LIVE FUTURES REPORT 16/11: SHFE zinc prices continue to move up on tight supply; nickel weakens

The divergent moves coming while markets await further direction from data releases and any developments in trade talks between China and the United States following news on Thursday that the two had resumed high-level discussions.

One metal that seemed to be trading in line with its fundamentals this morning was zinc, which outperformed its peers against a backdrop of tightening supply; the most-traded January zinc contract on the SHFE stood at 21,505 yuan ($3,098) per tonne as at 9.25am Shanghai time, up by 0.8% or 165 yuan per tonne from Thursday’s close.

Global zinc consumption came at 1.16 million tonne in September, above global refined zinc output of 1.1 million tonnes, according to the data from the International Lead & Zinc Study Group (ILZSG).

The refined zinc market recorded a 54,700-tonne deficit in September and a 305,000-tonne deficit in the January-September period, ILZSG data showed.

In addition, China’s refined zinc production totaled 4.14 million tonnes in January-September 2018, down 2.6% year on year, according to data from the country’s National Bureau of Statistics.

Declining exchange stock levels provided further support to zinc prices.

“Falling zinc stocks as a result low utilization rates at Chinese smelters continues to provide a modest lift to prices. For now, we believe price risks remain skewed to the upside in the short term because tightness is likely to intensify,” Fastmarkets analyst James Moore said.

Zinc stocks on the SHFE declined for the third consecutive week to 37,378 tonnes as of November 9 – down by 51.7% from the beginning of this year.

Nickel, on the other, nickel was the SHFE complex’s worst performer with the metal’s most-traded January contract dropping 0.9% or 850 yuan per tonne to 94,400 yuan per tonne compared with Thursday’s close.

Nickel prices have come under pressure amid concerns of the abundance of the metal in the market.

“[Supply of nickel] is quite sufficient at the moment as [cargoes] from Russia began to flow into China’s domestic market on the encouragement of the existing import profits. What’s worse, the ferro-nickel capacity has been expanded at a steady pace while China’s stainless steel mills have become cautious in buying due to the shrinking in their profits amid the waning domestic business confidence,” Citic Futures Research said on Friday.

“[Nickel] continues to face downside risks from the decline in demand from Chinese stainless steel mills, against the optimistic demand outlook of nickel consumption in the production of electric car batteries. In addition, there is growing supply risks that the [nickel pig iron] production ramp-up in 2019 is set to minimize the supply deficit in the global nickel market,” Fastmarkets analyst Andy Farida said.

The benchmark price of 304 stainless cold-rolled coil (2mm) in the major market of Wuxi continued to trade lower after a pause in the previous week, down to 15,100-15,600 yuan per tonne on Wednesday. This compares with a price of 15,400-15,700 yuan per tonne a week earlier.

Base metals prices

• The SHFE December copper contract moved up by 80 yuan per tonne to 49,580 yuan per tonne.
• The SHFE January aluminium contract dropped by 35 yuan per tonne to 13,750 yuan per tonne.
• The SHFE January zinc contract rose by 165 yuan per tonne to 21,505 yuan per tonne.
• The SHFE January lead contract fell by 135 yuan per tonne to 18,115 yuan per tonne.
• The SHFE January tin contract climbed by 710 yuan per tonne to 154,450 yuan per tonne.
• The SHFE January nickel contract declined by 850 yuan per tonne to 94,400 yuan per tonne.

Currency moves and data releases

• The dollar index dipped 0.14% to 96.96 as at 9.48am Shanghai time.
• In equities, the Shanghai Composite dropped by 0.17% to 2,663.65 as at 10.10am Shanghai time.
• In US data on Thursday, weekly unemployment claims came in at 216,000, above the forecast of 213,000. The Philly and Empire State manufacturing indices stood at 12.9 and 23.3 respectively. Retail sales gained 0.8%, while business inventories were in line with projections at a 0.3% increase.
• Meanwhile, the unemployment rate in Australia was recorded at 5% on Thursday, flat with the previous number but below the expectation of 5.1%.
• In data today, the Eurozone’s consumer price index (CPI) and the US equipment utilization rate for October will come out.
• In addition, Mario Draghi, the president of European Central Bank, and Jens Weidmann, head of Germany’s Bundesbank, are due to deliver speeches today.