LIVE FUTURES REPORT 21/08: SHFE base metals prices broadly pressured by trade headlines

Base metals prices on the Shanghai Futures Exchange were broadly under pressure during morning trading on Wednesday August 21, with market sentiment deteriorating amid negative headlines surrounding the United States-China trade dispute.

On Tuesday, US Secretary of State Mike Pompeo said that China’s Huawei Technologies and other Chinese companies pose a threat to national security and that the US was not sending “mixed messages” after extending a reprieve that permits Huawei to buy components from US companies to supply existing companies.

The dispute with Huawei coincides with an ongoing trade war between the US and China. Talks between the two are currently at a standstill, with the threat of further tariffs overhanging global markets.

In early August, US President Donald Trump announced plans to implement additional tariffs on Chinese goods entering the US from the start of September.

Pompeo’s comments served to reverse some of the bullishness that had emerged over news of the Huawei reprieve, denting market sentiment this morning.

Investors’ appetite for risk was further dampened this morning following comments from mining giant BHP on Tuesday, in which the company said that global economic headwinds would hit demand for key commodities, including copper and iron ore.

BHP said that cooling growth in China and global threats to free trade represent key risks to raw material prices over the next year, adding end-use demand for copper in China has been weaker than expected in 2019.

Furthermore, China’s revamped loan prime rates (LPR) released on Tuesday have been broadly interpreted as an attempt by the Chinese government to reduce dependence on the country’s real estate to boost its economy. This is putting copper prices under further pressure amid concerns of reduced consumption.

“The undertone of the conservative change of the LPR is that, the capital and favorable interest rate will be granted to [small and medium enterprises] instead of to real estate corporations, and China has passed the phase where it depends on real estate as a stimulus for economy, thus we don’t see an extreme bullish trend for copper price in the medium-to-long term,” analysts with Galaxy Futures said in a morning note.

The most-traded October copper contract fell to 46,350 yuan ($6,566) per tonne as at 10.14am Shanghai time, down by 270 yuan per tonne, or 0.6%, from Tuesday’s close of 46,620 yuan per tonne.

The rest of the complex was little changed to weaker, with the October nickel and October lead contracts both up marginally, while the rest were down by between 0.05% for September tin and 0.9% for October zinc.

Other highlights

  • The dollar index was down by 0.01% to 98.16 as at 10:14 Shanghai time.
  • In data on Wednesday, market participants will be paying close attention to the release of the minutes from the US Federal Open Market Committee (FOMC)’s latest meeting. The market will look forward to this release in light of US President Donald Trump’s assertion that he would like to see a 1% interest rate cut and a return to quantitative easing to shore up the US economy.
  • Other releases of note on Wednesday include existing home sales and crude oil inventories from the US.