LIVE FUTURES REPORT 23/08: SHFE base metals prices slump on weak manufacturing data, declining yuan; Ni bucks trend

Base metals prices on the Shanghai Futures Exchange were in consolidation mode again on Friday August 23, with the complex broadly down - led by a 1% decline in zinc.

Losses in the other SHFE base metals were largely limited: October copper (-0.1%), October aluminium (-0.3%), October lead (-0.1%), September tin (-0.8%), while nickel bucked the trend with a gain of 0.1%.

The weakness across the base metals follows the release of soft manufacturing data across the United States and Europe on Thursday and a continued decline in the yuan against the US dollar.

The US’ flash manufacturing purchasing managers’ index (PMI) unexpectedly fell in August, dropping to 49.9 from 50.4 previously. A reading above 50.0 indicates industry expansion, while below indicates contraction. The US’ flash services PMI also disappointed at 50.9, falling short of the expected 52.9 and down from 53.0 previously.

European manufacturing data released on Thursday was better than expected but largely remained in contractionary territory, with the Germany PMI at 43.6 (versus 43.1 expected) and the European Union PMI at 47.0 (versus 46.3 expected).

The weakening manufacturing activity in Europe and the US raised concerns about future demand for metals, which has dented market sentiment this morning.

Meanwhile, weakness in the Chinese currency is also fueling concerns about future demand, according to David Plank, analyst with ANZ Research.

“The [yuan] fell for the sixth consecutive session, and is now at its lowest level since March 2008 amid investor pessimism over the US-China trade dispute,” Plank said in a morning note.

The yuan was recently at 7.0899 to $1, compared with 6.8812 to $1 on July 31.

Zinc was the worst performer of the SHFE base metals this morning, with the metal’s most-traded October contract falling to 18,445 yuan ($2,605) per tonne as at 10.23am Shanghai time, down by 180 yuan or 1% from Thursday’s close of 18,625 yuan per tonne.

This mirrors the weakness exhibited by the London Metal Exchange three-month price on Thursday, when it fell by 1.7%.

The fundamental backdrop for zinc has deteriorated slightly with data on the ground showing an increase in China’s refined zinc production so far this year.

“Zinc stocks in Shanghai Futures Exchange-listed warehouses totaled 73,847 tonnes on August 16, up from 56,320 tonnes in late May, which highlights a gradual rise in Chinese smelter utilization rates,” Fastmarkets analyst James Moore said.

“China’s National Bureau of Statistics (NBS) data showed domestic refined zinc production totaled 512,000 tonnes in July, up by 17.4% year on year, with overall output up by 6.1% in January-July,” Moore added.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was up by 0.07% at 98.27 as at 10.23am Shanghai time.
  • The Shanghai Composite Index was up by 0.48% at 2,897.14 as at 11.30am Shanghai time.
  • In US data on Thursday, unemployment claims were lower than expected at 209,000, versus the forecast 217,000, while the Conference Board’s (CB) leading economic index for the US increased by 0.5% in July to 112.2.
  • It is a quiet day for data on Friday with China’s CB leading index and a speech by US Federal Reserve Chairman Jerome Powell Jackson Hole Economic Policy Symposium, in the US state of Wyoming. The latter release will be of particular note among investors who are hoping for hints on the US central bank’s plans for future interest rate cuts.