LIVE FUTURES REPORT 28/02: SHFE base metals prices firm despite disappointing China data

The more cautious tone follows the release of weaker-than-expected data from China earlier this morning and tempered expectations of an imminent US-China trade deal.

Speaking before Congress on Wednesday, US Trade Representative Robert Lighthizer delivered a more cautious message in terms of progress in US-China trade negotiations.

“In contrast to comments from [US President Donald Trump], a few days ago where the President suggested an agreement could be signed late in March, Lighthizer sounded less optimistic noting that that the issues on the table between the US and China ‘are too serious to be resolved with promises of additional purchases,’ and that it is still too early to tell if China will concede to US demands,” Rodrigo Catril, currency strategist at National Australia Bank, said in a morning note.

Fueling further risk-off sentiment in the market was the release of disappointing Chinese purchasing managers’ index (PMI) data earlier this morning.

China’s official manufacturing PMI fell for a third consecutive month, dropping to 49.2 in February from 49.5 in January, according to data released by the country’s National Bureau of Statistics. A reading below 50 signals industry contraction, while above that level indicates expansion.

The non-manufacturing PMI also came in below expectations at 54.3 in February, below a forecast of 54.5 and the previous reading of 54.7.

Yet the base metals have held up relatively well in spite of the weak Chinese data, with the complex managing to secure price gains – albeit marginal ones in the cases of aluminium and zinc.

The dollar index, at 96.11 as at 9.52am Shanghai time, remains in relatively low ground compared with a high of 97.37 on February 15 and this is providing some support to the base metals.

In lead, prices were further buoyed by news of supply disruptions in China after Inner Mongolian miner Yinman Mining was suspended this past weekend following an accident at the company’s mine.

The most-traded April lead contract on the SHFE stood at 17,335 yuan ($2,588) per tonne as at 9.52am Shanghai time, up by 190 yuan per tonne from its close on Wednesday.

“Yinman’s disaster will further cement the lead supply deficit. Meanwhile, downstream smelters’ stocks are gradually running out, and a large proportion of smelters have need to restock,” Chinese brokerage Citic Futures said in a morning note.

Base metals prices

• The SHFE May aluminium contract climbed by 5 yuan per tonne to 13,695 yuan per tonne.
• The SHFE April copper contract went up 180 yuan per tonne to 50,260 yuan per tonne
• The SHFE April lead contract price was up by 190 yuan per tonne to 17,335 yuan per tonne.
• The SHFE April nickel contract price rose 1,080 yuan per tonne to 102,270 yuan per tonne.
• The SHFE May tin contract price rose 30 yuan per tonne to 150,380 yuan per tonne.

Currency moves and data releases

• The dollar index was up by 0.04% to 96.11 as at 09:52am Shanghai time.
• In equities, the Shanghai Composite was up by 0.05% to 2,955.27 as at 10.09 am Shanghai time.
• In European data on Wednesday, the annual growth rate in M3 money supply slowed to 3.8% in January from 4.1% in the prior month. The annual growth rate of private loans was unchanged at 3.2% over the same comparison.
• In US data on Wednesday, the international trade deficit widened to $79.5 billion in December 2018, up $9 billion from $70.5 billion in the preceding month. Wholesale inventories rose by 1.1% in December 2018 from the previous month, which was more than the expected 0.4% increase.
• Meanwhile, US factory orders rose by 0.1% month on month in December 2018, which is significantly lower than the forecast 1.5% gain. Pending home sales were better than expected, however, with a month-on-month increase of 4.6% in January – beating the forecast 0.7% uptick.
• US crude oil inventories declined by 8.6 million barrels to 445.9 million barrels in the week ended February 22 – a 2.8-million-barrel increase had been expected.
• In data out already on Thursday, China’s manufacturing and non-manufacturing PMIs for February both disappointed at 49.2 and 54.3 respectively.
• There is a host of data out later with highlights from Europe including German import prices and preliminary consumer price index (CPI), UK nationwide house price index and French consumer spending, preliminary CPI and gross domestic product (GDP).
• US data of note later on Thursday includes the advance GDP, advance GDP price index, unemployment claims and the Chicago PMI.