LIVE FUTURES REPORT 16/08: SHFE base metals prices tumble further on strong dollar

Base metals prices on the Shanghai Futures Exchange tumbled further during morning trading on Thursday August 16, pressured by persistent strength in the dollar, which has been underpinned by positive economic data from the United States this week.

The dollar index was relatively stable at 96.70 as at 9.02am Shanghai time, hovering near its highest levels this year. The index peaked at 96.99 on Wednesday – its highest since late June 2017.

An improved US economic performance offered solid support to the currency, with data released on Wednesday showing US retail sales were up 0.5% in July. This was more than the expected 0.1% increase for the month, and a stark improvement from June’s 0.2%. Business inventories also rose by 0.1%, while capacity utilization rates stood at 78.1%, reflecting a strong economy in the third quarter of the year.

Meanwhile, the base metals complex is still reeling from the impact of the Turkish lira’s collapse this week and poor economic data from China that generated risk-off sentiment across wider markets.

“Growing concerns that issues in Turkey, as well as the trade conflict between US and China will lead to weaker global economic growth triggered another wave of selling in the base metals markets,” ANZ Research noted on Thursday.

Zinc led the decrease with its most-traded October contract on the SHFE falling 4.2%. The challenging fundamental backdrop and less bullish micro-dynamics for zinc has continued to hurt sentiment for this metal, according to Metal Bulletin analyst Andy Farida.

“Recent metal inflows into [London Metal Exchange]-approved sheds have amplified the abundance of idle metal and highlighted that the global refined zinc market is not as tight as it was back in 2016-2017. This has undermined the recent set of supportive data from the International Lead and Zinc Study Group that pegged the refined zinc market at a surplus of 3,000 tonnes in the first five months of 2018, down from the 18,000 tonnes in January-April of 2018,” Farida said.

Sister-metal lead tracked the weakness in zinc with a fall of 3% in its most-trade October contract, while copper was not far behind with a drop of 2.4% in its most-traded October contract.

Copper prices weakened after BHP and Escondida mine workers reported positive developments over its labor contract negotiations, thus delaying a strike and allaying fears of significant supply disruptions.

Aluminium showed the most resilience this morning with a decrease of 1.2% in its most-traded October contract price. The market continues to be on alert for possible headwinds that may affect supply, primarily the tightening restrictions on Russia that may details hopes of having sanctions on major producer UC Rusal lifted later this year.

Base metals prices

  • The SHFE November nickel contract was down 2,230 yuan ($322) per tonne to 107,770 yuan per tonne.
  • The SHFE October zinc contract fell 850 yuan per tonne to 19,650 yuan per tonne.
  • The SHFE October lead contract dipped 530 yuan per tonne to 17,330 yuan per tonne.
  • The SHFE September tin contract was down 2,140 yuan per tonne to 141,330 yuan per tonne.
  • The SHFE October copper contract fell 1,150 yuan per tonne to 47,400 yuan per tonne.
  • The SHFE October aluminium contract dropped 170 yuan per tonne to 14,370 yuan per tonne.

Currency moves and data releases

  • The dollar index was relatively stable at 96.70 as at 9.02am Shanghai time.
  • In other commodities, the Brent crude oil spot price was down by 0.21% at $70.65 per barrel as at 9.03 am Shanghai time.
  • In equities, the Shanghai Composite fell 0.42% to 2,711 as at 10.55am Shanghai time.
  • In data Wednesday, US retail sales were up 0.5%, productivity was up 2.9% and unit labor costs were down 0.9%. Business inventories ticked up 0.1%, while capacity utilization rates stood at 78.1%.
  • In data today, we have the US housing starts, building permits and the Philadelphia Fed manufacturing index.
  • European data includes the European Union’s trade balance, while Germany is releasing data on its whole price index and the United Kingdom is scheduled to publish data on retail sales.