Good morning,
A mixed start to the session. We note the precious, energies and some of the ags coming under pressure which is worthy of note given the money flow coming into the commodity space has been the primary driver of the recent gains. Moreover, that we have Nvidia results tomorrow may well be seeing some risk reduction ahead of that akin to how the markets pause into FOMC rates decisions (those minutes tomorrow night too). Also weighing has been the fx today amid a pause in the yuan rally and a light dollar bounce.
Supply issues having also driven some spread and other short covering of late. So note the reports of disruption to alumina supplies with Rio Tinto announcing force majeure on Queensland deliveries as the result of gas power shortages. This the precursor for onshore alumina futures to trade limit up. Indeed aluminium having been the underperformer of the complex we note last week’s positive price action and today’s stock draw adds to our opinion that ali can benefit. Our overall bullish copper view and IF copper is going to continue to rally, ali will have to move higher and work its way through the producer offer.
We can dip but monotonous this writer might sound, we still espouse looking for the area to own rather than try to capture any sell off – however vicious that might prove. Indeed, recent price action continues to suggest various metals in our space are essentially short gamma.
Price performance at cob 20th May 2024:
Ali
- Today’s outperformer. CTA buying interest picked up after this morning’s stock release. But overall have been muted of late. LME on warrant stocks seeing another 82kt draw, which get cancelled in Asia.
- Decent turnover this morning – running up 70% compared to 20d average. Ali has been the underperformer if we look at its month and year to date price performance.
- On wires, Rio Tinto declared force majeure on alumina cargoes from its refineries in Australia due to shortages of gas. Onshore alumina contract went limit up this morning.
- Desk chatting about the potential for there perhaps being sell copper / buy ali in market today.
- See how China aluminum profile large producers’ operating rate picked up for another month and total at 62% in May from the low in Feb at 39%.
- Length continues to build on LME ali whilst its net combined reading seeing a decreased demand reading.
- Shanghai aggregate open interest reduced 9.1k lots or 1.4%, down 31k lots within 2 sessions.
- Both LME and SHFE on warrant stocks seeing draws and especially for LME. See how LME on warrant stocks declined to 556kt from the high on 14th May at 926kt, nearly halved. COMEX aluminum stocks remained unchanged at 32.8kt.
- Shanghai June-July spread traded into 75 contango this morning, easing from 20 contango on 15th May.
- Support now $2615/25.
- Resistance $2675 then the $2700 area.
- June $2700s showing 5.6k lots of open interest.
Copper
- China April copper output rose 9.2% yoy to 1.136 million tons.
- Yday copper saw a $381.5 intraday range which is the widest day’s range since 15th March 2023 at $387.5 then you need to go back to 4th November 2022 at $588.
- Copper has today traded a $270 pretty much achieving all its ATRs. Turnover is running slightly up 7% than its 20d average.
- China copper cathode output total at 977.1kt in May which is running lower than its recent peak in March at 1 million ton level. But the current level is still running higher than its historical number.
- LME copper continues to see fresh length and its net combined reading remained in the positive territory with a lighter demand reading.
- Shanghai aggregate open interest down 7.8k lots or 1.2%, decline for the 2nd consec session.
- LME on warrant stocks build up further, increased from the low on 13th May at 90kt to 94.1kt as of today. SHFE on warrant stocks declined further to 224kt from 241kt on 15th May. COMEX stocks remained low at 19.9kt.
- Yangshan premium remained largely under pressure, declined to -$5 today. On the other hand, China 99.5% spot premium also declined to -340 which is a record low.
- Shanghai June-July spread traded into 360 contango, easing from the 150 contango on 8th May.
- Daily volume profile attached to show the largest bar traded into $10860, but also seeing a pick up into the topside.
- Copper made a new all time peak yesterday so it makes sense for us to see consolidation. Currently wondering if this is akin to the pause we saw at the end of April and first couple of days in May.
- Nvidia share results and given the money in that stock, then it makes sense for there to be a risk pause into that.
- Support into $10,720/25 and the minimal gap from Monday’s open. That also the 38.2% retrace taking move from $10,046 low to $11,104.50 peak. Then $10,575 and the 50% fibo retrace.
- Resistance into $11k then $11,500
Nickel
- Underperformer as we are writing. Finally Marex spec position estimates show a minimal long built on both LME and SHFE. Its net combined reading remained in the positive territory but with a lighter demand reading.
- Shanghai aggregate open interest down 14.7k lots or 5.8%. Short continues to cover.
- According to the SMM survey, some nickel ore quotas in Indonesia have been approved, but are far from meeting the capacity demand from refined nickel, high-grade nickel matte and nickel intermediate products in 2024. Additionally, nickel ores from New Caledonia and Australia cannot be supplied normally due to various reasons. Affected by nickel ore supply tightness.
- This is on top of the supply issues amid the state of emergency in New Caledonia.
- Onshore stainless prices traded higher before the SHFE close which has provided some price support.
- Both LME and SHFE on warrant seeing a minimal stock build today.
- Onshore renewable energy equity index continues to trade lower which is not supportive to nickel prices.
- Daily volume profile attached to show you the largest bar traded into $21500 area.
- Resistance into $21,950 and peak from 4th August 2023.
- $22,620 the 38.2% retrace talking move from Dec 2022 peak of $33,575 to this year’s trough of $15,850.
- Support into $21k then $20,750.
Zinc
- LME on warrant seeing an 8.2kt stock draw this morning. Yday saw a bullish close with price settling above its upper Bollinger band with a positive mac d. If price manages to post another sold up day we will have had 3 white soldiers on the candle chart which is bullish.
- According to SMM, a medium-sized die-casting zinc alloy enterprise in Guangdong plans to shut down production from tomorrow, with an annual production capacity of 30,000 tons. The time of resuming production has not been determined yet.
- China April zinc output fell 0.8% yoy to 586 kt.
- LME zinc’s length continues to rise and the net combined reading remained in the negative territory with a lighter demand reading.
- Shanghai aggregate open interest up 2.8k lots or 1.2%, fresh length.
- Both LME and SHFE on warrant stocks seeing a further stock draw especially for LME on warrant stocks.
- On top of that this morning’s ferrous prices have been supportive to zinc price as well.
- Daily volume profile attached to display the largest volume traded into $3140 area.
- China refined zinc inventory attached to show the recent restocking momentum continues but it is sill running below its 5-year average level.
- Next major resistance into $3240 which is the 38.2% retrace taking move from $4896 March 2022 peak to May 2023 $2215 low.
- Then could target $3500.
- Support now into $3025/50 area.
Lead
- LME lead continued to see a long adding prog and its net combined reading stayed in the positive territory since 3rd May.
- Shanghai aggregate open interest down 0.1k lots or 0.1%. Minimal changes.
- Shanghai June July spread settled at level today, easing from the recent peak on 20th May at 30 back.
- Stocks continues to decline on SHFE, down to 50.1kt from the high on 15th May at 70.9kt. In contrast, LME on warrant stocks have been largely unchanged.
- Lead resistance now into $2400 and that April 2022 consolidation. Last time we were up here.
- Support now into $2300 and then the $2250 area.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
