LIVE FUTURES REPORT 17/07: Dollar strength, trade concerns suppress SHFE base metals prices; tin drops 1.1%

Base metals prices on the Shanghai Futures Exchange mostly drifted lower during morning trading on Wednesday July 17, with the complex coming under pressure from strength in the dollar and growing risk aversion stemming from US-China trade tensions.

The US currency remains in relative high ground and therefore is acting as a general headwind for SHFE base metals prices this morning.

Despite retreating slightly on Tuesday, dovish speech from US Federal Reserve officials overnight has allowed the dollar index to reclaim the psychological level of 97. The index was at 97.34 as at 9.30am Shanghai time on Wednesday, compared with 96.98 at roughly the same time on Tuesday.

“[Federal Reserve chairman Jerome] Powell largely reiterated points from his testimony to Congress, noting that the Fed would ‘act as appropriate’ amid increased uncertainties. Chicago Fed President Evans called for two cuts by year-end, while Dallas Fed President Kaplan said that he’s open to a rate cut but that just one ‘tactical’ cut would be enough,” Daniel Been, analyst at ANZ Research, said in a morning note.

At the same time, growing aversion to risk amid concerns of a possible escalation in the trade conflict between the United States and China has further dampened market participants’ appetite for commodity investment.

“President Trump reminded investors just how fragile and uneasy the post-G-20 (Group of 20) trade war truce [is] when he reiterated that he could impose additional tariffs as the US becomes increasingly frustrated by the lack of follow-through on China’s G-20 pledge to purchase more US agricultural products in exchange for the loosening of the US ban on Huawei,” Stephen Innes, managing partner of Vanguard Markets, said in a morning note.

Against this unfavorable backdrop, the majority of base metals prices on the SHFE drifted lower during morning trading on Wednesday. Losses were ranged between little changed for lead and 1.1% for tin. Bucking the weakness, however, was zinc with a gain of 0.7%.

Tin, giving the worst performance of its peers, had its most-traded September contract on the SHFE drop to 133,460 yuan ($15,404) per tonne as at 9.30am Shanghai time, down by 1,430 yuan per tonne from Tuesday’s closing price of 134,890 yuan per tonne.

The more pronounced price weakness in tin comes amid weak demand for the metal from its downstream sectors.

“Despite supply tightness, refined tin demand has faced headwinds from a weak semiconductor sector. According to the Semiconductor Industry Association, global semiconductor sales totaled $171.5 billion in the first five months of the year, down by 8.3% from the same period last year,” Boris Mikanikrezai, Fastmarkets research analyst, said.

Other highlights

  • Leading on the upside was zinc, with the metal’s most-traded September contract jumping to 19,380 yuan per tonne as at 9.30am Shanghai time, up by 130 yuan per tonne, or 0.7%, from Tuesday’s closing price of 19,250 yuan per tonne.
  • In data on Tuesday from the US, month-on-month core retail sales (which exclude auto and fuel sales) and retail sales were both unchanged at 0.4%, beating forecast of 0.1%.
  • In data on Wednesday, a flurry of data including consumer price index (CPI) from the United Kingdom and Europe will be of note. US releases including building permits, housing starts, crude oil inventories and the Federal Reserve’s Beige Book are also noteworthy.