Good morning,
Regardless of the dollar / rates shift it has been a lack of meaningful CTA flows which left prices unwilling to retest the recent highs at least in the case of copper and ali albeit zinc did make a divergent high by $1. However, price action into settle was again suggestive of a moc bid on the first day of the official index 5 day roll window. Perhaps not akin to that seen 30th April, 1st May but certainly evidence of it albeit on a lighter basis.
As to the overhead cap, we would remind you of the producer selling apparent on the recent move into $2600 on ali. The bid across the zinc forwards also suggestive of trade sell interest. Likewise, copper finds some spec sellers on moves above $10k.
May is traditionally a seasonally weak month for LME pricing although we would caution the market getting too bearish. The long positioning argument remains however we remain of the opinion that dips will be shallower than the bears expect. Therefore, we will be looking for areas of support and on the copper, zinc and nickel the 21 day mas will likely be our first big targeted area.
We note German’s industrial production shrinking 0.4% in March shrinking for first time this year although estimates were for a 0.7% drop. Also as to the steel and ferrous underperformance today, we note reports that Country Garden is seeking state backed prog help to pay bond interest due tomorrow.
Price performance at cob 7th May 2024:
Ali
- Light turnover – running down 9% compared to 20d average with a $47 intraday range traded which has achieved its 1Y ATR.
- Producer selling having capped the move into $2600 area again. Price back into the break up area from that weekend Russian sanctions were announced.
- Some apparently concerned around Chinese solar demand declining. Certainly ali does not suffer from the same type of supply issues the likes of copper have benefited from.
- China aluminum spot inventory continued to decline, down from the peak on 8th April at 908kt to 820kt this week. But the recent stock withdraw momentum is considerably slow.
- SMM commented that there has been an increase in downstream demand in the spot alumina market, while domestic alumina plants have been resuming and reducing production in parallel. Given that domestic mines have not yet resumed actual production, the short-term increase in alumina supply is limited.
- LME seeing length continue to rise whilst the net combined reading flipped yesterday to positive territory with a minimal demand reading.
- Shanghai aggregate open interest down 10.1k lots or 1.6%, long liquidation.
- Shanghai May June spread settled at 45 contango, easing from 26th April’s 5 contango.
- Daily volume profile attached to show volume starting to pick up below $2525.
- China Shanghai 99.7% premium seeing a small pickup to -70 from the recent low on 29th March at -110.
- All three exchanges stock levels are unchanged.
- Looking at an hourly chart we are into the lower end of range back to weekend of sanctions announcement 12/15th April where we still have that $2512/17 gap.
- RSI on hourly approaching oversold levels short term.
- More support into $2502.
- The $2500s show decent oi in options space => June x 3,9k, Sep x 3.9k. Below the June $2400s show 9.6k lots
Copper
- Copper running into spec offers above $10k. Some Chinese long liquidation overnight basis the open interest drop on Shanghai.
- Price into a period of consolidation and chop.
- Rates and fx markets have contributed to the sell off although these rates shifting looking at 2 year with dollar gains stalling and yuan showing a potential for a bounce.
- Turnover is running in line with its 20d average level with a $187 intraday range.
- Shanghai on warrant stocks seeing a small build, up 1.05% to 216.7kt. LME on warrant stocks have been largely unchanged.
- SMM reported that onshore downstream purchases recovering slightly but no significant increases amid only slightly declining copper prices. New orders remained weak due to high copper prices. The market continues to focus on supply issues.
- LME copper seeing a long adding prog but slow and the net combined reading remained in the positive territory with a stronger demand reading.
- Shanghai aggregate open interest down 8.5k lots or 1.4%, signs of long liquidation. Declined for the 5th consec session.
- Both Yangshan premium and 99.5% spot premium noted another improvement.
- Shanghai May June spread remained in contango, but bid to 350 contango from the recent low on 7th May at 370 contango.
- Daily volume profile attached to show the largest volume bar traded into $9840 or the downside.
- Price holding hourly uptrend which comes in circa $9835. But below the 21 dayer at $9740ish ties in with the $9739 low from the 2nd May.
Nickel
- Today’s underperformer. Light turnover – running down 10% compared to 20d average. With a $540 intraday range which only wait for achieving 20D ATR.
- On wires “China unveiled draft rules that appear aimed at cooling the boom in battery production amid overcapacity concerns. Beijing published the non-binding document and requested feedback.”
- Most of the onshore renewable energy equity index seeing further sell off which is not supportive to Nickel prices.
- Onshore stainless steel prices plunging today which also brought further downward pressure to nickel prices.
- LME nickel’s short continues to cover and finally nearly back to flat from the previous peak on 28th March. The net combined reading seeing a stronger demand reading.
- Shanghai aggregate open interest up 5.0k lots or 2.2%. Increased 22k lots within 2 sessions. Fresh length.
- Shanghai May June spread settle at 1210 contango, easing from the peak on 6th May at 160 contango.
- See how downside volume picked up via daily volume profile.
- LME nickel on warrant stocks seeing a small draw of 0.6kt whilst SHFE warrant stocks remained unchanged.
- Market has breached the 8 day ma at $18,715 but in trading a $540 range has matched all its average trading ranges bar the 20 dayer at $657.
- More support into the $18,520 low from 2nd May.
- The big area below $18k now. Although $18,157 represents 50% retrace taking move from $16,540 low to $19,775 peak.
Zinc
- Price saw a systematic bid which only paused 10 minutes ahead of last night’s settle. Thereby going out close to the highs.
- Some signs of a producer offer basis the bids seen across the term structure. Dec 24/25 settling at $38b from level on Friday night.
- Price came under pressure amid the sell off on steel and ferrous – see Country Garden comments in opener. But stock draws providing some support along with tech levels.
- Wide contango structure attracted financing activities. And this morning we see a 11kt stock withdraw mainly the result of movements in Singapore.
- Signs of long liquidation seen on LME and the net combined reading remained in the positive territory with a lighter demand reading.
- Shanghai aggregate open interest down 3.0k lots or 1.3%. Is has been choppy of late.
- See how ferrous prices get sold off which brought downward pressure on zinc prices.
- Country Garden is seeking help from a state-backed program guaranteeing developer bonds to pay interest due Thursday, people familiar said.
- Shanghai May June spread remained in the contango, offered to 110 contango from the recent high on 29th April at 10 contango.
- Dip held support ahead of its 200 hour ma which comes in at $2873.
- More support into 21 day ma at $2839.
Lead
- LME lead continues to see increased length and the net combined reading seeing a stronger demand reading.
- Although desk advises some producer activity evident in market yesterday.
- Shanghai aggregate open interest up 5.5k lots or 5.0% for the 3rd consec session. Long adding.
- Daily volume profile attached to show the largest bar traded into $2230 area.
- Shanghai on warrant stocks seeing further stock build to 50.6kt whilst LME nickel stocks declined to 158kt from the recent high on 1st May at 167kt.
- Shanghai May June spread traded into 10 backwardation from the low on 7th May at 15 contango.
- Price stalling into $2250 resistance above which you have the $2300 area.
- Support now the 21 day ma at $2191.
Macro
- 12:00hrs MBA Mortgage Application
- 15:00hrs Wholesale Inventory
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
