LIVE FUTURES REPORT 17/12: SHFE base metals prices broadly up after Friday’s weakness

There was a slightly firmer tone across the SHFE base metals complex this morning after the weakness seen last Friday, which had been driven by the release of weaker-than-expected economic data out of China.

This firmer tone comes amid an improvement in risk sentiment ahead of key events this week, at which positive news is widely expected to be delivered.

The US Federal Reserve will be holding its highly anticipated Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday, while China’s annual economic policy-setting meeting will take place from Wednesday to Friday.

At the former, the US central bank is widely expected to raise interest rates, but market participants will be paying close attention to the language used in the accompanying statement which details the Federal Reserve’s plan for the future – with many investors hopeful that the central bank will ease up on interest rate hikes next year.

Any dovish language contained in the FOMC statement which points to a slower rate of interest rate increases could fuel weakness in the dollar, and thus be supportive to base metals prices.

Meanwhile at China’s policy-setting meeting, the government is expected to take greater steps to ensuring economic stability, particularly in the job market, as the economy is set to further lose steam in 2019, according to Iris Pang, economist for Greater China at ING Wholesale Banking.

Fresh stimulus measures worth 4 trillion yuan (US$579 billion), including tax cuts, special bond issuance and state funds, could be rolled out in 2019 to offset the external uncertainties, Pang added.

“This improvement in risk sentiment could be attributed to both the upcoming Federal Open Market Committee meeting and China’s policy-setting meeting,” according to Oanda’s head of trading for Asia Pacific Stephen Innes.

As a result of the uptick in risk sentiment, the SHFE base metals were broadly higher this morning with zinc and nickel outperforming with gains of 1.8% and 1.7% respectively – the latter benefiting from a healthy fundamental backdrop.

The most-traded nickel contract on the SHFE climbed to 90,590 yuan per tonne as at 10.45am Shanghai time, up by 1.7% or 1,530 yuan per tonne from last Friday’s close.

“Overall market sentiment [for nickel] has improved in the short term on good market fundamentals despite the weakness in the stainless steel market,” Guotai Junan Futures said on Monday.

“The latest figures from the International Nickel Study Group (INSG) continue to reflect bullish underlying fundamentals – the refined market stood in a 108,300-tonne deficit in January-September 2018,” Fastmarkets research analyst James Moore said.

Moreover, the INSG expects the market to record a deeper 146,000-tonne deficit in 2018 rather than the 117,000-tonne deficit it forecast in May, supported by rising demand growth from the stainless steel sector and nickel-containing batteries.

“Although global mine production increased by 6.4% in January-September, and the deficit in the refined market is forecast by the INSG to narrow to 33,000 tonnes in 2019, supplies from the Philippines are forecast to slow further to a nine-year low of 24 million wet metric tonnes in 2019, according to the Philippine Nickel Industry Association,” Moore added.

Base metals prices

• The SHFE February copper contract increased by 280 yuan per tonne to 49,170 yuan per tonne.
• The SHFE February aluminium contract inched up by 5 yuan per tonne to 13,645 yuan per tonne.
• The SHFE January lead contract edged down by 40 yuan per tonne to 18,350 yuan per tonne.
• The SHFE May tin contract slid 200 yuan per tonne to 146,220 yuan per tonne.
• The SHFE February zinc contract rose by 380 yuan per tonne to 21,045 yuan per tonne.

Currency moves and data releases

• The dollar index inched up by 0.01% to 97.43 as at 10.45am Shanghai time.
• In other commodities, the Brent crude oil spot price rose 0.02% to $60.32 per barrel as at 10.45am Shanghai.
• In equities, the Shanghai Composite increased by 0.12% to 2,597.06 as at 11.01am Shanghai time.
• The economic agenda is light today with the headline and core consumer price indices and trade balance from the European Union, German Bundesbank monthly report, and UK CBI industrial order expectations.
• In the US, we have the Empire State manufacturing index, National Association of Home Builders’ housing market index and Treasury International Capital long-term purchases.