LIVE FUTURES REPORT 24/07: Strengthening dollar, weak economic outlook suppress SHFE base metals prices; tin drops 1.1%

Base metals prices on the Shanghai Futures Exchange were mostly lower during morning trading on Wednesday July 24, with tin, nickel and copper prices declining while the rest of the complex rose minimally.

The US currency continues to strengthen and remains a major driver behind investors’ weakened interest in commodity investment.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 97.74 as at 10.20am Shanghai time on Wednesday, compared with 97.39 around the same time on Tuesday. The index had been as low as 96.75 on July 19.

An announcement from US president Donald Trump that a deal had been struck to increase federal spending by $320 billion and suspend the debt ceiling for two years was a major factor in the dollar’s strength, according to Edward Moya, senior market analyst from online trading services provider Oanda.

“The dollar’s broad gain was mainly follow through on the debt ceiling deal that will see boost in spending,” Moya said.

While there were some positive developments in the US-China trade war with news that US trade representative Robert Lighthizer will travel to China for the first face-to-face talks since the countries’ presidents meet in Japan at the end of June, broader concerns about a slowdown in global economic growth continue to weigh on market sentiment.

In overnight news, the International Monetary Fund lowered its global economic growth forecasts by 0.1% to 3.2% for this year and 3.5% for next year. The Fund cited adverse developments further US-China trade tariffs, US auto tariffs, or a no-deal Brexit that “sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline”.

US data released overnight was also disappointing – see other highlights below – and served to amplify the bearishness pervading markets this morning.

As a result, there was pronounced weakness in SHFE base metals prices this morning, with tin giving the worst performance of the complex.

The most-traded September tin contract on the SHFE dropped to 133,170 yuan ($19,351) per tonne as at 10.20am Shanghai time, down by 1,490 yuan per tonne, or 1.1%, from Tuesday’s closing price of 134,660 yuan per tonne.

This follows similar weakness exhibited by the London Metal Exchange’s three-month tin price which dropped by 2% at the close on Tuesday.

“The outlook for solder demand for tin looks bleak, judging by the latest semiconductor sales. According to the Semiconductor Industry Association, global semiconductor sales tumbled by 8.3% year on year in the first five months of the year, in sharp contrast with growth of 15.8% last year,” Fastmarkets analyst Boris Mikanikrezai said.

“Our discussions with physical tin traders corroborate a notion of very poor demand conditions across the globe, with no pick-up in buying interest despite the marked depreciation in prices,” Mikanikrezai added.

Other highlights

  • The September copper and October nickel contracts were similarly weak on Wednesday morning with declines of 0.6% and 0.7% respectively, while the September aluminium (+0.3%), September zinc (+0.1%) and September lead (+0.3%) contracts were marginally higher.
  • In US data on Tuesday, existing home sales totaled 5.27 million units in June, below an expected 5.35 million units, while the Richmond Manufacturing Index similarly disappointed at -12 in July, compared with the forecast print of 5.
  • The economic agenda is busy today with a host of services and manufacturing purchasing managers’ index (PMI) data out across Europe and the United States.
  • Other US releases of note on Wednesday include new home sales and crude oil inventories. Given the implication for metal consumption as well as the broader economy, investors should pay particular attention to the former.