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Commodities markets benefitted from a wave of positivity following news that US President Donald Trump’s administration had postponed a decision on the imposition of a new 25% tariff on car imports.
The decision eased concerns of increasing US protectionism which in turn reduced risk-off sentiment in the base metals market.
“Trade tension also eased after reports that the Trump administration is holding off (for now) on imposing new tariffs on automobile imports,” ANZ Research noted on Thursday.
The uptick in investor confidence stemming from easing global trade tensions was supported by a retreat in the dollar index, providing the SHFE base metals complex with a much-needed boost this morning.
The dollar index, at 96.93 as at 10.13am, is down significantly from its recent high of 97.77 reached on Monday.
Analysts attributed the weaker US currency to a surge in oil prices, which has caused investors to hold back from trading oil.
In turn, this saw investors turn to other commodities, such as base metals, which also accounted for the greater liquidity seen in the SHFE base metals complex so far on Thursday.
As a result, SHFE base metals prices were up across the board this morning, recovering from the weakness witnessed on Thursday.
Zinc outperformed its peers, with the metal’s most-traded January contract on the SHFE climbing 1.4% to 21,060 yuan ($3,028) per tonne as at 10.13am Shanghai time from Wednesday’s close.
“While China’s fixed asset investment and industrial added value were better than expected, consumption and real estate development investment slowed down. The economy continued to remain weak in October. However, domestic smelters are expected to reduce production which should support zinc prices in the short term,” Guotai Junan Futures said on Thursday.
This expectation of tighter supply was corroborated by the latest report from the International Lead & Zinc Study Group (ILZSG), which stated that the global refined zinc market will record a deeper deficit in 2018 at 322,000 tonnes – up from the 263,000-tonne deficit forecast in May.
“Despite rising mine supply it projects the market will remain structurally tight in 2019 at a deficit of 72,000 tonnes. The ILZSG pegged the refined zinc market in a 76,200-tonne deficit in August,” Fastmarkets analyst James Moore said.
Shanghai Futures Exchange zinc stocks totaled 37,378 tonnes on November 9, which is down 51.6% since the beginning of the year.
Base metals prices
Currency moves and data releases