LIVE FUTURES REPORT 26/11: SHFE base metals prices consolidate lower; lead slides 1.5%

Base metals prices on the Shanghai Futures Exchange consolidated lower during the morning trading session on Tuesday November 26 while market participants await more clarity on a phase one trade agreement between China and the United States.

The weaker performance by the SHFE base metals relative to Monday morning comes despite the Chinese Commerce Ministry saying earlier today that top Chinese and US trade negotiators had agreed to talks on a preliminary deal for the resolving the protracted tariff war.

In a brief notice, the ministry said that Chinese Vice Premier Liu He and other senior officials spoke by phone with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

The two sides had discussed “solving issues regarding each other’s core concerns, reached consensus on properly resolving related issues and agreed to maintain communication on remaining issues in consultations on the Phase 1 deal,” according to China’s state-run Xinhua News Agency.

This follows reports last week that US President Donald Trump had said he was not ready to make a deal with China because he did not think it was “stepping up to the level” that he wanted.

With the flip-flopping news on US-China trade talks in recent weeks, it is unsurprising to see that the base metals are not overreacting to the latest news while participants prefer to wait and see some concrete results.

At the same time, the SHFE base metals complex is coming under downward pressure from a firmer dollar.

The dollar index, which gauges the strength of the US currency against a basket of foreign currencies, stood at 98.32 as at 10.13am Shanghai time – this after a rebound from 97.81 on November 22.

As a result, the SHFE base metals all weakened during the morning session on Tuesday, with lead giving the worst performance of its peers.

The most-traded January lead contract slumped to 15,330 yuan ($2,179) per tonne as at 10.13am Shanghai time, down by 230 yuan per tonne – or 1.5% – from Monday’s close of 15,560 yuan per tonne.

The decline in lead follows similar weakness on the London Metal Exchange on Monday, when the heavy metal’s three-month price closed down by 1.6% at $1,935 per tonne.

A considerable build in SHFE lead stocks since the beginning of the month has stirred up concerns that a great deal of off-exchange material is finding its way back into exchange-listed sheds due to weakened spot demand.

SHFE lead stocks totaled 35,157 tonnes on November 22, down by 3,947 tonnes from a week earlier but still 64.2% higher than the 21,411 tonnes recorded on November 1.

“But SHFE stocks may face pressure in the short term. The start of the winter heating season in mid-November has forced smelters in some regions to cut their utilization rates due to pollution warnings,” Fastmarkets analyst James Moore said.

In the rest of the complex, January copper inched down by 20 yuan per tonne – or 0.04% – to 47,080 yuan per tonne, January aluminium fell 55 yuan per tonne – or 0.4% – to 13,750 yuan per tonne while January zinc slipped 80 yuan per tonne – or 0.4% – to 17,955 yuan per tonne. January tin tumbled 490 yuan per tonne – or 0.4% – to 138,390 yuan per tonne and February nickel dived 670 yuan per tonne – or 0.6% – to 113,390 yuan per tonne.

Other highlights

  • The Shanghai Composite index was down by 0.13% at 2,902.29 as at 10.39am Shanghai time.
  • In European data on Monday, the German Ifo business climate index for the October-November period exceeded expectations with a reading of 95, up from 94.7 previously.
  • Meanwhile, China’s Conference Board (CB) economic index on a month on month basis for the October-November period was better at 1.3%, improving from 0.9% at the previous reading.
  • US data of note due on Tuesday includes the goods trade balance, CB consumer confidence, the Richmond manufacturing index and new home sales.