Good morning,
The week kicks off with risk assets rallying hard. We commented in last night’s report the moves first in gold then as silver breaching the $30 level decisively as further evidence of the money flowing into our space. Those two metals and precious sub-indices to the BCOM index having been the stand outs in terms of performance so far this year. Last week we saw a moc bid most nights on the metals even as we had gotten past the official 5 day index roll window.
But also today and the manner in which prices gained on the LME Select open is testament to the bid which has emerged from Far Eastern traders and which is more likely a continuation of that arb stress which was evident last week. Decent turnover this morning with wide intraday ranges already traded. Also worthy of mention is that the LME/SHFE arb on copper and nickel all traded wider, for copper – the widest arb window since November 2022.
Copper therefore outperforms with nickel following suit. These two metals having seen supply stresses emerge and contribute to the price gains along with the weight of those money flows. Moreover, reports of Elliotts $1 billion stake in Johnson Controls further highlighting wider money investment in all things AI – this being a company which plays a leading role in HVAC control, crucial to cooling data centres.
Chinese banks left their lending rate unchanged. Leaving the one-year loan prime rate at 3.45% and the five-year rate which the reference for mortgage at 3.95%. On Bloomberg, some economists expect the PBOC to cut rates or inject more cash into the financial system by reducing the amount of reserves banks must keep in the coming months. That would help banks buy up new government bonds, as Beijing increases fiscal support for the economy.
Price performance at cob 17th May 2024:
Ali
- SMM commented that the domestic aluminum operating capacity continued to grow. Around 660,000 mt of aluminum capacity in Yunnan has been resumed, and the remaining 630,000 mt are expected to be restarted and then reach full capacity in June.
- According to customs data, China exported 19,000 tons of aluminum cables in April 2024, a 40% increase from the previous month and a 21.1% increase from the same period last year.
- China aluminum ingot inventory seeing a 1.6% stock build to 759kt.
- LME’s length continues to build and the net combined reading stayed in the positive territory with a diminishing demand reading.
- Shanghai aggregate open interest reduced 21.6k lots or 3.3% after previous two sessions 67k lots expansion.
- LME on warrant stocks continue to see stock draw, down to 638kt from the recent high on 14th May at 926kt. COMEX and SHFE stocks have been largely unchanged really.
- Shanghai June July spread traded into 65 contango, easing from 20 contango on 15th May.
- China 99.7% premium continue to decline to -100 and now approach to its previous low on 29th March at -110. In contrast, both European and mid western US aluminum premium improved slightly.
- Resistance into $2645/55 then the $2700 area and the next big options open interest levels.
- Support into $2600 and down to its 21 day ma at $2582.
Copper
- Outperformer this morning – hits record above $11000.
- Copper option vol jumped to a record high in New York – July ats up to 40.09% from 34.09% at settle 16th May and 22.66% on 8th May. London having historically hit 100% in the front. Global Financial Crisis being one such occasion.
- Copper has achieved all its ATRs and a $382 intraday range traded which has been the widest since 15th March 2023’s $387.5 Then you need to go back to 4th November 2022 at $588.
- Length continues to rise on LME and the net combined reading flipped to positive territory.
- Shanghai aggregate open interest down 1.5k lots or 0.2%. Total at 633.6k lots – minimal change
- In terms of fundamentals, although Chinese refineries in the north have entered maintenance with spot supply decreasing, there is no apparent supply shortage at present. It is expected that the maintenance will not change the current oversupply, and the supply in the spot market will remain relatively ample.
- China copper smelting and refinery rate declined to 86.45% from the high in September 2023 at 94.21%.
- Both Shanghai bonded inventory and Chian social inventory build further, with Shanghai social inventory increasing to 285.9kt.
- See how China refined copper net imports declined slightly. China’s refined copper imports in April declined tiny to 305.8kt whilst refined copper exports surged to 24.6kt in April from the low in January at 8,502 tonnes. However, the current level still has room to achieve the previous highest export volume from back in April 2022 at 61kt.
- Both Shanghai and LME on warrant stocks increased slightly whereas COMEX copper stocks declined further.
- Price into uncharted territory. See some resistance above into $11,765 which is a Fibonacci extension target.
- Also stick to option levels $11k, and $12ks some big oi.
- Support now into $10,700/25 and today’s session low.
Nickel
- Outperformer this morning – with a $750 intraday range traded which has achieved all its ATRs. Decent turnover which is running up 113% compared to 20d average.
- Price gains being driven by the short gamma / vol profile of the market. Length now being built. And supply issues with social unrest and state of emergency in New Caledonia impacting 5-7% of global supplies.
- According to SMM, Indonesian laterite nickel ore RKAB approval quotas in January-May totalled 217.6 million wmt, with 92 applications approved. Compared to 152.169 million wmt announced at the end of March, this represented a MoM increase of 42.99%. The number of approved applications accounted for approximately 26.21% of the total. It is important to note that this year's approvals represent quotas in three years. This means that the total approved quotas in January-May will not be fully digested by the Indonesian market demand within 2024. Therefore, the current Indonesian nickel ore approval quotas are still relatively limited, and the overall supply tightness has not been fully alleviated. However, in the short term, the news may impact market prices from a sentiment perspective. With the gradual supply increase, the premium of Indonesian laterite nickel ores is expected to have some downward room in June.
- Minimal length has started to build on LME nickel and the net combined reading remained in the positive territory for the 3rd consec session with a stronger demand reading.
- Shanghai aggregate open interest down 2.0k lots or 0.8% after 4 consec increase.
- Shanghai June July spread settled at 690 contango, easing from 400 contango on 14th May.
- China refined nickel operating rate down to 78.3% in April from the previous high in December 2023 at 99.02%
- Nickel briquette inventory remained unchanged at 100 tonne whilst nickel cathode inventory declined further to 4060 tonne.
- Onshore renewable energy equity index has started this week with a lack of upward momentum.
- Onshore stainless prices have also been range bound and edged lower which is not supportive to nickel prices. But nickel prices have ignored this and traded higher this morning.
- Both exchanges seeing stocks decline slightly.
- Resistance into $21,950 and the high from 4th August 2023. Then $22,580-$22,700 basis highs from July/August 2023.
- $22,620 is 38.2% retrace taking move from $33,575 high in December 2022 to the $15,850 low in February of this year.
- Support now into $20,750/21,000.
Zinc
- According to the latest customs data, 287,400 tons of zinc concentrate were imported in April 2024, an increase of 17.68% (43,100 physical tons) compared with March, and a decrease of 10.22% year on year. The cumulative import volume of zinc concentrate from January to April was 1,178,800 tons (physical tons), with a cumulative year-on-year decrease.
- SMM commented that the zinc ore supplies remain tight.
- According to Marex position estimates the LME long continues to liquidate and has been doing so since the 3rd May but the combined nanolytics reading flipped to positive territory on Friday.
- China refined zinc production in April total at 504.6kt declining from the peak in October 2023 at 604.6kt. Similar decrease trend seeing for the refining zinc operating rate.
- Both LME and SHFE on warrant stocks seeing a minimal stock draw.
- LME zinc price have been following ferrous prices overnight, rallying initially thanks to Friday’s onshore property policy but then coming off later in the session.
- According to our systematic iron ore model, our model's conviction rating strengthened to 0.88 from 0.13 last week. Today’s bullishness comes mainly from the macro side whilst macro drivers remain bearish. The construction demand index and credit liquidity index are all seeing further improvement which has added to the strength of this conviction.
- See how onshore zinc galvanizers operating rate increased further to 86.53% in April which suggesting improved consumption.
- Next resistance into the $3140/50 highs from February and March 2023. Then the $3225 area.
- Support now into $3k and then the 21 day ma at $2918.
Lead
- Most primary and recycled lead smelting enterprises are in a state of reduction or shutdown in Hunan province due to environmental inspections.
- Decent turnover this morning – running up 58% compared to 20d average with a $107 intraday range traded which achieved all its ATRs.
- LME lead seeing fresh length of late and its net combined reading stayed in the positive territory with a lighter demand reading.
- Shanghai aggregate open interest down 5.2k lots or 3.8%.
- Whilst LME lead stocks has been unchanged, SHFE lead on warrant stocks seeing another draw, down to 54.4kt from the high on 15th May at 70.9kt.
- Shanghai June July spread bid to 30 back from the low on 17th May at 5 back.
- Lead has punched through the $2300 area of resistance and breached the $2333 high from May 2022.
- Next resistance into $2400.
- Support $2300 then the area between the 8 and 21 day mas $2230-$2263.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
