LIVE FUTURES REPORT 08/05: Trade concerns sink SHFE base metals prices; zinc drops 0.9%

Despite news on Tuesday that a Chinese delegation led by the country’s vice premier Liu He will attend trade talks in Washington as scheduled following US President Donald Trump’s threat to increase import tariffs on Chinese goods on Friday, fears that a deal between the two countries could fall through has rattled investors.

“It seems unlikely the two sides are ready to reach an agreement, with Trump’s threat to increase US tariffs on Chinese goods not helping the negotiation process,” Daniel Been, analyst at Australia and New Zealand Banking Group (ANZ), said in a morning note.

“The sudden shift in the US trade policy is beginning to look less like a tactic to extract further compromises from China, as it now seems the US administration is hell-bent on applying more punitive tariffs which could upend the negotiations all together,” Stephen Innes from SPI Asset Management said.

Zinc was the worst performer of the SHFE base metals so far on Wednesday, with the metal’s most-traded June contract falling to 21,425 yuan ($3,163) per tonne as at 9.51am Shanghai time, down by 195 yuan per tonne or 0.9% from Tuesday’s close of 21,620 yuan per tonne.

Adding to the macroeconomic headwinds for zinc were concerns of a slowdown in the rate at which on-exchange stocks are being drawdown in China once several refineries resume operations over May and June, according to analysts with Citic Futures Research.

Copper gave the second worst performance of the SHFE base metals this morning despite a positive close on Tuesday. The most-traded July copper contract price on the SHFE fell to 47,950 yuan per tonne as at 9.51am Shanghai time, down by 330 yuan per tonne or 0.7% from Tuesday’s close.

Other highlights
– Bucking the general weakness exhibited by the SHFE base metals, aluminium prices managed to eke out marginal gains on Wednesday morning; the most-traded aluminium contract on the SHFE rose by 10 yuan per tonne to 14,020 yuan per tonne as at 9.51am Shanghai time.
– The US dollar index dropped by 0.11% to 97.46 as at 10.36am Shanghai time, but this did little help to support the base metals.
– In US data on Tuesday, US job openings rose in March to 7.49 million, beating both previous reading and expectation.
– In Chinese data out on Wednesday, the country’s trade surplus narrowed to $13.8 billion in April, versus an expected surplus of $35 billion.
– Chinese exports unexpectedly fell in April, down by 2.7% from a year earlier, and in sharp contrast to the 15.2% year-on-year increase in March. Meanwhile, the country’s imports grew by 4% in April after a year-on-year decline of 7.6% in the prior month.
– US Federal Open Market Committee member Lael Brainard and European Central Bank president Mario Draghi are due to speak later on Wednesday, while market participants will also be focused on any developments from the US-China trade talks taking place on Thursday and Friday.

[Editor’s note: This story was updated to clarify that US-China trade talks are to begin in Washington on Thursday and Friday.]