LIVE FUTURES REPORT 24/04: SHFE zinc tumbles 1% on rising availability, firm dollar; rest fall

A strong performance by the US dollar on Tuesday has dampened investors’ appetite for commodity investment, in turn pressuring base metals prices on the SHFE this morning.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, hit a high of 97.78 on Tuesday – a fresh high for the year. The index was at 97.66 as at 12.07pm Shanghai time on Wednesday, which compares with a low of 96.74 on April 12.

With the dollar surging, SHFE base metals prices were all down this morning.

Zinc gave the worst performance of its peers as the galvanizing metal contends with the additional headwind of rising availability.

Zinc’s most-traded June contract on the SHFE slid to 21,455 yuan ($3,192) per tonne as at 10.11am Shanghai time, down by 1% or 225 yuan per tonne compared with Tuesday’s close of 21,680 yuan per tonne.

“From a fundamental point of view, zinc concentrate processing fees are high and smelters’ resumption of production is expected to affect investor sentiment thus zinc prices will be under pressure,” Chinese brokerage Guotai Junan Futures said in a morning note.

The International Lead & Zinc Study Group (ILZSG) reported that the refined zinc market has run a surplus of 63,000 tonnes in the first two months of 2019, significantly higher than the 28,000-tonne surplus in the previous year.

Fresh inflows of zinc into London Metal Exchange warehouses have added to the bearish spin surrounding the metal.

“Recent inflows of stock into LME-approved sheds may well suggest that zinc smelters have started to increase production and more inflows could be expected in the coming months, thus helping alleviate previous concerns of tightening global refined supply,” Fastmarkets analyst Andy Farida said.

“Going forward, refined output could continue to rise in 2019, supported by strong mine output early in the year. Total zinc ore and concentrate production has risen to 2.041 million tonnes, up 0.64% year on year over the January-February 2019 period,” Farida added.

Other highlights

• The Shanghai Composite Index was down by 0.92% to 3,169.20 as at 11.51am, with news of further US-China trade talks next week failing to provide support.
• In data on Tuesday, euro zone consumer confidence unexpectedly decreased to -7.9 in April from -7.2 in March.
• The US house price index was similarly weak on Tuesday with an increase of 0.3% in February versus the 0.6% gain that had been forecast. The Richmond manufacturing index fell to 3 in April from 10 in March.
• Data of note due for release on Wednesday includes German Ifo business climate, a European Central Bank economic bulletin, the United Kingdom’s public sector net borrowing and China’s CB leading index.