Marex Metals Call Update : COMEX COPPER POSITIONING AND RISK PREMIA WITH GUY WOLF
Time: May 16, 2024 01:40 PM London
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Good morning,
This week’s US inflationary data releases has seen rate cut bets back to the fore with increasing chances of up to 2 cuts this year. That has brought a bid to risk and noticeably we are still seeing an MOC bid across the complex even post the official index 5 day roll window. This outside and weight of money continuing to surprise those used to a mean reversion low volatility environment. Later today we have initial jobless claims as well as housing starts, industrial production.
Separately you have this week’s China pro growth measures as plans are gradually being implemented to support its property space. Today seeing the ferrous and steel benefit. The Shanghai Property Index pretty much matching its Jan peak. Tomorrow we have the big China data dump : new home prices, industrial production, retail sales, FAI and jobless data. Ahead of that note the reports that coal producers in Shanxi are s et to raise output as they reverse this year’s production outages. This further sign that China’s economy is benefitting from the supportive measures. And on that note we have seen Shanghai sessions bring the bid to our table with ali today benefitting with its open interest expanding substantially.
Indeed this morning Bloomberg reports that China’s government plans to hold meetings tomorrow to discuss property supportive measures. Bankers, housing ministry, financial regulators and local government officials. The plan mooted apparently for state owned enterprises to help purchase inventory from distressed developers using state bank loans. Clearly at discounts.That explains why iron ore has reacted today – yday it having ignored the rally in Shanghai’s property index.
London kicks off with all in the black. No signs of exhaustion then yet although at some point even the most ardent bulls must be aware we are going to correct at some point. And as seen the way July Sep is behaving – don’t be short vol.
Price performance at cob 15th May 2024:
Ali
- Ali has been the complex underperformer month and year to date. The market having no supply issues that the likes of copper has suffered from.
- Also the substantial producer offer that is in evidence above $2600 also having hurt the market’s opinion of it. This week’s CRU headlines spitting out the bearish diatribe – demand doesn’t justify price etc.
- But we maintain the view that demand is set to surprise still although financial flows more crucial. Money coming into the complex and on a relative value basis. Ali can therefore benefit.
- Shanghai aggregate open interest expanded 44k lots or 7.4% after 3 consec declines. This has been the biggest increase since 30th October at 11.7%.
- LME ali’s net long has been liquidating no doubt some of that having been triggered by of late by the stock inflows although yesterday saw the net combined reading flipped to positive territory with the strongest demand reading since 19th April.
- Our options desk saw buying of cal 24 calls – Dec24 $3000 calls. As the market tried to secure more gamma, Jun was paid up 2% early in the morning and flies were well bid.
- The producer interest also entering this arena seen in cal-26 => 2675/2200 ps v 3300 call in 250 lots per month, selling 650k vega.
- April downstream producers’ operating rate continue to rise especially for the aluminum alloy producer and aluminum ingot. This is supportive to the consumption side.
- $2618 represents 50% retrace taking move from $2728 high to $2588 low.
- Next resistance into $2645/60 – the 61.8% retrace up to the upper Bollinger band on daily.
- Support into 21 day ma at $2581
- As to motive moves this writer really likes the weekly price action and the manner in which price filled the post Russian sanction gap between $2512/17 holding the 8 week ma before bouncing.
Copper
- Signs of the arb stress easing. July Sep comex copper easing to around $10back from the $29.25b high over the 2 previous sessions.
- The comex July premium to LME 3s having halved in the past 24 hours.
- For those who see this relief as marking the top in copper price its interesting to note that the money flow continues best illustrated by the rally between the LME and Shanghai close last night. Indices more heavily invested on CME.
- CME have announced a margin increase. Copper outrights up $500 or 11% as at tonight’s close. Not so impactful for the financial long.
- Indeed, historically arb shifts such as we have seen are not bearish price.
- Although when the correction does come it will no doubt be sharp.
- Yesterday copper vols rallied higher given the extreme volatility in the CME arbitrage and spreads. Jun CME traded 9% higher to 45%, and jul 40% and dec 30%, and when price corrected the vols collapsed in line with the 9% 25d risk reversal. LME vols were up 3.5% weighted, with the curve close to 26% flat for cal24. We continue to see spec roll up strikes on CME and unwind call spreads.
- Attach a chart of July comex at the monies.
- LME on warrant stocks seeing more inflows – Asian locations suggestive some of that Chinese smelter rumoured deliveries is indeed making its way into exchange. Up from 89.5kt on 10th May to 91.1kt last.
- Comex outflows continue – 20.7kt last from 24.4kt on the 30th April.
- Shanghai daily on warrant stocks also finally seeing a draw – last at 237kt from 241kt yday.
- News earlier this week of Sprott physical trust filing preliminary prospectus for a proposed initial public offering of a new physical copper trust testament of the money that is looking to invest in AI and electrification push.
- And so we remind you of the weekly chart. Yes we are in RSI overbought territory but check how it was similarly overbought in 4th qtr 2020 and preluded a $4k rally to the $10,845 all time peak.
- Resistance into yesterday’s $10,410 peak but $10,500 then $11k.
- Support now into 8 day ma at $10,093.
Nickel
- Official exchange positioning estimates shows a long building on London now.
- Ditto Shanghai net long building.
- Last night’s moc bid testament to the money buying. Certainly unrelated to onshore stainless which has been under pressure since Friday.
- Stocks continuing to build on both exchanges.
- Resistance into $19,775-20k. The $20k strike for June and July expiry showing 1.3k and 1.6k lots respectively.
- Support into 21 day ma at $19,081 which ties in with the rising trend.
Zinc
- Shanghai daily on warrant stocks show a small draw having only been increasing to levels not seen since March 2020.
- LME on warrant stocks build and at 236kt up from 203kt on the 14th May to challenge this year’s peak of 240k lots on the 20th February.
- LME cash to 3s having eased from $33.09c on the 9th May to $48.26c at last night’s settle.
- Resistance into $3150 area basis highs from February 2023. Breach of that could target $3500.
- Support into its 200 week ma at $2936.
Lead
- Options activity continues to be weighted towards buying of downside structures.
- Although the CTA bid has been steady illustrated by the Marex nanolytics demand bars and the build in spec length.
- LME cash to 3s eased to $53.02c at last night’s settle from $44.3 on the 9th May.
- Stocks drawing on London but have been building onshore.
- Resistance into $2300 a break above which targets the $2375/2425 area.
- Support now into $2250 and the 8 day ma.
Macro
- 13:30hrs Initial Jobless Claims
- 13:30hrs Housing Starts
- 13:30hrs Import / export prices
- 14:15hrs Industrial Production.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
