghai time, up 900 yuan per tonne from Tuesday’s close.

The supply tightened following the closure of import arbitrage window, and therefore triggered buying among downstream consumers.

Domestic supply of nickel has tightened following the closure of the import arbitrage window, resulting in increased buying from downstream consumers who are looking to secure tonnages before the Chinese New Year holiday (February 4-10).

“The closure of the import window for nickel seen since last week has resulted in more active buying from downstream,” Citic Futures said in a morning note, adding that prices for the metal should continue to be supported by consumers restocking ahead of the holiday in China next month.

Importers stood to lose $139.52 for each tonne of nickel brought into China on Tuesday, according to Fastmarkets MB’s calculations. This compares with a profit of $29.41 per tonne on January 2..

Base metal prices

• The SHFE March copper contract price rose by 270 yuan per tonne to 47,610 yuan per tonne.
• The SHFE March aluminium contract price ticked up by 15 yuan per tonne to 13,405 yuan per tonne.
• The SHFE March zinc contract price gained 170 yuan per tonne to 20,535 yuan per tonne.
• The SHFE February lead contract price edged up by 170 yuan per tonne to 17,580 yuan per tonne.
• The SHFE May tin contract price moved up by 1,050 yuan per tonne to 146,270 yuan per tonne.
• The SHFE May nickel contract price rose by 900 yuan per tonne to 91,730 yuan per tonne.

Currency moves and data releases

• The dollar index was up 0.03% to 95.81 as of 10.42am Shanghai time.
• In equities, the Shanghai Composite was up 1.6% to 2,566.85 at 11.08am Shanghai time.
• In European data on Tuesday, German industrial production fell by 1.9% month on month in November 2018, which is steeper than the downwardly revised 0.8% decline recorded a month prior. The French trade deficit widened to €5.1 billion ($5.8 billion) in November 2018 from €4.1 billion previously.
• The Halifax house price index (HPI) showed UK house prices increased by 2.2% month on month in December 2018, following a 1.2% decline in the prior month.
• In US data on Tuesday, the National Federation of Independent Business (NFIB) small business index stood at 104.4 last month, slightly below the previous reading of 104.8. Jolts job openings for November 2018 stood at 6.89 million, which is lower than both the forecast and previous readings of 7.07 million and 7.13 million respectively. US consumer credit increased to $22.1 billion in November 2018, only slightly lower than the $25-billion gain in the preceding month, which was the fastest pace in 11 months.
• At 9pm Eastern Time on Tuesday, US President Trump delivered a prime-time address to the American people on the controversy surrounding funding for a wall along the US-Mexico border, an issue which has led to a two-week partial shutdown of the US government.
• In data on Wednesday, the German trade balance, Italian monthly unemployment rate and EU unemployment rate are due. US releases include crude oil inventories and the minutes from the Federal Open Market Committee’s (FOMC) December meeting.
• In addition, Bank of England governor Mark Carney and FOMC members Charles Evans and Eric Rosengren are due to speak.