LIVE FUTURES REPORT 14/08: SHFE base metals prices fall on currency volatility

Base metals prices on the Shanghai Futures Exchange succumbed to pressure from a volatile currency market during morning trading on Tuesday August 14, with the fall of the Turkish lira against the US dollar negatively affecting market sentiment.

With a lack of significant data released on Monday, the market instead continued to focus on volatility in the currency market.

“The Turkish lira fell another 8% overnight, with USD/TRY trading above 7.00 at times. Turkish authorities took their first steps to stem the lira’s decline. However, the initial action was deemed insufficient by the market,” ANZ Research noted on Tuesday.

“The threat of contagion from the increasingly weak Turkish lira is generating risk-off sentiment across wider markets at the start of this week,” according to Metal Bulletin analyst James Moore.

The dollar, meanwhile, was little changed at 96.31 as at 9.35am Shanghai time, but remains well up from a recent low of 94.16 on July 31. On Monday, the US currency had hit a high of 96.53 – its highest reading since June last year.

The increased risk-off sentiment in the market and firmer dollar were sufficient to keep base metals prices subdued in the early session on Tuesday. SHFE base metals prices were down across the board, with zinc leading the decline with a 2.1% drop.

The most traded October zinc contract on the SHFE stood at 20,805 yuan ($3,021) per tonne as at 9.35am Shanghai time, down 435 yuan per tonne from Monday’s close.

Zinc stocks at SHFE warehouses edged up by 1.5% in the week ending August 10 to stand at 49,243 tonne, but a Singapore-based source said the price weakness was likely due more to funds trading than the fundamentals.

In copper, investors ignored the possibility of supply disruptions amid ongoing labor disputes in South America, including a strike at the world’s largest copper mine by production, Escondida, due to unsettled wage negotiations between BHP and mine workers.

The most-traded October contract slid 0.6% or 280 yuan per tonne to 49,450 yuan per tonne as at 9.35am Shanghai time.

Indiscriminate selling from investors following the currency fluctuations this week has trumped the relatively positive fundamentals in the market, according to ANZ Research.

Base metals prices

  • The SHFE November nickel contract was down 2,320 yuan per tonne to 111,950 yuan per tonne.
  • The SHFE October zinc contract fell 435 yuan per tonne to 20,805 yuan per tonne.
  • The SHFE September lead contract dipped 10 yuan per tonne to 18,170 yuan per tonne.
  • The SHFE September tin contract was down 1,620 yuan per tonne to 143,970 yuan per tonne.
  • The SHFE October copper contract fell 280 yuan per tonne to 49,450 yuan per tonne.
  • The SHFE October aluminium contract dropped 5 yuan per tonne to 14,685 yuan per tonne.

Currency moves and data releases

  • The dollar index was little changed at 96.31 as at 9.35am Shanghai time.
  • In other commodities, the Brent crude oil spot price was up by 0.1% at $72.87 per barrel as at 9.03am Shanghai time.
  • In equities, the Shanghai Composite fell 0.49% to 2,772.23 as at 11.07am Shanghai time.
  • In data on Monday, China’s M2 money supply recorded a larger-than-expected rise in July with an 8.5% gain, against an expected increase of 8.2%. China’s new yuan-denominated loans stood at 1.45 trillion yuan ($211 billion) in July, up 627.8 billion yuan year on year, central bank data showed.
  • In data out already today, China’s fixed-asset investment growth slowed more than expected to 5.5% in the first seven months of the year, compared with a projected 6.0%.
  • China’s industrial production grew 6.0% in July, flat with the previous month but falling short of an expected 6.3%. Chinese retail sales for the same month also missed projections with year-on-year growth of 8.8% (forecast 9.2%, last 9.0%).
  • Later, we have European data that includes the German preliminary gross domestic product (GDP) print and the United Kingdom’s average earnings index, claimant count change and the unemployment rate. The European Union’s flash GDP is also due.