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This morning’s broad-based strength comes despite the fact that the US is expected to implement a major tariff increase on Chinese imports later today.
A 10% tariff on $200 billion worth of Chinese goods is set to increase to 25% at 12.01am Eastern Time (12.01pm Shanghai time). China has said that it will retaliate if the higher levies are imposed.
But Trump struck a more optimistic tone regarding a trade deal when he said that he had received a “beautiful letter” from Chinese counterpart Xi Jinping and will probably speak to him by phone, while also insisting that a trade deal is still possible this week.
“Whether the letter is stunning enough to prevent a tariff increase is a great unknown […] With only hours to ratify the trade deal before the US administration makes good on threats to impose added tariffs on Chinese goods, we are left waiting for the call,” Stephen Innes, head of trading at SPI Asset Management, said.
However, the remarks seem to have been enough to provide some much needed relief to the base metals, which have been under pressure amid rising trade tensions since Trump first announced plans to increase tariffs on Chinese goods at the end of last week.
As a result, base metals prices on the SHFE were broadly up this morning with nickel leading the charge higher.
The most-traded June nickel contract price jumped to 96,810 ($14,198) yuan per tonne as at 10.03am Shanghai time, up by 1.8% or 1,680 yuan per tonne from Thursday’s close of 95,130 yuan per tonne.
That said, the price remains well below a close of 97,810 per tonne on April 30 – the last trading day before Trump announced the plans to increase tariffs.
Trading volumes have been high so far on Friday with around 460,000 lots having changed hands as at 10.03am Shanghai time, which compares with around 408,000 lots at the close on Monday.
Meanwhile, some of the market focus has been diverted from the macro-economic headlines back to the supply-side of the metal.
Positive supply-side developments have also bolstered investors’ outlook for nickel with on-exchange stocks of the metal continuing to trend lower.
Nickel stocks at London Metal Exchange-listed warehouses totaled 170, 436 tonnes on Thursday, down from 182,466 tonnes on April 1.
While, SHFE nickel stocks, at 9,474 tonnes on April 30, remain near their lowest level in around four years.
But aside from trade headwinds, nickel prices remain vulnerable against a backdrop of weak downstream demand from the stainless steel sector.
“Compounding the bearish momentum is evidence that growing supply of stainless steel stocks in China is becoming a major headwind. Ample stocks of stainless steel in China continue to weigh on the demand outlook for nickel. This comes at the time when the supply of nickel pig iron (a lower grade of ferro-nickel) is expected to increase from domestic producers as well as Chinese-funded Indonesian smelters,” Fastmarkets MB analyst Andy Farida said.
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