LIVE FUTURES REPORT 23/03: SHFE base metals prices slide amid firm dollar, coronavirus-related lockdowns

Base metals prices on the Shanghai Futures Exchange were down across the board at the close of morning trading on Monday March 23, with tin leading the complex lower with a fall of 5.5%

The SHFE base metals are being pressured this morning by a strong US dollar and increased risk aversion after a number of countries around the world announced lockdowns to prevent the spread of the novel coronavirus (2019-nCoV) over the weekend.

“A number of countries around the world have announced lockdowns in a bid to control the spread of [the virus] with Germany and Australia the latest… while around one third of the US population is also under lockdown,” Tapas Strickland, director of economics at National Australia Bank, said in a morning note.

The economic shock is likely to be huge with Federal Reserve Bank of St Louis President James Bullard noting that the United States’ gross domestic product could fall by 50% in the second quarter and unemployment could soar to 30%, Strickland added.

At the same time, a firm US currency put further downward pressure on the SHFE base metals.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 102.30 as at 11.30am Shanghai time, up from a reading of 102.10 at a similar time on Friday. This compares with a recent low of 94.63 on March 9.

“Asian investors remain in double trouble as the expectation for any economic growth has weakened significantly, while the demand for the USD is likely to stay strong across Asia,” Stephen Innes, chief Asia market strategist at foreign exchange brokerage Axitrader, said in a note on Monday.

“Despite the massive sell-off in US equities last week and the extension in the Asia market today, gold is starting to hold up on relative terms suggesting that much of the margin call-related selling needs are fading to the background,” he added.

Against this less-friendly backdrop for the base metals, tin was the worst performer of the SHFE complex this morning in terms of percentage losses; the most-traded June tin contract fell to 108,130 yuan ($15,236) per tonne at the end of the early session on Monday, down by 6,320 yuan per tonne or 5.5% from Friday’s close of 114,450 yuan per tonne.

The rest of the SHFE complex also weakened, but to lesser degrees: May copper at 37,080 yuan per tonne (-4.7%), May aluminium at 11,425 yuan per tonne (-4.8%), May zinc at 14,635 yuan per tonne (-2.8%) and June nickel at 92,410 yuan per tonne (-3.6%) and May lead at 13,200 yuan per tonne (-0.8%).

Other highlights

  • The Shanghai Composite Index was down by 1.6% at 2,701.73 as at 11.30 am Shanghai time.
  • The economic agenda is light today with Germany’s Bundesbank monthly report, Chinese leading indicators and data on the European Union’s consumer confidence.