SMM Evening Comments (Jan 21): Base metals fell as China virus, forthcoming long holiday sparked risk aversion

SHANGHAI, Jan 21 (SMM) – Shanghai base metals fell across the board on Tuesday, as an outbreak of a new strain of coronavirus linked to pneumonia in China dented risk sentiment.

Lead on the Shanghai Futures Exchange tumbled 1.6% to lead the losses, copper dropped 1.4%, zinc fell 1%, aluminium, tin and nickel shed 0.8%.

The ferrous complex traded mixed. Hot-rolled coil declined 1.3%, coke and rebar slipped 0.9%, while iron ore, coking coal and stainless steel gained about 0.1%.

A Chinese health expert said overnight the virus can pass from person to person as the fourth death from the illness was confirmed. The outbreak of the disease, which has spread from the transportation hub of Wuhan in central China, comes right before the peak travel season during the Lunar New Year holidays, raising risks that it could spread further.

Concerns about global economic growth and consumption stagnation ahead of the week-long Chinese New Year holiday which will begin at this weekend, also sent investors fleeing base metals.

US gold prices rose to their highest in more than a week overnight, as a missile attack in Yemen over the weekend fanned geopolitical concerns.

The International Monetary Fund (IMF) said Monday that the global economic outlook “remains sluggish” as it trimmed its growth forecasts for 2019 and 2020 to 2.9% and 3.3%, respectively.

Copper: The most active SHFE 2003 contract slipped to its lowest in more than six weeks at 48,300 yuan/mt in morning trade, before it finished the trading day 1.43% lower at 48,420 yuan/mt. SHFE copper has fallen below the 40-day moving average, and whether it could remain above 48,300 yuan/mt will come under scrutiny tonight.

Aluminium: The most traded SHFE 2003 contract extended its decline, losing 0.84% on the day to end at 14,120 yuan/mt.

Zinc: The most traded SHFE 2003 contract fell past the five-, 10- and 20-day moving averages to an intraday low of 18,135 yuan/mt in morning trade, before it hovered around 18,190 yuan/mt to end the trading day 1.03% lower at 18,200 yuan/mt, its weakest close in a week. Support at the 20-day moving average will come under scrutiny tonight.

Nickel: The most traded SHFE 2003 contract reversed overnight gains to a two-week low of 107,000 yuan/mt in morning trade, before it closed the trading day 0.76% lower at 107,480 yuan/mt. Support lies at the lower Bollinger band at 107,000 yuan/mt.

Lead: The most active SHFE 2003 contract shed 1.57% on the day to 15,085 yuan/mt, its lowest close in a week. SHFE lead has declined below the five- and 10-day moving averages, and is likely to extend its decline to test support at 15,000 yuan/mt tonight, given its weakening LME counterpart.

Tin: The most traded SHFE 2006 contract fell 0.8% on the day to end at 139,000 yuan/mt. Support is seen at the 10-day moving average at 138,500 yuan/mt.