LIVE FUTURES REPORT 16/10: SHFE base metals prices broadly higher; copper, zinc under pressure

With the exception of zinc and copper, the SHFE base metals were in positive territory this morning – led by an increase of 1.3% in January tin. December aluminium (+0.3%), November lead (+0.7%) and December nickel (+0.7%) tracked tin higher, while December copper (-0.2%) edged lower and December zinc gave the worst performance of the complex in percentage terms with a drop of 0.9%.

The most-traded December zinc contract on the SHFE stood at 18,905 yuan ($2,670) per tonne as at 10.26am Shanghai time, down by 165 yuan per tonne from Tuesday’s close of 19,070 yuan per tonne.

The more positive performance by the SHFE base metals this morning compared with earlier in the week comes despite risk sentiment remaining fragile amid diverging macroeconomic headlines on Tuesday.

Data on Tuesday showed that Chinese banks extended more new yuan loans than expected in September, while policymakers ramp up support to stabilize the slowing economy. New yuan loans totaled 1.69 trillion yuan last month, up from 1.21 trillion yuan previously and beating the expected 1.35 trillion yuan.

But other developments overnight were more negative, elevating investors’ risk aversion to some degree.

Economic growth concerns have picked up again after the International Monetary Fund (IMF) on Tuesday slashed its forecast for global growth both in 2019 and 2020. The IMF said it expects global growth to be 3% in 2019 – down from 3.6% last year and 0.3 percentage points lower than its April forecast. Although the IMF projects global growth will rebound to 3.4% in 2020, this is still lower than the 3.6% that had been forecast six months ago.

In addition, the IMF expects China’s economic growth will slow to 6.1% in 2019 and 5.8% in 2020.

The trade optimism seen at the start of this week also continues to fade following reports that Chinese President Xi Jinping will not sign a “phase one” trade deal with the United States until the latter rescinds the threat of imposing addition tariffs on China on December 15.

This follows comments from US Treasury Secretary Steven Mnuchin on Monday which hinted that tariffs may rise against China if the tentative deal struck at the end of last week is not finalized.

In zinc, a gradual change in supply-demand dynamics added to the downward pressure seen in the galvanizing metal’s price action this morning.

“Supply will gradually pick up after northern China smelters finish conducting maintenance. But the market is still waiting for more clarity as to whether demand will be able to absorb the increased supply during the peak consumption season typically experienced in September and October,” an analyst with Chinese brokerage Galaxy Futures said.

“The zinc market is moving toward a surplus, which might result in lingering softness in the metal’s prices,” the analyst added.

Other highlights

• Nickel has rebounded following continued drawdowns in London Metal Exchange stocks. Nickel stocks at LME-listed warehouses totaled 94,662 tonnes on Tuesday, down from 166,680 tonnes on September 13.
• Copper has retreated mildly following news that a potential supply disruption at Antofagasta’s Los Pelambres copper mine in Chile has been avoided following the signing of an agreement to increase supervisors’ salaries.
• The dollar index, which gauges the strength of the US currency against a basket of foreign currencies, was little changed at 98.33 as at 11.03am Shanghai time.
• Inflation data is in focus on Wednesday with readings scheduled from the United Kingdom, the European Union and Canada. US retail sales are also of note.
• In addition, Bank of England Governor Mark Carney and US Federal Open Market Committee member Charles Evans are speaking.