LIVE FUTURES REPORT 27/03: SHFE nickel prices track strength seen on LME

Nickel prices on the Shanghai Futures Exchange were up strongly during morning trading on Wednesday March 27, tracking the strength exhibited by the three-month nickel price on the London Metal Exchange on Tuesday.

The most-traded May nickel contract on the SHFE stood at 101,550 yuan ($15,124) per tonne as at 9.53am Shanghai time on Wednesday, up by 1.8% or 1,810 yuan per tonne from Tuesday’s close of 99,740 yuan per tonne.

This morning’s strength follows a similar performance by the three-month nickel price on the LME on Tuesday, when it closed up by 1% at $13,105 per tonne, with the price finding support from the emergence of dip-buying.

Promising downstream demand continues to lend support to nickel despite the metal’s less positive fundamentals.

Due to a strong mining performance in 2018, the global nickel supply deficit is expected to narrow sharply in 2019, according to the International Nickel Study Group (INSG). The INSG forecasts the deficit in the global refined nickel market will narrow to around 33,000 tonnes this year, compared with the approximate 127,600-tonne deficit for 2018.

But strong demand from the downstream stainless steel sector is likely to offset the bearish sentiment, according to Fastmarkets analyst Andy Farida.

“Downstream demand, especially from the stainless steel sector looks bullish on paper,” Farida said, citing data from the International Stainless Steel Association which reported a 5.5% year-on-year increase as global stainless steel melt shop output totaled 50.8 million tonnes in 2018, edging higher from 48.1 million tonnes in 2017.

“Going forward, fundamental challenges especially from the supply side, will weigh on the upside but any improvement in global demand should underpin nickel’s price action to stay relatively well-bid,” Farida added.

Zinc was the second-best performer on the SHFE this morning, underpinned by continuous declines in exchange inventories.

The most-traded May zinc contract price on the SHFE rose by 0.6% or 140 yuan per tonne to 22,365 yuan per tonne as at 9.53am Shanghai time.

Deliverable zinc stocks at SHFE-approved warehouses declined by 8,064 tonnes, or 6.5%, week on week to 115,974 tonnes in the week ended March 22. Meanwhile, LME zinc stocks were at 56,425 tonnes on March 26, down from 129,000 tonnes at the beginning of the year.

“LME zinc inventories have continuously declined, which will support prices in the near term,” analysts with Citic Futures Research said in a morning note.

Other highlights
– Base metals traded on the SHFE gave a broadly strong performance on Wednesday morning despite a firm dollar. Tin was the exception with prices little changed.
– The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was up by 0.16% at 96.62 as at 10.45am Shanghai time against its previous close.
– Soft economic releases in China this morning also did little to dent the positivity in the base metals so far; Chinese industrial profits fell by 14% year on year in January-February 2019. This compares with a 10.3% year-on-year increase in December 2018.
- In European data on Tuesday, the German GfK consumer climate index for the March period was recorded at 10.4, missing expectations of a rise to 10.8 from a previous level of 10.7 and indicating a slowdown in financial confidence among German consumers.
- In US data on Tuesday, building permits and housing starts for February came in at 1.3 million and 1.16 million respectively – both below expectations. The S&P/CS Composite-20 house price index rose by 3.6% in January, down from 4.1% in the prior month.

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