LIVE FUTURES REPORT 23/08: SHFE lead, zinc prices post strong gains; others little changed to weaker

Base metals prices on the Shanghai Futures Exchange were mixed during Asian morning trading on Thursday August 23, with lead and sister-metal zinc the only two to record significant gains, while the rest were little changed to weaker.

Lead was the outperformer of the SHFE base metals, with its October contract trading at 17,880 yuan ($) tonne as at 10.19am Shanghai time, up by 345 yuan per tonne or 2% from its closing price on Wednesday.

The heavy metal has found support from low inventory levels; SHFE lead stocks totaled 18,697 tonnes on August 17, down 57.6% from 44,113 tonnes in a year earlier.

“Lead prices have found much support from the low level of inventories right now. We think inventories are sure to continue declining. Firstly, a new round of environmental inspections, which began on August 20, has forced many secondary lead smelters to shut down their factories,” a Shanghai-based analyst said.

“Moreover, some lead smelters have voluntarily closed their refineries due to squeezed margins. Right now, the price difference between cost of purchasing recycled battery and the sale price of lead ingot is around 6,600 yuan per tonne, which means refineries are losing money rather than gaining for each tonne sold,” the analyst added.

Sister-metal zinc also made significant gains over the morning session, supported by a ninth consecutive decline in SHFE stock levels, which at 34,930 tonnes on August 17 are now at their lowest since November 2007. Zinc’s most-traded October contract climbed to 20,655 yuan per tonne, up by 1.5% or 300 yuan per tonne from Wednesday’s close.

“So far in 2018, zinc stocks in SHFE-approved sheds have declined 49%, which suggests that the domestic Chinese zinc market has tightened,” Metal Bulletin analyst Andy Farida said.

“Stricter environmental inspections and shutdowns of small-to-medium size zinc mines, which are operating illegally, are taking their toll on domestic supply,” Farida added.

Base metals prices

  • The SHFE October aluminium contract moved up 5 yuan per tonne to 14,660 yuan per tonne.
  • The SHFE October copper contract fell 250 yuan per tonne to 48,040 yuan per tonne.
  • The SHFE January tin contract slipped 230 yuan per tonne to 145,160 yuan per tonne.
  • The SHFE November nickel contract slid 480 yuan per tonne to 110,580 yuan per tonne.

Currency moves and data releases

  • The dollar index was down by 0.28% at 95.35 as at 10.18am Shanghai time.
  • In other commodities, Brent crude oil was down 0.36% at $74.59 per barrel as at 10.18 am Shanghai time.
  • In equities, the Shanghai Composite dropped 0.34 % to 2705.4 as at 11.46 am Shanghai time.
  • In US data on Wednesday, existing home sales decreased 0.7% to a seasonally adjusted annual rate of 5.34 million in July from 5.38 million in June. Crude oil inventories fell by 5.8 million barrels in the week ended August 17 – significantly more than the expected 1.6 million-barrel decline.
  • In data today, we have a host of manufacturing and services purchasing managers’ index (PMI) releases out across Europe and the United States, the European Central Bank’s monetary policy meeting account, China’s Conference Board Leading Index as well as other US data that includes unemployment claims, house prices, new home sales and natural gas storage.
  • In addition, day one of the Jackson Hole Symposium gets underway on Thursday. The symposium is an annual event held in the US state of Wyoming and is attended by a number of central bankers, finance ministers and market participants from around the world. Comments from attendees can create significant market volatility and therefore the event draws wide attention from the market.