LIVE FUTURES REPORT 22/07: SHFE base metals prices retreat; nickel slumps 2.8%

Base metals prices on the Shanghai Futures Exchange were all down during morning trading on Monday July 22, with nickel and zinc leading the decline with drops of 2.8% and 1.7% respectively.

The rest of the complex recorded more marginal declines: lead (-1%), copper (-0.6%), aluminium (-0.5%) and tin (-0.2%).

The broad-based weakness comes amid a recovery in the dollar that saw the US currency reclaim the psychological 97 level after the Federal Reserve clarified statements from New York Federal Reserve president John Williams made at the end of last week.

“After falling heavily on Thursday following Fed Williams comments that ‘when you only have so much stimulus at your disposal, its pays to act quickly to lower rates at the first sign of economic distress’, the USD spent most of Friday clawing its way back to pre-William’s levels with the DXY index ending the week at 97.151, after trading down to just under 96.70 early in our Friday morning,” Rodrigo Catril, currency strategist at National Australia Bank, said on Monday.

“The change in USD fortunes was triggered by a loud truck-like reversing sound - beep, beep! - from a NY Fed spokesman aimed at clarifying that William’s speech was ‘not about potential policy actions at the upcoming [Federal Open Market Committee] meeting’ and that his speech [on Thursday] was ‘academic…based on research’,” Catril added.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 97.20 as at 10.16am Shanghai time on Monday. This compares with a low on Friday of 96.75.

Against the firmer dollar, the base metals on the SHFE all retreated this morning with nickel leading the pack downward.

The most-traded August nickel contract on the SHFE dropped to 114,730 yuan ($16,669) per tonne as at 10.16am Shanghai time, down by 3,340 yuan per tonne from Friday’s closing price of 118,070 yuan per tonne.

The heavy fall in nickel comes after strong price rallies on both the London Metal Exchange and SHFE last week despite little apparent change in fundamentals, with investors seemingly less inclined to chase prices higher at these already elevated levels.

“After supply-side issues and strong Chinese demand saw the [LME’s three-month nickel price] come close to breaking the key $15,000-per-tonne level, buying eased up on Friday after investors started to question whether these drivers justified the size and speed of the rally,” Catherine Birch, senior economist at ANZ Research, said in a morning note.

Other highlights
  • The Shanghai Composite Index fell by 1.09% to 2,892.42 as at 11.36 am Shanghai time.
  • In data on Friday, the University of Michigan’s preliminary consumer sentiment and inflation expectations came in at 98.4 and 2.6% respectively.
  • Apart from the monthly German Bundesbank report, there is no major data due for release on Monday.

Karen Ng

karen.ng@fastmarkets.com

Published

Karen Ng

July 22, 2019

05:39 GMT

Singapore