LIVE FUTURES REPORT 23/05: Nickel leads SHFE base metals prices downward while macroeconomic uncertainty persists

Base metals prices on the Shanghai Futures Exchange were mostly down during morning trading on Thursday May 23, with nickel leading the charge lower amid persistent macroeconomic uncertainty and strength in the dollar.

Ongoing trade tensions between China and the United States and concerns that a prolonged spat between the two may hamper global economic growth continued to exert downward pressure on commodities.

A strong US currency continues to deter commodity investment, also contributing to the weakness in the base metals.

The dollar index, up by 0.4% at 98.11 as at 9.50am Shanghai time, remains in relative high ground compared with a recent low of 97.03 on May 13. The index had retreated to a low of 97.89 on Wednesday before rebounding overnight.

The much-awaited minutes from the US Federal Open Market Committee’s (FOMC) April 30-May 1 meeting allowed the dollar to maintain a steady footing above the 98 mark after the central bank reiterated its pledge to wait and see on interest rates.

“The key takeaway from the Fed’s May minutes was that a patient approach would be appropriate ‘for some time’. A few Fed officials still think rate hikes may be needed, if the economy evolves as they expect,” Daniel Been, analyst at Australia and New Zealand Banking Group (ANZ), said in a morning note.

“The minutes showed that many Fed officials saw the inflation dip as transitory, but most saw downside risks to the economic outlook and several were worried by the risk of low inflation expectations,” Been added.

Yet it is worthy to note that the minutes from the FOMC meeting pre-date the recent ramping up of trade tensions between China and the US, so the balance of risks to the economic outlook noted by Fed members could change come the next meeting on June 18-19.

Against this less friendly backdrop, base metals prices on the SHFE, barring those for lead, were all down during morning trading on Thursday.

Nickel led the decline with its most-traded July contract dropping to 96,670 yuan per tonne as at 9:50am Shanghai time, down by 0.9% or 840 yuan per tonne from Wednesday’s close of 97,510 yuan per tonne.

The more pronounced weakness in nickel relative to its peers comes amid a less supportive fundamental backdrop stemming from weakened downstream demand in China.

“For nickel, the closing of the import arbitrage window last week has eased the continuous inflow of cargoes into China’s domestic market. But demand for the metal is being dented by the high availability of stainless steel stocks in the country,” an analyst with Citic Futures said in a morning note.

Fastmarkets MB’s assessment of the premium for 99.8% purity, full-plate nickel, cif Shanghai was at $220-240 per tonne on Tuesday, unchanged week on week but maintaining its highest level since March 2018.

Other highlights

  • Lead managed to shrug the headwinds troubling the other SHFE base metals, with its most-traded July contract edging up by 60 yuan per tonne to 16,145 yuan per tonne as at 9.50am Shanghai time.
  • In data on Wednesday, the United Kingdom’s consumer price index disappointed at 2.1%, falling short of the expected 2.2%.
  • In data in Thursday, there is a host of manufacturing purchasing managers’ index (PMI) releases from France, Germany, the European Union and the US.