Good morning,
Chinese property concerns aren’t going away any time soon with Country Garden saying it cannot make an interest payment due on a local bond guaranteed by state backed prog, the first default of its kind. Separately you have Hangzhou remove all home purchase restrictions today. Bloomberg suggesting all tier 2 cities will follow suit to support demand, whilst Shanghai can also follow Beijing and Shenzen’s recent moves. Onshore names and the Shanghai property index rally today.
Import and export data also a beat – the latter continuing that over capacity narrative fuelling trade tensions and tariff threats.
Increases in yields this week also providing some support. But the reality is participation in our space has dropped significantly in the past week or so with CTA flows dropping considerably but which is probably best reflected in the decline in option volatility levels.
Bloomberg rolling chart of the vix in white and the base metals 2nd month at the money option volatility:
Today being the 3rd day of the official 5 day roll window we have noted a moc bid emerge during the US session over the first two days of this week.
So in summary most focus on length established and lack of physical demand in the here and now. And to this writer, amid this consolidation, the next move appears unclear. However, news that Texan electricity prices have jumped from $32MW per hour on Tuesday to $3000 last night (a 100 fold increase) well illustrative of the grid pressures new power demand from the likes of AI are placing on western infrastructure. Our metals era where Chinese demand is the dominant driver is shifting. World demand is coming as we electrify and amid new lines of demand.
Price performance at cob 8th May 2024:
Ali
- Light turnover – running down 58% compared to 20d average. Only a $20 intraday range traded which has not achieved any ATRs yet.
- Weekly China ali ingot social inventory seeing stock draws, down 2.08% compared to Monday to 778kt today. The current level is 4.66% lower than same period last year.
- LME aluminum seeing a slight long liquidation prog and its net combined reading flipped to the negative territory with a supply reading.
- Shanghai aggregate open interest up 8.1k lots or 1.4% after 2nd consec decline.
- In April, China aluminum rod operating rate total at 57.2% which declined from the high in March at 58.40%.
- LME and COMEX ali inventory remained flatlined of late whilst SHFE on warrant stocks seeing a 1.4kt build.
- Noticeably May June Shanghai spread into 10c from 45c yesterday.
- See also a SMM chart of the onshore arb and how that has recovered after collapsing post last Russian sanctions to pretty much the level preannouncement.
- Yesterday’s correction sell off saw price hold the gap $2512/17 which was created that Russian weekend.
- More support into $2500 area.
- Resistance now into 8 and 21 day ma $2560/65 – if they cross could be seen as a negative signal.
Copper
- Copper in consolidation mode after some liquidation following aggressive bank holiday rally. Turnover remains muted – running down 40% compared to 20d average with a $98 intraday range.
- China April copper ore and concentrate imports 2.348 million tons. Increasing tiny compared to March but it has been a record high level compared to its historical April imports volumes.
- The operating rates of copper wire and cable enterprises stood at 73.42% in April, up 2.51 percentage points month on month but down 13.73 percentage points year on year, according to the latest SMM survey of 64 plants with a combined capacity of 3.64 million mt/year.
- China Shanghai bonded inventory declined to 76kt from the high on Monday at 77.8kt. In contrast, China social inventory continue to build up to 274.2kt, approaching to the previous record high on 31st March 2016 at 325kt.
- Light long liquidation on LME and its net combined reading flipped to negative territory yesterday with a supply reading.
- Shanghai aggregate open interest down 2.0k lots or 0.3%. Declined for the 6th consec session, down 38.1k lots in total from the peak on 26th April. Note between 29th March and 26th April’s record level, it had increased 96.1k lots.
- COMEX copper stocks remained low at 22.7kt level whilst SHFE on warrant stocks also seeing a stock draw.
- Shanghai May June spread bid to 160 contango, tightening up from the low on 7th May at 370 contango.
- Shanghai May June bid into 160c from 370c on 7th May.
- Arb improving.
- Support into 21 day ma at $9764 down to $9739 low from 2nd May.
- $9661 is 61.8% retrace if move from $8776 to $10,208.
- Some resistance now into 8 day ma at $9937.
Nickel
- Shorts on LME have been largely covered to flat now and its net combined reading remained in the positive territory with a minimal demand reading.
- Shanghai aggregate open interest down 6.9k lots or 2.9%. The biggest decline since 20th March seeing a 3.0% decrease.
- Onshore stainless prices have largely flatlined this morning with LME nickel prices edging lower.
- Onshore renewable energy equity index rallied this morning but LME nickel prices ignored this upward movement and under pressure.
- LME nickel on warrant stocks build tiny to 74.8kt and it remained at a fairly high level.
- The national nickel pig iron output in April 2024 was 26,700 nickel tons, 647,000 physical tons, a decrease of 2.15% month-on-month, and a month-on-month decrease of 3.40% in metal tons according to SMM. And onshore nickel pig iron prices remain strong at 975 yuan/ton.
- A small move across May June on Shanghai into 1050c from 1210 yesterday.
- Again arb improving…
- Support into $18,525/75 today.
- Resis 18,950-19k.
Zinc
- Today’s underperformer. Muted turnover this morning – running down 34% compared to 20d average with a $42 intraday range traded.
- Looking at our Marex positioning estimates with fast/medium/slow components, see how the slow money now has built light length in LME zinc.
- Iron ore and steel prices remained under pressure which led to weak price action in zinc.
- Noticeably that onshore May June spread bid to 15 backwardation today, tightening up from the low on 8th May at 110 contango.
- Both LME and SHFE seeing a small stock draw this morning and both remained at a high level still.
- LME/SHFE arb window seeing a decent improvement but remained closed.
- Support into 21 day ma at $2846 with yesterday’s low $2856.
- Then those $2830/31 lows from 30th April/1st May.
- Break of that and could argue $2758 and the low from the 23rd April and 38.2% retrace.
- Resistance into $2910 and the 8 day ma.
Lead
- On wires South32 Ltd. and Teck Resources Ltd have agreed sharply improved terms for annual contracts to sell lead concentrates to Asian smelters, amid high spot demand from China. TC pressure.
- Also according to SMM, a few Chinese smelters have lowered production due to technical issues or license permits. So onshore is facing a tighter supply situation of late.
- LME lead remained in the positive territory but still stagnant. Then its net combined reading stayed in the positive with a diminishing demand reading.
- Shanghai May June back has reared to 300b from 15c on 7th May.
- Again this all reflected in the big arb move albeit the physical remains shut.
- Support into 21 day ma at $2193.
- More into $2170/75 and the month’s lows.
- Resistance into $2550 then $2300.
Macro
- 13:30hrs Initial Jobless Claims
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
