Good morning,
Overnight China removed the floor on mortgage rates and lowered the minimum down payment ratios for individual homebuyers to shore up its property market. This announcement came after reporting home prices feel at a faster pace and consumer spending increasing just 2.3% in April, the weakest growth since 2022. See the power in the move to the topside on the Shanghai property index although note the RSI into overbought status.
Noticeably aside from that move on the Shanghai property index, in our space nickel rallied hard overnight jumping more than 6% at one point as onshore input prices have picked up. This amid social unrest and its impact on mining operations in New Caledonia. Bloomberg reports that French miner Eramet SA is running its local unit at minimum capacity with other miners likely to be impacted if the state of unrest continues. Nickel the one metal which is only just really beginning to see length establish on both exchanges.
Outside the western money flows into our space we note the onshore bid continues. SHFE aggregate open interest seeing expansion on ali, copper and nickel with copper’s open interest surging to a new record high. So the length continues to build in our space.
Chinese data out overnight reconfirmed the 2 speed recovery. Paucity of consumer demand but strong industrial production. Property investment sucks but that’s old news and so to speak. It might still appear in the rear view mirror but gradually the support is coming.
Price performance at cob 16th May 2024:
Ali
- Stock comes in then and then it flows out as we have seen. PrIce struggling to make the substantive gains seen on the likes of copper and nickel as it runs into further evidence of a producer offer as well as some gamma resistance.
- Yday on wires we got Trimet reveal it is ramping up production at its French and German plants to full capacity by mid 2025. It had cut 50% of capacity and have total production capacity of 540kt. This ramp up is more likely to link to an increased demand in our opinion.
- After yday morning’s SHFE open interest expansion, today we seeing another 22.6k lots or 3.5% increase, suggesting fresh length. Onshore again the buyer (as we saw it provide support in 2023 on the dips amid that unexpected 1.5mt additional solar related demand.
- Weekly China aluminum ingot social inventory continues to see stock draws, down 4.0% to 747 kt. Similarly stock draws seeing in onshore aluminum spot inventory.
- According to a report released by the National Bureau of Statistics, China's April primary aluminum (electrolytic aluminum) output was 3.58 million tons, up 7.2% year on year. In April, due to the improvement of power supply in Yunnan Province and the high aluminum price, the second round of production resumption of local smelters was successively launched.
- Shanghai 99.7% aluminum premium declined further to -80 today, down from the recent peak on 15th May at 10 yuan.
- LME ali seeing length build up again since 14th May and the net combined reading remained in the positive territory with a lighter demand reading.
- COMEX ali stocks remained at 32.8kt level whilst both Shanghai daily on warrant and weekly deliverable stocks seeing stock build onshore. Then LME on warrant stocks continued to decline since 14th May down to 641kt today.
- An options open interest grid to show you the large levels results in a pick up in in gamma activity.
- Weekly chart looks positive having held the 8 week moving average on the dip and filling the post Russian sanctions $2512/17 gap.
- Support into $2500/25. Resistance above into $2665 upper Bollinger band then then $2700 area.
Copper
- Shanghai aggregate open interest expanded 17.6k lots or 2.9% after 2 consec declines. Total at 633.6k lots – a new record high suggesting fresh length.
- Length continue to rise on LME but the net combined reading flipped to negative territory with a minimal supply reading.
- See COMEX/LME copper spread now back to $300ish level and the July – Sep spread came off from the peak on 14th May at 15.65b to 6.95b today.
- Onshore copper stocks – both Shanghai bonded inventory and weekly China social inventory seeing a further stock build. Especially social inventory at a fairly high level.
- Copper stocks seen outflows on Shanghai daily warrant stocks and COMEX then LME. Only Shanghai weekly deliverable stocks seeing a tiny stock build.
- China copper smelting and refinery rate in April declined to 86.45% from the recent peak in March at 88%.
- Liquidity index now flipping to positive territory for the first time since last May and improved further which has been a positive factor to copper prices.
- Likewise, the currency index also remained strong and improved further which support copper prices.
- Resistance into April 2022 high at $10,580 above which there is the all time peak of $10,845.
- Support now into $10,200/25 area then $10k.
Nickel
- Shanghai has led the recent rally amid a pick up in feedstock prices and reports of production outtages due to social unrest in New Caledonia. The nickel market the last metal to have covered a short and only in the past week seeing signs of length now building on both exchanges. Market also exhibiting signs of a short vol profile.
- SHFE aggregate open interest expanded 16k or 6.8% lots so far … length continuing to build now.
- LME nickel seeing a punchy turnover – running up 222% compared to its 20d average with a $1,170 intraday range which has achieved all its ATRs.
- Looking at all the feedstock prices, such as nickel pig iron and nickel sulfate prices, those all increasing further which has likely finally triggered this upward momentum.
- Stocks continue to build on both exchanges.
- Shanghai weekly deliverable back to levels last seen November 2020. At 24.5kt up from 0.6kt in May 2023 at the trough.
- LME on warrant up to 76.7kt from 37.1k at end of October 2023.
- A volume profile shows the largest bards in May into the $19,250 area.
- LME cash to 3s tightened a little yday into $221.24c having held pretty much the 26th March low.
- Price stalls into the rising trend channel which comes in at $21,151. You also have the Sep 2023 highs into $21,125. Above that an August 2023 high of $21,350.
- Intra day support at $20,500 then the 21 hour ma at $20,070.
Zinc
- As with copper there has been a supply issue of late, with China zinc concentrate port inventory declining further to a yearly low.
- The loosening of real estate restrictions having initially shown results with market confidence gradually recovering. In addition, the ore supply maintained a tight pattern, which supported the upward movement of SHFE zinc.
- Long liquidation since 3rd May on LME and the net combined reading flipped to negative territory with a minimal supply reading.
- Shanghai aggregate open interest down 1.0k lots or 0.4%, declined for the 2nd consec session – minimal changes today.
- Ferrous has been trading higher after the onshore property news and zinc prices reacted the same direction with ferrous prices. However, it failed to hold the gains since London kicked off.
- Both exchanges seeing stocks draw today.
- Also the recent upward momentum in European gas and power prices brought extra support to zinc prices.
- Price running into some producer interest lately. Plus see how price is through the 200 week ma which comes in at $2936. A close above that tonight would be its first since April 2023.
- Resistance into $3140/50 and highs from Feb/March 2023. Above that would target the $3400 area.
- Support into 21 day ma at $2906 although see some around $2940 and yday’s low.
Lead
- The “money” bid continues even amid the options activity where bearish structures have been in the spotlight.
- Stocks building onshore. Shanghai weekly deliverable up to 72.9kt from 48.3kt on the 26th April.
- LME on warrant down to 152kt from 167kt on 1st April.
- LME cash to 3s not yet reacting to the stock draws – settling at $52.92c from $44.3c on the 9th May.
- Price stalling into $2300 area of resistance – down trend line from $2333 May peak. The $2310 high from Feb 2023.
- Above there $2375/2400.
- Support now $2250.
LME Stocks
Shanghai On Warrant Stocks
Shanghai Weekly Deliverable Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
