LIVE FUTURES REPORT 15/10: SHFE base metals prices mostly little changed; nickel drops 2.5%

Base metal prices on the Shanghai Futures Exchange gave a subdued performance during morning trading on Tuesday October 15, with the complex largely little changed while market participants continue to digest developments in United States-China trade negotiations.

The most-traded December contracts for copper (+0.02%) and aluminium (+0.07%) were only marginally in positive territory, while December zinc gave the strongest performance of the complex in percentage terms with a gain of 0.5%. November lead (-0.24%) and January tin (-0.40%) both edged downward, but it was nickel that gave the standout performance this morning with a drop of 2.5% in its most-traded December contract.

The December nickel contract stood at 132,330 yuan ($18,719) per tonne as at 10.33am Shanghai time, down by 3,440 yuan per tonne from a close of 135,770 yuan per tonne on Monday.

Following initial optimism from news that the US and China had agreed to a partial trade deal at the end of last week, doubt emerged overnight after China was reported to be asking for more time to iron out the details of the trade deal.

Comments from US Treasury Secretary Steven Mnuchin overnight, in which he said tariffs against China may rise in December if the tentative deal struck last week is not finalized, further dampened the recent optimism stemming from trade developments.

“Investors were reluctant to jump on the rally bus while enthusiasm about the potential for a significant US-China trade breakthrough waned,” Stephen Innes, Asia Pacific market strategist from AxiTrader, said in a note.

Soft data out of China this morning further fueled risk-off sentiment in global markets this morning.

China’s producer price index (PPI) dropped by 1.2% year on year in September, according to data released by the country’s National Bureau of Statistics on Tuesday. The decline was the quickest in more than three years and follows a 0.8% year on year drop in August.

This coupled with the disappointing trade data released on Monday - which saw China’s dollar-denominated trade surplus widened to $39.7 billion in September, from $34.8 billion a month earlier - is subduing investors’ buying appetite this morning.

In nickel, tempered expectations of tightening supply while the market gradually digests the expediting of Indonesia’s ban on nickel ore exports is weighing on prices.

Indeed, market insiders expect the deficit in the refined nickel market to shrink this year despite Indonesia’s ban on nickel ore exports coming into effect from next year - two years earlier than previously expected.

The International Nickel Study Group (INSG) pegged the refined nickel market in a 48,200-tonne deficit across the first seven months of the year and forecast a deficit of 84,000 tonnes for the full year in 2019 - revised down from a 128,000-tonne shortfall.

Other highlights

  • Amid the disappointing macroeconomic headlines, recent supply disruptions in Peru and Ecuador are helping to support red metal prices. The most-traded December copper contract was little changed with a slight upward bias at 46,980 yuan per tonne as at 10.33am Shanghai time, compared with a close of 46,970 yuan per tonne on Monday.
  • The dollar index, which gauges the strength of the US currency against a basket of foreign currencies, was down by 0.02% at 98.43 as of 11.11am Shanghai time.
  • In European data on Monday, the German wholesale price index on a month on month basis for the September-October period fell by 0.4%, larger than an expected fall of 0.2%. Meanwhile, the European Union’s industrial production topped expectations with a seasonally adjusted increase of 0.4% in September.
  • In data on Tuesday, China’s consumer price index (CPI) rose by 3% year on year in September, exceeding the forecast for a 2.8% increase.
  • Later, UK jobs data and German and EU ZEW economic sentiment are due.
  • In addition, Bank of England (BOE) governor Mark Carney and BOE Monetary Policy Committee member Gertjan Vlieghe are speaking.
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