LIVE FUTURES REPORT 22/05: Macro concerns, firm dollar weigh on SHFE base metals prices; Cu down 0.6%

Base metals prices on the Shanghai Futures Exchange were down across the board during morning trading on Wednesday May 22, with a challenging macroeconomic backdrop and firm dollar weighing on the complex.

Unresolved trade tensions between China and the United States, concerns over a slowdown in global economic growth and a strong dollar dented investors’ appetite for commodity investment on Wednesday.

“Simmering trade tension continued to weigh on commodities prices. Weaker US home sales data added to the negative market sentiment,” John Bromhead, foreign exchange strategist at Australia and New Zealand Banking Group (ANZ), said in a morning note.

Existing home sales in the US fell 0.4% in April from the prior month to a seasonally adjusted annual rate of 5.19 million units. This was significantly lower than the expected 5.35 million units and the soft reading added to the bearish tone across the base metals.

An elevated US currency was yet another headwind for the SHFE base metals this morning; the dollar index was little changed from the previous day’s close at 98.00 as at 9.35am Shanghai time but this is up from a recent low of 97.03 on May 13.

As a result of this negative backdrop, the SHFE base metals were down across the board during morning trading on Wednesday, with the complex taking its cue from copper.

The most-traded July copper contract on the SHFE fell to 47,390 yuan ($6,861) per tonne as at 9:35 am Shanghai time, down by 310 yuan per tonne from a close of 47,700 yuan per tonne on Tuesday.

Copper prices are shrugging off potential supply risks stemming from contract negotiations which could lead to a tightening of the downstream concentrate market.

“Codelco is offering to negotiate contracts with workers’ unions, and any disappointment on this deal could tighten the concentrate market,” ANZ’s Bromhead noted.

Representatives of Chilean state-owned copper producer Codelco will make their final wage and bonus offer to three workers’ trade unions for the Chuquicamata mine division by May 24, the unions said at the end of last week.

Other highlights

  • In tin, subdued demand is also pressuring prices; the most-traded September tin contract on the SHFE slid to 144,930 yuan per tonne as at 9.35am Shanghai time, down by 220 yuan per tonne from Tuesday’s close of 145,150 yuan per tonne.
  • Downstream tin smelters in China are not actively purchasing at the moment and are adopting a “wait-and-see” stance, so that has been sending tin prices down, an analyst with Citic Futures said in a morning note.
  • That said, lower imports from Myanmar due to grade deterioration and a decrease in Chinese tin production should lend support to prices in the longer term, the analyst added.
  • In data on Tuesday, the United Kingdom’s CBI industrial orders expectations disappointed at -10, compared with the expected -6. EU consumer confidence was marginally better than expected at -7 from -8 previously.
  • Data of note on Wednesday includes the UK’s consumer and producer price indices, public sector net borrowing and the minutes from the US Federal Open Market Committee’s (FOMC) April 30-May 1 meeting.
  • In addition, FOMC members James Bullard and John Williams are due to speak.