LIVE FUTURES REPORT 11/06: Improving risk sentiment supports SHFE base metals prices; Cu up by 1%

With the exception of nickel that was little changed, base metals prices on the Shanghai Futures Exchange were all up during morning trading on Tuesday June 11.

The broad-based strength exhibited by the base metals comes amid an improvement in risk sentiment while market participants focus on an upcoming meeting between US President Donald Trump and his Chinese counterpart Xi Jinping at the Group of Twenty (G20) meeting in Japan on June 28-29.

Trump’s decision to drop threatened tariffs on Mexico after a last-minute immigration deal was struck over the weekend provided relief across markets and has inspired hope among participants that a trade deal between the US and China is still possible.

“Markets traded with a more positive tone, supported by comments that Trump still expected to meet with China’s Xi at the G20 Summit and that a China deal is going to work out,” analysts with ANZ Research noted on Tuesday.

“A solution on immigration was reached between the US and Mexico and it appears Mexico will avoid tariffs for now,” Edward Moya, senior market analyst at Oanda, said in a morning note.

“For now, markets will not worry about the Mexico and US relations and move the focus back to the ongoing Sino-US trade war,” Moya added.

Copper was the best performer of the SHFE base metals during the Asian morning trading session on Tuesday. The most-traded July copper contract stood at 46,740 yuan ($6,747) per tonne as at 10.23am Shanghai time, up by 480 yuan per tonne, or 1%, from Monday’s close of 46,260 yuan per tonne.

A more favorable import arbitrage between London and Shanghai during May has seen more inflows of copper cathode into China while market participants take advantage of the improved arbitrage. This in turn has boosted the premium for grade-A copper cathode in Shanghai, which Fastmarkets MB assessed at $50-69 per tonne cif on Monday, up from a multi-year low of $36-60 per tonne in early May.

At the same time, drawdowns in Shanghai-bonded copper stocks point to a pick-up in downstream demand in China; Fastmarkets MB assessed Shanghai-bonded copper stocks at 537,000-543,000 tonnes on June 3, marking a decrease of 33,000-35,000 tonnes, or 5.9%, from the 572,000-576,000 tonnes recorded on May 6, also the first monthly decline since October 2018.

In trade flows, Chinese copper concentrate imports grew strongly last month with a year-on-year rise of 17% to 1.84 million tonnes. Imports of unwrought copper and copper products were soft, however, with a drop of 23% year on year to 361,000 tonnes in May.

Market participants attributed the decrease in China’s imports of unwrought copper and copper products to significantly less financing demand for copper in the country rather than weakened downstream demand.

Since China’s top copper cathode importer Tewoo Group began experiencing liquidity troubles and has been issued much less credit from banks since late March, China’s copper demand for financing needs has fallen significantly.

Other highlights

  • Nickel bucked the firmer showing exhibited by its peers; the most-traded July nickel contract was little changed to weaker at 96,180 yuan per tonne as at 10.23am Shanghai time, down by 50 yuan per tonne from Monday’s close of 96,230 yuan per tonne.
  • The dollar index was little changed at 96.79 as at 10.56am Shanghai time.
  • The Shanghai Composite Index was up by 1.83% at 2,904.35 as at 11.28 am Shanghai time.
  • In data on Tuesday, EU Sentix investor confidence, UK average earnings index and the US producer price index are of note.
  • Data on Monday showed the UK’s economy contracted by 0.4% in April from the prior month, more than the 0.1% dip that had been forecast. Other UK releases were similarly disappointing; manufacturing production and construction output fell by more than expected in April with month-on-month declines of 3.9% and 0.4% respectively while industrial production slid by 2.7% over the same comparison.
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