LIVE FUTURES REPORT 20/06: SHFE zinc mirrors LME price weakness, drops 1.4%; others mostly down

The most-traded August zinc contract stood at 19,665 yuan ($2,848) per tonne as at 10:23am Shanghai time, down by 280 yuan per tonne, or 1.4%, from Wednesday’s close of 19,945 yuan per tonne.

This follows similar weakness in the LME three-month zinc price on Wednesday, when it dropped by 1.6% after steady inflows and weakened demand pressured the metal’s price.

On-warrant zinc stocks on the LME have been increasing progressively, last seen at 65,275 tonnes on Wednesday, a surge of around 61% from the all-time low of 40,650 on March 29.

“Despite the potential for a short-term rebound, as suggested by zinc’s technical configuration, bearish sentiment among LME fund managers could cap any recovery. The net long fund position (NLFP) has run into persistent selling since peaking at 29,170 lots on April 12,” Fastmarkets analyst Andy Farida noted.

“In the week to June 14, the NFLP fell by 3,308 lots to 13,359 lots. We maintain our view that based on the current momentum a revisit of the January 18 low at 8,601 lots cannot be ruled out in the coming weeks,” Farida added.

Significant inflows into SHFE-listed warehouses last week have compounded the negative backdrop for zinc; SHFE zinc stocks rose by 19,241 tonnes, or 31.7%, to 79,945 tonnes in the week ended June 14.

In macro news, recent optimism regarding an upcoming meeting between US president Donald Trump and China’s Xi Jinping at next week’s Group of Twenty (G20) summit in Japan faded on reports that discussions between the two would focus only strategic issues, suggesting that any trade agreement is still some way off.

This saw most of the SHFE base metals follow zinc lower. The exceptions being aluminium that was little changed and nickel that rose by 0.8%.

Other highlights

• Codelco has presented a new labor offer to the three trade unions on strike at its Chuquicamata operation, raising the possibility that the strike, which began on June 14, could end.
• The dollar index was down by 0.29% at 96.91 as at 11.10am Shanghai time.
• The weakness in the US currency follows a dovish outcome for the Federal Open Market Committee’s (FOMC) meeting on Wednesday. The FOMC left rates unchanged as expected but has signaled to the market an easing bias by dropping language saying it would be “patient” on future policy adjustments and that they are closely monitoring and will act as appropriate.
• The Shanghai Composite Index was up by 2.58% at 2,993.15 as at 11.30 am Shanghai time.
• In European data on Wednesday, the UK’s consumer price index (CPI) 12-month rate was 2% in May, in line with forecasts but down from 2.1% previously.
• On Thursday, the UK will release data on its May retail sales, monetary policy summary and official bank rate. The Philadelphia Fed manufacturing index and Conference Board consumer confidence from the United States is also of note.