LIVE FUTURES REPORT 14/11: SHFE base metals prices mixed on fading trade optimism, weak data; zinc down 1.1%

Base metals prices on the Shanghai Futures Exchange were mixed during the morning trading session on Thursday November 14, with zinc leading on the downside with a 1.1% drop.

The most-traded January zinc contract on the SHFE slumped to 18,335 yuan ($2,612) per tonne as at 10.35am Shanghai time, down 205 yuan per tonne from Wednesday’s close of 18,540 yuan per tonne.

Compared with their closes on Wednesday, December aluminium (+0.1%) and February nickel (+0.4%) registered slight gains, while January copper (-0.1%), January lead (-0.8%) and January tin (-0.3%) followed zinc lower.

The mixed movements across the SHFE base metals come while investors digest disappointing Chinese data released this morning and headlines that the likelihood of a near-term trade deal between China and the United States seems to be quietly fading away.

In data this morning, China’s industrial output grew by 4.7% year on year in October, well below the expected 5.5% increase and down from 5.8% previously. Chinese retail sales also slowed last month with a 7.2% year-on-year gain, down from the 7.8% year-on-year increase in September.

The data suggests that the significant headwinds facing the Chinese economy persist, causing risk aversion among investors to increase.

Fading trade optimism added to the bearishness pervading markets this morning after headlines suggested that progress in US-China talks is being held up by a disagreement over farm purchases.

“In today’s rumor mill, Beijing apparently flinched at agreeing to specific US farm purchases. But it’s more about China getting locked into a numerical commitment as opposed to balking at the deal, so the headline was quickly reversed,” Stephen Innes, Asia Pacific market strategist at AxiTrader, said in a morning note.

“Putting an absolute number on any type of trade deal may open them up to enforcement mechanism reprisal, so this is something that needs to get ironed out and certainly not a bridge too far,” Innes added.

Zinc’s more pronounced weakness relative to its peers on the SHFE follows an apparent contraction in the deficit in the global refined zinc market.

According to recent International Lead & Zinc Study Group (ILZSG) data, global mined output of zinc concentrate rose by 2.05% year on year over the first eight months of 2019. Over the same period, global usage outpaced supply by 119,000 tonnes – considerably smaller than the 219,000-tonne deficit recorded in January-August 2018.

“The shrinking deficit reflects strong growth in global refined zinc production due to sufficient zinc ores and concentrates availability as well as favorable treatment charges,” Fastmarkets analyst Andy Farida said.

Other highlights

  • The dollar index, which gauges the strength of the US currency against a basket of foreign currencies, was up by 0.07% at 98.39 as at 10.35am Shanghai time.
  • In data on Wednesday, the United Kingdom’s consumer price index was at 1.5%, below the forecast 1.6% while the core consumer price index was at 1.7%, in line with expectations.
  • The US’ consumer price index was 0.4%, above the forecast 0.3% while the core consumer price index was at 0.2%.
  • It is a busy day for data on Thursday with highlights that include flash gross domestic product (GDP) readings from Germany and the European Union, while US releases include the producer price index, unemployment claims, the Conference Board’s leading index and crude oil inventories.
  • In addition, US Federal Reserve chair Jerome Powell is testifying on the economy before the House Budget Committee.