LIVE FUTURES REPORT 25/09: Most SHFE base metals prices weaken on trade tensions; Cu, Ni buck trend

Base metals prices on the Shanghai Futures Exchange were broadly weaker during Asian morning trading on Tuesday September 25, with participants taking a cautious approach to trading following the recent escalation in trade tensions between China and the United States.

Chinese markets opened lower this morning following the break for the Mid-Autumn Festival on Monday, with investors focused on the latest escalation in the trade war between the US and China.

On Monday, China and the US exchanged the latest blows in their tit-for-tat trade spat, with the latter imposing tariffs on a further $200 billion worth of Chinese goods – the third and largest tranche of tariffs placed on China by the US so far. In response, the Chinese government said it would impose taxes on US imports worth around $60 billion.

This followed China’s announcement on September 22 that it would not be accepting an invitation by the US to resume trade negotiations, with market participants now saying that the possibility of a deal being reached before the US mid-term elections in November is highly unlikely.

For now it seems that the renewed tensions have stolen focus while Chinese participants return to trading, with the negative sentiment in the market attracting selling across the SHFE base metals complex.

“The Chinese have returned after the Mid-Autumn Festival and appear to be in anything but a festive mood with sellers eying the further escalations in the trade war,” Malcolm Freeman of Kingdom Futures noted on Tuesday.

A firmer dollar has added to the downside pressure for the base metals; the dollar index, at 94.35 as at 10.37am Shanghai time, remains in relatively high ground. This compares with a reading of roughly 93.91 at roughly the same time on September 21.

Still, it was not all doom and gloom for the base metals traded on the SHFE, with copper and nickel prices managing to buck the overall weakness to record gains.

Copper outperformed with its most-traded November contract rising to 50,140 yuan ($7,311) per tonne as at 10.36am Shanghai time, up by 0.8% or 400 yuan per tonne from Monday’s close.

The red metal is benefitting from expectations of increased copper demand due to the Chinese government’s push for fiscal stimulus on infrastructure projects as well as improved fundamental indicators, according to Metal Bulletin Research analyst Boris Mikanikrezai.

“[Copper’s] fundamental indicators have improved since the start of the [third] quarter. Exchange inventories (LME, Shanghai Futures Exchange, Comex) are down sharply in the quarter to date. The Shanghai copper premium is at its highest since October 2015, reflecting seasonally strong copper demand due to post-summer restocking,” Mikanikrezai said.

In addition, the global refined copper market is estimated to have been in a structural deficit of 45,500 tonnes in June, according to the latest data from the International Copper Study Group. This pushed the cumulative deficit in January-June 2018 to 51,500 tonnes, versus a deficit of 148,000 tonnes in January-June 2017.

Meanwhile, aluminium was the biggest loser of the SHFE base metals complex this morning, with a fall of 0.5% or 70 yuan per tonne to 14,630 yuan per tonne as at 10.36am Shanghai time.

Prices were also likely reacting to signs in the market of a possible lifting of US sanctions against Russian aluminium producer UC Rusal.

The US Department of the Treasury’s Office of Foreign Assets Control said on September 21 that it was extending the expiration date of the general licenses related to Rusal until November 12 from October 23, with many in the market taking this as a cue that a deal with the Russian producer is impending.

“This could ease the disruption that has occurred to Russian aluminium output, which makes up nearly 6% of world supply,” ANZ Research noted on Tuesday.

Base metals prices

  • The SHFE November zinc contract inched down 25 yuan to 21,545 yuan per tonne.
  • The SHFE November lead contract plunged slid 125 yuan per tonne to 18,165 yuan per tonne.
  • The SHFE January tin contract tumbled 540 yuan per tonne to 146,860 yuan per tonne.
  • The SHFE November nickel contract rose 410 yuan per tonne to 105,280 yuan per tonne.

Currency moves and data releases

  • The dollar index rose 0.1% to 94.35 as at 10.37am Shanghai time.
  • In other commodities, the Brent crude oil spot price declined 0.04% to $81.34 per barrel as of 10.37 am Shanghai.
  • In equities, the Shanghai Composite fell 0.81% to 2,775.29 as of 11.25am Shanghai time.
  • In data on Monday, the German Ifo business climate index came in at 103.7, beating a forecast print of 103.2.
  • The economic agenda is fairly light on Tuesday, with US releases that include house price indices, the Conference Board’s consumer confidence and the Federal Reserve Bank of Richmond’s manufacturing index.

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