LIVE FUTURES REPORT 13/03: Soft dollar buoys most SHFE base metals prices; zinc supported by supply concerns

The dollar index, at 96.98 as at 10.54am Shanghai time, continues to retreat from the multi-month high of 97.72 reached on March 5, which just overcame the December 2018 peak at 97.71.

The dollar began to pull back following weak employment figures from the United States at the end of last week, with a slightly disappointing consumer price index (CPI) reading overnight compounding the currency’s weakness.

US headline CPI increased by 0.2% on a seasonally adjusted basis in February from a month earlier, in line with forecasts. The core reading missed expectations however, with a 0.1% gain over the same comparison, below the forecast 0.2% gain.

“US CPI data came in a touch softer than the market expected with attention turning to next week’s [Federal Open Market Committee] meeting. Recent indicators have been mixed, and there is little evidence of inflation picking up. As such, the market is expecting an increasingly dovish statement from the upcoming meeting,” Jack Chambers, interest rate strategist and economist at Australia and New Zealand Banking Group (ANZ), said in a morning note

The softer US currency has led to a more risk-friendly environment with the SHFE base metals broadly benefitting as a result.

Zinc led the SHFE base metals higher with a 1.3% gain since Tuesday’s close, with the galvanizing metal finding additional support from supply concerns.

The most-traded May zinc contract on the SHFE stood at 21,875 yuan ($3,258) per tonne as at 10.54am Shanghai time, up by 280 yuan per tonne from Tuesday’s close of 21,595 yuan per tonne.

The strength in SHFE zinc prices tracks a similar performance by the three-month zinc price on the London Metal Exchange on Tuesday, with latter closing 3.6% higher at $2,838 per tonne amid dwindling stocks in LME warehouses.

“The weaker USD helped boost sentiment in the industrials sector… However, zinc prices rallied the most as the market fretted about ongoing supply issues. Rumors that Nyrstar is considering options such as bankruptcy unless restructuring talks progress spooked the market,” ANZ’s Chambers added.

Recent data from the International Lead & Zinc Group highlighted the risks to the market if Nyrstar – Europe’s biggest zinc smelter – is indeed declared bankrupt, reporting that the global refined zinc market began 2019 in deficit.

“Headline data from the ILZSG pegged the refined zinc market in a 28,000-tonne deficit in January. The ILZSG forecasts the refined zinc market to record a 72,000-tonne deficit in 2019, adding to the 384,000-tonne deficit in 2018,” Fastmarkets analyst James Moore said.

In copper, prices shrugged off the softer dollar with investors more focused on rising domestic stock levels in China and concerns over downstream demand.

Copper stocks in the Shanghai-bonded zone hit a 20-month high this week due to several Chinese smelters delivering cargoes into the bonded zone to take advantage of an export arbitrage.

Shanghai-bonded copper stocks totaled 534,000-540,000 tonnes on Monday, an increase of 34,000-40,000 tonnes from a week earlier, according to Fastmarkets’ latest assessment. The latest figure is 153,000-154,000 tonnes or 39% higher than the 2018 low of 381,000-386,000 tonnes reached on October 22.

Meanwhile, deliverable copper stocks at SHFE-approved warehouses rose to 236,169 tonnes on March 8, up by 141% compared with 97,979 tonnes on January 11.

Base metals prices

• The SHFE May copper contract inched down by 130 yuan per tonne to 49,320 yuan per tonne.
• The SHFE May aluminum contract was up by 45 yuan per tonne to 13,580 yuan per tonne
• The SHFE April lead contract rose by 95 yuan per tonne to 17,510 yuan per tonne.
• The SHFE May zinc contract rose by 280 yuan per tonne to 21,875 yuan per tonne.
• The SHFE May nickel contract was down by 320 yuan per tonne to 102,210 yuan per tonne.
• The SHFE May tin contract price was up by 540 yuan per tonne to 147,580 yuan per tonne.

Currency moves and data releases

• The dollar index was little changed at 96.98 as at 10:43am Shanghai time.
• In equities, the Shanghai Composite was down by 0.37% to 3,049.01 as at 11.30am Shanghai time.
• In US data on Tuesday, the NFIB small business index stood at 101.7, below the 102 forecast. CPI data was a touch softer than expected; headline CPI increased by 0.2% on a seasonally adjusted basis in February from a month earlier, in line with forecasts. The core index rose by 0.1% over the same comparison, below the forecast 0.2% gain.
• Also on Tuesday, UK members of parliament (MPs) voted to reject the Brexit deal that Prime Minister Theresa May had negotiated with the European Union.
• MPs will vote on Wednesday whether the United Kingdom should leave the EU without a deal, and if that fails, will vote on Thursday whether Brexit should be delayed.
• In other major data of note on Wednesday, the UK will release its annual budget while the US will release include durable goods orders, producer price index, construction spending and crude oil inventories.