Good morning,
LME closed for UK May Day bank holiday on Monday. That coinciding with Shanghai’s reopen with metals down 1.75-3.75% since their departure. Copper the underperformer as rates markets and size of long has resulted in risk reduction. Volumes overnight are running at around 25% of their 20 day averages. So whilst metals have held overnight the tech pictures certainly look a lot less enticing if you are a bull. But we are quiet from a systematic perspective on the London open.
As we drift and with NonFarm payrolls this afternoon we are wary of some mean reversion ahead of China’s return. Likewise, we look at the treasury markets which has been mooted as a reason for some of this week’s pressure and those providing some support on the likes of copper.
Ditto this month’s commodity inflows and that BCOM/Dow ratio has posted a decent pull back ahead of next week’s official 5 day index roll window. Last month having seen buying.
So whilst there remains a cacophony of calls around the paucity of demand in the here and now, we remain medium term bulls and look for areas to hold and re-engage. This week’s correction part of that longer term rally.
Price performance at cob 2nd May 2024:
Ali
- From our ests, LME ali continues to see length building slightly and it has been the largest net long since end of October 2021.
- Yday’s net combined reading has been the heaviest supply reading since 19th February.
- The current nanolytic setup is very similar to end of October 2021 period, where ali price made a peak on 19th October price then under pressure, that day with a record net long position and its combined reading flipped to negative territory after few consec sessions demand reading.
- LME on warrant stocks remained at same level whilst COMEX ali stocks down to 33kt level from the peak in December 2023 at 50.1kt.
- Since SHFE shut, volume profile seeing the largest bar traded into $2576, also can see the downside near $2530 area picking up.
- The sell-off yday saw price back towards that $2512/17 gap from that weekend when Russian sanctions were announced.
- Is recovering this morning but weekly shows a bearish outside bar so a close below $2555 could potentially trigger a systematic offer for next week.
- Given it was the strength in the onshore arb which supported the price in 2023 as Chinese solar demand surprised, with that collapsing post those sanction moves it should be monitored next week.
- The market might not have the supply issues facing the likes of copper BUT their needs to distribute power will involve a lot of UHV cables which is demand.
Copper
- LME and COMEX copper seeing long liquidation prog this week. And LME copper’s net combined reading registered the heaviest supply reading since 8th Feb 2024.
- However, if we compare both spec positions and net combined reading, the current set up is more similar to mid May 2021 (see the rectangular area), price made a dip that day but did manage to bounce back up again even with a long liquidation prog.
- Copper volume profile since Shanghai shut: Big exchange into $9900 area and as we got into Wednesday’s expiry. But then the largest exchange on move below $9800 with prices down 4% since China exit.
- See a heatmap attached to show you a weakening seasonality in offshore Yuan. But so far Yuan has been strengthened this week.
- But as we wrote in the opener that it has been treasury yields more correlated with copper prices.
- LME on warrant stocks only saw a 0.3kt stock build whilst COMEX stocks declined to 23.6kt from the high on 26th March at 30.95kt.
- COMEX copper aggregate open interest seeing an increase from the previous low on 1st March at 192k lots to 298k lots. And the length continues to rise on cob 23rd April 2024.
- Some spec short covering – sold above 10k with price down 4% since China left. Bounce has stalled into 8 day ma at $9906.
- More resistance into $10k.
- Support now into the 21 dayer at $9684.
Nickel
- Today’s outperformer. Muted turnover this morning – running down 68% compared to 20d average. And a $255 intraday range traded which has not achieved any of its ATRs yet.
- Short covering remained the main theme for nickel, from the previous peak on 28th March at 55.8k lots or 37.7% to 3.8k lots or 2.6%. Then its net combined reading flipped to negative territory with a very minimal supply reading.
- LME on warrant stocks continued to build and it has been the highest level since November 2021.
- Volume profile since SHFE shut attached to show the biggest volume traded at $18800 and $19160 area.
- Nickel cathode inventory declined slightly, down to 4560 metric tonne from the recent peak on 3rd April at 4760 metric tonne. Then China nickel briquette inventory picked up tiny to 100 metric tonne.
- Yday’s low created the 3rd point of a rising trend from the $16,540 low on the 28th March.
- Price holding its 21 day ma which comes in at $18,585 currently.
- Market now stuck in this wedge pattern with the down trend from the $19,775 22nd April peak coming in at $19,145.
- Price rally making same $18,975 high as yesterday with resistance into $19k then $19,250.
Zinc
- Light turnover – running down 45% compared to 20d average with a $40 intraday range traded.
- LME zinc continues to see fresh length and its net combined reading stayed in the positive territory since 25th April but minimal.
- China zinc ingot inventory at port remained at 48kt and the current level is still running fairly low compared to previous years.
- LME zinc prices is reacting the same direction with ferrous SGX prices, both dipped initially but manage to bounce back.
- LME zinc inventory declined 0.2kt today and the recent peak was on 19th February at 240kt.
- Volume profile attached since SHFE’s departure to show the biggest volume traded to $2880 area.
- Resistance $2925 then the $2960/75 area.
- Support into 21 day ma and $2800/25 area.
Lead
- Another flat and stagnant position and the net combined reading remained in the negative territory for the 2nd consec session with a minimal supply reading.
- LME lead on warrant stocks seeing another 1.1kt withdraw.
- Volume profile seeing the largest bar traded into $2185 area.
- LME lead cash to 3s spread traded into $43.29 contango, easing from the recent peak on 19th April at $28.36 contango.
- Support $2171-80 yesterday’s low up to the 21 day ma. Below that $2150 area.
- Resistance $2225/35.
Macro
- 13:30hrs Change in Nonfarm Payrolls
- 13:30hrs Unemployment Rate
- 14:45hrs S&P Global US PMIs
LME Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
