LIVE FUTURES REPORT 21/11: Trade worries stifle SHFE base metals prices; Zn falls 2%

Market sentiment was subdued this morning after several negative trade developments on Wednesday, the first being the passing of a bill by the US Senate that would require an annual review of whether Hong Kong still qualifies for special administered status independent of Chinese influence.

China strongly condemned the move, saying that it would take “forceful countermeasures” if the US presses ahead with the bill. Despite the threats, US President Donald Trump is still expected to sign the legislation, which market participants worry could derail trade talks between the two countries.

Later on Wednesday, Trump dampened trade positivity further after telling reporters that he is not ready to make a deal with China because he did not think it was “stepping up to the level” that he wanted.

“Congress’s approval of the bill has also raised concerns of retaliatory actions from China and reports of the US-China trade deal hitting a hurdle weighed on sentiment,” ANZ Research analyst Hayden Dimes said in a morning note.

As a result, the SHFE base metals were mixed during the morning trading session on Thursday, with zinc leading the decline.

The most-traded January zinc contract plunged to 17,980 yuan ($2,556) per tonne as at 9.56am Shanghai time, down by 360 yuan per tonne – or 2% – from Wednesday’s close of 18,340 yuan per tonne.

The more pronounced weakness in zinc comes against a backdrop of rising supply.

“China’s refined zinc production increased by 8.3% year on year in October and was up by 9.4% in January-October,” Fastmarkets analyst James Moore said.

“So far, there is little evidence of rising output in visible inventories – zinc stocks in Shanghai Futures Exchange-listed warehouses totaled 57,121 tonnes on November 15, down from 81,077 tonnes in early July. But reports suggest stocks are heading into off-market storage, which implies ‘real’ consumption may be somewhat lower than the 1.3% growth in January-September implied by the International Lead & Zinc Study Group,” Moore added.

Zinc’s sister-metal lead was experienced similar weakness this morning, with the most-traded January contract falling by 205 yuan per tonne – or 1.3% – to 15,450 yuan per tonne from its close on Wednesday.

In the rest of the complex, January copper was little changed, down by just 10 yuan per tonne at 47,040 yuan per tonne, while the others were little changed to up: January tin rose by 1,470 yuan per tonne or 1.1% to 136,470 yuan per tonne, January aluminium was up by 70 yuan per tonne or 0.5% to 13,850 yuan per tonne and February nickel inched up by 60 yuan per tonne to 113,560 yuan per tonne.

Other highlights

• The dollar index, which gauges the strength of the US currency against a basket of foreign currencies, was little changed at 97.85 as at 10.51am Shanghai time.
• The Shanghai Composite index was down by 0.4% at 2,922.96 as at 11.30am Shanghai time.
• In data on Wednesday, Germany’s producer price index was at -0.2%, below the forecast of 0% while in Canada, the consumer price index was at 0.3%, in line with expectations.
• The economic agenda is light on Thursday with the European Central Bank releasing its meeting accounts, the European Union releases a read of its consumer confidence and the US has its Conference Board leading index and existing home sales scheduled.