LIVE FUTURES REPORT 14/05: Escalating trade conflict sinks SHFE base metals prices; zinc tumbles 1%

Base metals prices on the Shanghai Futures Exchange were all down during morning trading on Tuesday May 14 with escalating trade tensions between China and the United States continuing to dent market sentiment.

The broad sell-off this morning follows an intensifying of US-China trade tensions on Monday after the Chinese government announced that it would impose tariffs on $60 billion worth of US goods from June 1, extending a bilateral trade war.

“Although a retaliation by China was expected, news that China intends to lift tariffs on $60 billion worth of US imports by between 10% to 25%, with more than half the goods subject to the higher tariff rate, had triggered a sharp sell-off in equities,” Rodrigo Catril, currency strategist at National Australia Bank, said in a morning note.

The Shanghai Composite Index was down by 0.36% as at 11.30am Shanghai time. This follows weakness in the US on Monday when the Dow Jones Industrial Average closed down by 2.38% at 25,324.99.

“Follow-through selling has emerged in key global equity markets as confidence to hold or buy risky assets is clearly shaken and the demand outlook on industrial base metals has deteriorated too,” Fastmarkets MB analyst Andy Farida said.

Zinc was the worst performer of the SHFE base metals so far on Tuesday. The galvanizing metal’s most-traded July contract fell to 20,625 yuan ($3,002) per tonne as at 10.15am Shanghai time, down by 205 yuan per tonne or 1% from Monday’s close of 20,830 yuan per tonne.

SHFE zinc prices are mirroring the weakness seen on the London Metal Exchange on Monday, which saw the three-month zinc price close down by 2.6% following the fresh inflow of more than 8,000 tonnes into LME-registered warehouses in Europe.

Adding to the headwinds for zinc is a potential rise in refined metal production in China.

“Smelters will be resuming production soon while zinc concentrate processing fees continue to be high, which could affect investor sentiment and cause the zinc price to be weak,” analysts with China-based Citic Futures Research said in a morning note.

Fastmarkets MB most recently assessed Asia-Pacific zinc spot treatment charges (TCs) at $260-290 per tonne cif on April 26. This was down from $270-305 per tonne a month before, which had been the highest level since the assessment began, in 2014.

“Increased margins for smelting zinc have prompted buying pressure, with several Chinese zinc smelters restarting previously shuttered operations,” Farida said.

Other highlights

  • The US dollar index inched up by 0.03% to 97.35 as at 10.15am Shanghai time.
  • In European data on Tuesday, the United Kingdom will release its average earnings index, unemployment rate and claimant count change while Germany will release its ZEW economic sentiment index.
  • US data of note due on Tuesday includes the National Federation of Independent Business (NFIB) small business index and import prices.
  • In addition, US Federal Open Market Committee members John Williams and Esther George are due to speak.
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