LIVE FUTURES REPORT 26/07: Broad-based strength in SHFE base metals prices continues; nickel rises 1.2%

Nickel led the charge higher with the metal’s most-traded October contract rising to 110,380 yuan ($16,055) per tonne as at 10.38am Shanghai time, up by 1,340 yuan per tonne, or 1.2%, from Thursday’s closing price of 110,040 yuan per tonne.

This was followed by a gains in September lead (+1.1), September tin (+0.2%) and September aluminium (+0.2%). September copper at 47,010 yuan per tonne was down by just 10 yuan per tonne from its close on Thursday, while September zinc slid by 0.4% to give the worst performance of the complex.

Nickel’s outperformance on the SHFE is at odds with the weakness exhibited by the London Metal Exchange’s three-month nickel price on Thursday, when it closed down by 3.4% to settle just above $14,000 per tonne.

While nickel is supported by solid fundamentals, analysts warn that prices are highly sensitive to macroeconomic events and the whims of speculative buyers and sellers.

“Nickel prices are supported by the metal’s tight fundamental backdrop, robust Chinese demand and production of stainless steel as well as the bullish demand outlook on future nickel consumption in the electric vehicle (EV) industry,” Fastmarkets analyst Andy Farida said.

“But nickel remains highly influenced by macro-led sentiment as well as the invisible sentiment of Chinese speculative investors,” he added.

Indeed, data released overnight from the United States was positive, bringing some relief to markets following Wednesday’s raft of weak manufacturing data out across Europe and the US. Durable goods orders in the US were stronger expected last month, with orders up by 2% month on month – the first increase in three months and outstripping an expected increase of 0.8%.

US unemployment claims – an important indicator of overall economic health – were also better than expected at 206,000 for the week ending July 20, a decrease of 10,000 from the prior week.

But bearishness following comments from European Central Bank (ECB) president Mario Draghi on Thursday that the economic outlook is “is getting worse and worse” could be a headwind for the base metals.

The explicit acknowledgment of things getting worse looks to have disappointed the market, according to Rodrigo Catril, currency strategist at National Australia Bank.

“Draghi has signaled a new bazooka is being loaded for September, but after years of [quantitative easing] the surprise factor has lost its potency with many also questioning its effectiveness, including members within the ECB itself. It remains to be seen if stimulatory measures will do the trick in September, but based on today’s reaction something new and different is needed, more of the same is unlikely to do the trick,” Catril said in a morning note.

Other highlights

• The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 97.77 as of 10.38am Shanghai time on Friday, down by 0.02% from Thursday’s closing price of 97.79.
• The Shanghai Composite Index fell by 0.16% to 2,932.6 as at 11.30am Shanghai time.
• In data on Thursday, the German Information and Forschung business climate reading fell to 95.7 in July from 97.5 previously.
• The ECB left its main refinancing rate unchanged as expected and re-emphasized its commitment to prop up inflation.
• The ECB also expressed a commitment to keep its key interest rate at minus 0.4% or lower through the first half of 2020.
• The economic agenda is light on Friday with the US’ advanced reading of second-quarter gross domestic product (GDP), which is expected to show growth slowed to an annualized 1.8% pace, from the 3.1% growth recorded in the first quarter of 2019.