LIVE FUTURES REPORT 24/09: SHFE base metals prices weaken amid gloomy global economic outlook; Cu, Al firm

Base metals prices on the Shanghai Futures Exchange were largely in negative territory during the morning trading session on Tuesday September 24 after renewed concerns about a weak global economy dampened investors’ appetite for commodity investment.

These concerns were reignited following the release of disappointing manufacturing data from across Europe on Monday.

“The euro area manufacturing purchasing managers’ index (PMI) plunged to a new cyclical low in September. The preliminary read dropped 1.4pts to 45.6, led by weakness in Germany. Concerns that weak manufacturing activity is spilling over into the services industries are intensifying,” Felicity Emmett, analyst at Australia and New Zealand Banking Group (ANZ), said in a morning note.

“European Central Bank (ECB) President [Mario] Draghi spoke at EU Parliament and underlined the need for extremely accommodative policy settings in Europe. He reiterated that the ECB is prepared to use all instruments and is ready to cut rates further, but stressed that fiscal policy must make a more decisive contribution to growth – noting that the focus should be on enhancing productivity growth,” Emmett added.

Risk-off sentiment intensified following the release of the weak European data and is now acting as a broad headwind for the SHFE base metals this morning, with most of the complex down between 0.2% in the case of zinc and 1.4% for nickel.

The most-traded November nickel contract fell to 136,900 yuan ($19,249) per tonne as at 9.57am Shanghai time, down by 1,910 yuan per tonne from Monday’s close of 138,810 yuan per tonne.

Despite the fundamental support of Indonesia deciding to expedite an export ban on nickel ore by two years to January 1, 2020, enthusiasm toward investing in the metal has cooled in response to the latest forecast from Nornickel, the world’s largest producer of nickel.

A forecast from Nornickel at the recent International Stainless & Special Steel Summit projected the global nickel supply deficit will shrink in 2020 despite the implementation of the latest Indonesian ore export ban. Nornickel forecast a deficit of 28,000 tonnes in 2020 from an estimated deficit of 60,000-70,000 tonnes in 2019.

In addition, sending further downward pressure to the base metals is the continued firmness of the US currency.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was up by 0.06% at 98.67 as at 9.57am Shanghai time.

Copper and aluminium, however, bucked the weaker tone exhibited by their peers to record gains of 0.5% and 0.04% respectively.

Other highlights

  • Despite the broad weakness exhibited by its peers on the SHFE, copper outperformed with the metal’s most-traded November contract rising to 47,120 yuan per tonne as at 9.57am Shanghai time, up by 250 yuan per tonne from Monday’s close of 46,870 yuan per tonne.
  • In European data on Monday, France’s flash services PMI for the August-September period fell below expectations at 51.6, while the country’s flash manufacturing PMI was also worse than expected at 50.3.
  • Similarly, German flash services PMI over the same period was below expectations at 52.5, while the country’s flash manufacturing PMI remained weak at a reading of just 41.4, firmly in contraction territory.
  • Data of note on Tuesday includes German Information and Forschung (IFO) business climate, public sector net borrowing from the United Kingdom as well as the house price index (HPI), the Conference Board consumer confidence and Richmond Manufacturing Index from the United States.
  • In addition, the US Federal Open Market Committee member James Bullard, and the governor of Reserve Bank of Australia (RBA) Philip Lowe are speaking today.