Good morning,
Powell’s less hawkish tone suggesting FED’s next move is unlikely to hike further and subsequent treasury market moves sees a bid return to the likes of gold and our space. That sticky inflation theme isn’t going away. Prices likely to be further supported by increasing trade tensions and the mere threat of sanctions even if its another location issue as world trade routes shift. Indeed, amid all the recent chatter around prices having done enough and our being due a correction, although there has been some CTA long liq on various metals, we noted that Tuesday and Wednesday both saw evidence of a real money MOC bid. These flows having been such a big driver of April’s gains and a major shift from the prior 18 months theme of exits from the commodity landscape. Non-farm payrolls tomorrow are also a key data release and have preluded some big moves so far this year.
China returns Monday with the LME closed for UK May day bank holiday. We comment that in the absence of LME, copper prices often move more markedly. And since Shanghai shut copper has been the underperformer down 2%. Zinc, lead and nickel down between 1-1.75% whilst ali is essentially unchanged. Whatever the articles we read about lack of demand and the potential for refined exports on the likes of copper (100kt raises eyebrows!) we remain of the opinion that China is a buyer even if the downstream balks at current levels. Paucity of demand in the here and now does not truly reflect the inevitability of their grid spend as they move to continue to gather, store and distribute power.
Ours is a supply side story as well as one of money flows. Whilst we have paused and consolidate amid lighter volumes and tighter ranges, nothing has changed in terms of the medium term outlook. And lest we forget next week we have the official 5 day roll window.
That said since the London we have come back under pressure amid a continued systematic offer with aluminium looking particularly vulnerable. Indeed perhaps we could argue that the complex could do with a proper flush to remove some of the low hanging fruit. As someone commented to me yesterday – “lather, rinse and repeat”. I don’t have much hair so I needed reminding as to how a bull market behaves!
Price performance at cob 1st May 2024:
Ali
- We seeing a shift in flows this morning which has been encouraged by the large stock rewarranting on the LME.
- No longer term systematic bid. Instead we seeing short term time frame models on the offer as they lighten the load.
- Price has been largely rangebound since the 23rd April stuck between $2540-$2615 area.
- A producer offer having been evident above $2600 the dips having previously found support from gamma although that dissipates post May expiry.
- That said June has some big open interest with $2600s x 5.9k lots, and to the downside some pretty big numbers. Stand out $2500s x 3.5k lots but the $2400s x 9.7k.
- The other potential support for ali price? IF you subscribe to the view that copper needs to correct, RV support for ali is likely to follow.
- Volume remains muted with a very slim intraday range at $15.
- LME seeing a 88.6kt stock build up, all inflows to Gwangyang. It has been the largest inflows since Feb 2023.
- LME aluminum seeing fresh length cob yday and its net combined reading flipped to positive territory with a small demand reading.
- Mid-western US and European ali premium seeing a decent pick up especially European ali premium. In contrast, China 99.7% ali premium declined to -60 on 30th April from the recent high on 12th April at 0.
- Volume profile starting from SHFE’s departure till now to show the largest volume bar traded into $2576 area.
- China aluminum billet in-plant inventory continue to see stock draw since 23rd February. But due to the previous ongoing imports volume, the current inventory level remained high compared to previous years.
- LME cash to 3s spread settled into $24.12 contango yesterday, easing from the previous peak on 30th April at $6.66 contango.
- Support into 21 day ma at $2544.
- Below there $2502 is the 50% retrace taking the move from $2276 low at end of March to $2728 high.
- Resistance now $2575/2600.
Copper
- This week on wires we got World refined copper balance projections indicating a surplus of about 162,000 metric tons for 2024 compared with a surplus of about 467,000 metric tons that it forecast last October. That difference is because of lower-than-anticipated refined copper production. It also is forecasting a surplus of 94,000 metric tons for 2025.
- More of the supply issues which has been the driver of this year’s gains.
- But Reuters publishing that the recent near-record high LME prices is attracting China’s copper producers to export up to 100kt to cool a rally. We believe there could be some inflows but much lighter than the articles suggest with other volumes likely to be delivered into bonded warehouses.
- China will need copper and this a move to depress prices.
- We have seen some long liquidation via outright as well as put buy interest although those on a ratio basis and low risk – more protection really.
- As we get into tomorrow’s close it will be worth looking at how far metals have moved since Shanghai shut in case of some mean reversion.
- In yesterday’s report, we noted that it has been the long-term or slow-trend money inflows who supported the recent upward momentum for copper. Below is the longer-term spec components chart to look at. The current slow money positioning appears to be comparable to about halfway through the ‘20/21 copper bull market. That’s more positive than today’s price action…
- Length on LME seeing a minimal cut into yday close and its net combined reading remained in the negative territory with a lighter supply reading.
- Arb still exhibiting shorts on comex into May delivery. That showing an over $230 comex premium at last night’s close.
- But we attach the active July contract as at last night’s close. That easing considerably, however, on this morning’s draw.
- China’s property sector remains under pressure, and all three component seeing a further decline, especially the completed rate plunged to -20%.
- BBG reported that China's downstream semi-fabricated operating rates have recovered from the seasonal lows during the Lunar New Year holiday, yet remain weaker vs. 2023, suggesting a mixed demand picture. Rod and wire manufacturers' operating rates have improved (but only into the low 70's), pointing to muted construction demand. The revival in tubemaker rates is stronger (into the mid-80's).
- Smelter operating rates are still at 88%, despite the industry's poor profitability. Calls for smelter maintenance and closings to combat overcapacity and disruptions to mined supply have yet to be met, despite the scope for operating rates to fall below 80%, a level last seen during the height of 2020 lockdowns.
- Both COMEX and LME saw a stock draw where LME stocks seeing metal cancelled in New Orleans. Probably arb related – see tht May COMEX premium still increasing during expiry.
- Leveraged fund’s net dollar position continue to see rising length of late which weighing on our space. The current net long has been the largest since end of January 2019.
- The the volume profile since SHFE shut still seeing the biggest volume traded into $9900 area.
- Price is below this sharp rising trend channel from the end of March $8776 low as well as the 8 day ma at $9900.
- Next support on break below $9850 and you could target the $9650/75 area basis the 21 day ma as well as the 38.2% retrace taking that $8776 low to $10,208 peak.
- Copper could probably do with a wash out to clean market before it can go again BUT I am wary. This is a supply led rally. Money demand rather than physical. And whilst it not be around currently, Chinese state will have to step in at some point whether grid or military. There lies the reason price didn’t collapse in 2023 amid all that bearish macro.
Nickel
- This morning’s underperformer with a muted turnover – running down 69% compared to 20d average. A $340 intraday range traded which is going to test its 4D ATR at $399.
- LME nickel’s short covering prog continues and nearly back to flat. It’s net combine reading flipped to positive with a minimal demand reading.
- Volume profile attached to illustrate the largest volume lying at $19100-19250 area but see how the turnover picked up for the downside near $18800 area.
- LME nickel on warrant seeing another small inflow and its on warrant has reached the highest since November 2021.
- Turnover might be down 70% on average but price under the most pressure with options expiry yesterday having removed a lot of the scale down buy interest.
- Marex estimates sees the short as having covered and essentially back to flat.
- 4 day atr $399 – range so far today $340.
- Price into bottom end of trend channel taken from the $16,540 low on 28th March. You also have the 21 day ma just below at $18,528.
- Break of those and next support into $18,157.50 that being the 50% retrace taking that same $16,540 low to $19,775 high.
- Hourly chart into its lower Bollinger band at $18,628
Zinc
- Spec selling evident post Nyrstar announcement but zinc has seen an moc bid 2 sessions in a row now.
- Curve has seen the commencing of length roll across Jun-Sep last few sessions
- Light turnover – running down 48% compared to 20d average. A $50 intraday range traded which is going to test its 1Y ATR at $60.
- Length continue to rise on LME whilst the net combined reading remained in the positive territory since 25th April.
- LME on warrant stocks declined 0.7kt and the current level remained considerably high.
- The largest volumes bars seeing into $2860 and $2925 area since SHFE’s departure.
- LME zinc prices ignored this morning ferrous and steel price movement where SGX seeing a decent rally, up 1.9%.
- Support into $2830 low from last few sessions. Then the 21 day ma at $2799.
- $2758 is the 31.8% retrace taking move from the $2409 low on 27th March to the $2974 peak.
- Resistance $2925/50.
Lead
- After recent stock inflows interspersed with a bid for downsides we note this morning’s stock outflow and cancellation in Singapore.
- LME lead seeing long liquidation prog but again it has been very minimal. The net combined reading flipped to negative territory with a small supply reading.
- According to a report released by the International Lead and Zinc Study Group (ILZSG) on Tuesday, the global surplus of lead market supply expanded to 26,800 tons in February 2024, compared with 5,000 tons in January. In the first two months of 2024, the global surplus of lead market supply reached 31,000 tons, while the same period last year saw a surplus of 15,000 tons.
- See daily chart and how price has held the 21 day ma at $2178 today as well as yesterday.
- In June the $2200s show 1.6k lots with the $2100s to the downside x 1.8k.
- Turnover down almost 40% on average.
- Resistance on any bounce into 8 day ma at $2201 and then the $2235/50 area.
- Support below the 21 dayer into $2141 low from 23rd April.
Macro
- 13:30hrs Trade Balance
- 13:30hrs Continuing Claims
- 15:00hrs Durable Goods Orders
LME Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
