A resurgent US dollar continues to sap investors’ appetite for commodity investment; the dollar index reclaimed the psychological level of 97 on Thursday, reaching a high of 97.72 – similar to levels last seen in mid-December 2018. The index was at 97.57 as at 10.33am Shanghai time on Friday.
The scheduled release of major economic data on Friday also served to dampen activity in the base metals markets this morning, with participants adopting a wait-and-see strategy pending upcoming releases.
Nickel was the worst performer among the SHFE base metals this morning with the metal’s most-traded May contract sliding to 102,950 yuan ($15,335) per tonne as at 10.33am Shanghai time. This is down by 1.1% and 1,160 yuan per tonne from Thursday’s close of 104,110 yuan per tonne and continues the metal’s recent run of weakness.
Nickel continues to contend with a weaker fundamental backdrop, with Fastmarkets analysts suggesting that global nickel supply will remain high in 2019.
“While the global refined nickel market is expected to produce another annual deficit of 72,000 tonnes in 2019, we suspect that the International Nickel Study Group may have to revise it lower if demand pressure from macro headwinds continues to negatively affect the nickel market in which global supply shows no sign of slowing,” Fastmarkets analyst Andy Farida said.
“One example comes from an expected power shortage in Inner Mongolia during April and May. Fastmarkets learnt that the impact will be minimal despite the Ulanqab region being one of China’s major production hubs for ferro-alloys,” Farida added.
In the physical market, poor downstream demand from European stainless steel mills has pushed nickel briquette premiums in the region lower. Ample supply of the material has also made it difficult for buyers to remain competitive with a high premium, market sources told Fastmarkets.
Demand for nickel in China is also said to be relatively light, which too is weighing on sentiment.
“In terms of spot trading, activity is light and downstream consumers are buying material only for immediate use,” Chinese broker Guotai Junan Futures said in a morning note.
Data from China’s customs administration released shortly before the close of morning trading showed the country’s exports dropped by 20.7% in February from a year ago while imports declined by 5.2%. Economists had forecast both exports and imports would shrink but not by as much.
In addition, the country’s yuan- and dollar-denominated trade surpluses both narrowed sharply in February. The yuan-denominated surplus came in at 34.5 billion yuan last month, significantly below the forecast 257 billion yuan. The dollar-denominated equivalent stood at $4.1 billion, missing an expected $27.2 billion.
The weak data, adding to a string of recent soft macroeconomic releases from China, will likely add to the risk-aversion prevalent in the base metals market and therefore could fuel further price weakness when trading resumes in the afternoon, market participants said.
Base metals prices
Currency moves and data releases
- The SHFE May copper contract inched up by 30 yuan per tonne to 49,240 yuan per tonne.
- The SHFE May aluminum contract ticked up by 25 yuan per tonne to 13,505 yuan per tonne
- The SHFE April lead contract fell by 80 yuan per tonne to 17,495 yuan per tonne.
- The SHFE April zinc contract slipped by 155 yuan per tonne to 21,670 yuan per tonne.
- The SHFE May nickel contract plunged by 1,160 yuan per tonne to 102,950 yuan per tonne.
- The SHFE May tin contract price tumbled by 1,090 yuan per tonne to 147,450 yuan per tonne.
The dollar index was unchanged at 97.57 as at 10.33am Shanghai time.
In equities, the Shanghai Composite fell by 1.54% to 3,058.59.72 as at 10.54am Shanghai time.
In US data on Thursday, weekly unemployment claims came in at 223,000, slightly below the 225,000 estimate. Elsewhere, revised non-farm productivity and unit labor costs grew by 1.9% and 2.0% respectively.
In data on Friday, China’s yuan- and dollar-denominated trade surpluses both narrowed sharply in February, coming in at 34 billion yuan and $4.1 billion respectively.
Later there is the US monthly employment report with figures on average hourly earnings, non-farm employment change and the unemployment rate. Other US releases of note on Friday include building permits and housing starts.
Early on Saturday, China’s consumer price and producer price indices are expected, while US Federal Reserve chairman Jerome Powell is speaking.