LIVE FUTURES REPORT 19/11: Dollar retreat supporting SHFE base metals prices

Base metal prices on the Shanghai Futures Exchange were up across the board during Asian morning trading on Monday November 19, supported by a retreat in the dollar following dovish rhetoric from the United States Federal Reserve at the end of last week.

At 96.44 as at 10.02am Shanghai time, the dollar continued to edge lower this morning following weakness last Friday. The US currency suffered a bout of selling following dovish comments from Federal Reserve officials that seemed to question the appropriateness of an increase in US interest rates next month.

“During the trading day on Friday, [Federal Reserve Vice Chairman Richard Clarida] spoke on CNBC, saying that the Fed is very much in data dependency mode. He noted that being at neutral makes sense and they are close but not there yet. However, he emphasised that as policy approaches neutral, data dependency becomes more important. He added that there are signs of slowing global growth, which puts US growth at risk,” ANZ Research analysts noted on Monday.

“Then late on Friday night, the Wall Street Journal published comments from [Federal Reserve Bank of Philadelphia President Patrick Harker], saying: “At this point, I’m not convinced a December rate move is the right move but I need to watch the data over the next few weeks before determining whether it is prudent to boost the cost of borrowing again”. This is the first explicit move by a more neutral member recently,” ANZ Research added.

With the now greater uncertainty in regards to a further increase in US interest rates this year, the dollar has fallen significantly from the peak of 97.70 reached on November 12 amid bout of selling while the market prepares for the possibility of a more modest rate of rate increases by the US central bank.

This weakness in the dollar has allowed SHFE base metals prices to push higher this morning, ignoring the negativity stemming from a spat between the US and China at this weekend’s Asia-Pacific Economic Cooperation (APEC) summit in Papua New Guinea.

The two-day gathering ended on Sunday with regional leaders failing for the first time in the summit’s 26-year history to issue a formal joint statement.

This came after Chinese President Xi Jinping and US Vice President Mike Pence had exchanged barbs over trade, diminishing any hope the market had of a quick resolution between the two nations ahead of the Trump-Xi meeting in Argentina next month.

Despite this, the base metals performed relatively well this morning; the most-traded January copper contract rising to 49,790 yuan ($7,176) per tonne as at 10.02am Shanghai time, up by 210 yuan per tonne from last Friday’s close.

The red metal has found further support from a decline in exchange inventories.

Copper stocks on both the SHFE and London Metal Exchange fell at the end of last week; copper stocks at SHFE-listed warehouses fell by 7,490 tonnes to 134,744 tonnes in the week ending November 16, while LME copper stocks fell for a tenth consecutive trading day to 161,025 tonnes as of last Friday.

“The high stock pressure in domestic market has eased recently,” Citic Futures Research said. “The closed import arbitrage has dented the copper imports and encouraged exports.”

Lead was the outperformer among the SHFE base metals this morning, boosted by supply-side concerns amid an environmental crackdown in China.

The most-traded January lead contract price on the SHFE rose by 250 yuan per tonne to 18,390 yuan per tonne as at 10.02am Shanghai time.

“Smelters [in China] are set to face increasing headwinds due to the start of strict environmental controls during the winter heating season; raw material availability due to import tariffs and sanctions is also a factor,” Fastmarkets analyst James Moore said.

“Beijing will prohibit the expansion of lead mines and smelters in highly polluted areas, which the China Non-ferrous Industry Association estimates will cause refined lead output to slow to 4.65 million tonnes by 2020, from 4.87 million tonnes in 2017,” Moore added.

Base metal prices

  • The SHFE January copper contract price moved up 210 yuan to 49,790 yuan per tonne.
  • The SHFE January aluminium contract price rose 65 yuan to 13,825 yuan per tonne.
  • The SHFE January zinc contract price gained 155 yuan to 21,670 yuan per tonne.
  • The SHFE January lead contract price climbed 250 yuan to 18,390 yuan per tonne.
  • The SHFE January tin contract price increased 1,230 yuan to 154,450 yuan per tonne.
  • The SHFE January nickel contract price was up 500 yuan to 94,580 yuan per tonne.

Currency moves and data releases

  • The dollar index was up 0.02% at 96.44 as of 10.02am Shanghai time.
  • In equities, the Shanghai Composite was down 0.14% to 2,675.52 at 10.50am Shanghai time.
  • In US data on Friday, industrial production rose 0.1% month on month in October, weaker than previous month’s 0.2%, capacity utilization came in at 78.4% in October, down from 78.5% previously, manufacturing production was up 2.7% year on year in October, higher than expectation at 2%.
  • Today’s economic calendar is light, with only the US’ National Association of Home Builders housing market index of note.
  • In addition, US Federal Open Market Committee member John Williams will give a speech today.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

Changjiang spot prices, base metals prices