Good morning,
Earlier this week we commented on the widening bid offer spread quoted on 3s copper. This a sign of a nervous market where HFT involvement can contribute to sharp moves. That especially a case where the markets are essentially synthetically short vol. Think of the previous long term mean reversion low rates environment. Moreover, now you have all living hand to mouth.
As we have a UK bank holiday on Monday and US memorial day with a China bank holiday on Monday 10th June this choppy price action is likely to persist as we jostle and consolidate after this week’s macro inspired correction.
Our markets maintain some substantial spec length and noticeably our desk would suggest that heavy CTA long liquidation has been absent thus far. So that raises the importance of tonight’s closes although in holding the $2600 and $10,200 yesterday the complex’s two major metals held first key support.
US reserve officials and other bankers raising growth doubts around the state of the US economy although this week’s data has seen the dollar strengthen. Rate hikes even having been mooted but the key no interest rates this year. Although we remain of the opinion owning hard assets amid sticky inflation is a play as seen from the outside commodity inflows these past few months. As we approach the US election the more prickly subject of US debt likely to come to the fore.
As for China, ahead of July’s plenum, Xinhua notes President Xi highlighting property, employment and childcare as areas that require reform. These 3rd plenums focus historically on broad economic and political goals. Further moves from the admin there to shore up investor confidence.
London sees mixed price action. Nickel outperforming initially thanks to strong feedstock prices. Ali picking up the reins since with a CTA and spec bid evident. That metal having benefitted on a RV basis this week.
Price performance at cob 23rd May 2024:
Ali
- The outperformer this morning benefitting from a spec and systematic bid.
- Whilst there has been evidence of continued producer interest of late interestingly the market looks on its hourly charts like it is establishing a higher range – from $2500-2625 to $2575-2700 now.
- Also note how June $2600s and $2700s show an oi of 5.1k and 5.9k lots respectively. Indeed, the weight of oi across June also creating plenty of gamma to trade for those long vol.
- Light turnover this morning – running down 30% compared to its 20d average. Producer selling evident in the market.
- China aluminum ingot social inventory seeing further stock build, increased 1.05% to 767kt on Thursday.
- LME aluminum seeing a long liquidation prog and the net combined reading flipped to the negative territory with a minimal supply reading.
- Shanghai aggregate open interest declined 20.7k lots or 3.4%. Aggr oi down 66k lots within 2 sessions.
- All three exchanges seeing a very minimal stock changes today.
- Weekly volume profile to show the largest volume still traded around $2620 area this week even tho the volume around $2725 level picked up.
- Support into 8 week ma at $2565. 21 dayer coming in at $2587.
- Price in a consolidation phase.
- Resistance into $2700 then $2775/2800.
- Attach hourly to show you that change in range as well as the 8 and 21 hour mas crossing in a bullish fashion.
Copper
- Macro long liquidation coupled with some RV pressure (versus buying ali) on the sell off.
- Also above $11k the desk commenting on the volume that traded across Dec24/25 out to $110b this week and that was signs of producer sell interest.
- Surprisingly open interest and positioning reports show little evidence of any meaningful long liquidation yet.
- We are now entering a period of consolidation. Light volume today with a $135 intraday range.
- Our net combined reading flipping to positive territory yesterday amid the evidence of a Shanghai arb bid.
- Shanghai aggregate open interests down 0.5k lots or 0.1%, decline for the 5th consec session. Long liquidation.
- Yangshan premium picked up slightly from the low on 22nd May at -20 to -15 today. Then China 99.5% spot premium declined minimally to -290.
- LME on warrant stocks increased 2.5kt today to 99.1kt. Whilst SHFE daily on warrant and COMEX seeing small stock withdraw.
- These LME stock inflows no doubt part of all those rumors of Chinese smelter deliveries – the recent 10kt LME on warrant stock build all into far eastern LME warehouse locations.
- China liquidity index declined slightly but remained in positive territory. This reflected the reduction in the credit injection onshore which is not supportive to copper prices.
- Copper volume profile for week and see how the major exchange initially up at $10,900-$11k but now seeing a heavy exchange matching that into this $10,400 area.
- Support into $10,200 then the $10k area. The really big area if we start to see momentum to the downside into the $9500/9600 area.
- Resistance into $10,535 and the 8 day ma then the $10,580/10,600 area.
Nickel
- A minimal long has established on LME but its net combined reading has been choppy of late and flipped back to positive territory.
- Shanghai aggregate open interest down 3.3k lots or 1.5% for the 5th consec session. Long liquidation
- Nickel’s feedstock prices - nickel pig iron and nickel sulfate remain strong.
- Onshore stainless prices rallied overnight initially which brought some supports to nickel prices but failed to hold the gains later on.
- Onshore renewable energy equity index continues to get sold off which is bringing downward pressure.
- Nickel briquette and cathode inventory has been unchanged at 100 and 4060 ton.
- Weekly volume profile seeing the biggest bar traded into $21600 area. But volume now picking up to the downside.
- Support $19,750-20k.
- Resistance $20,500 area then $20,825 and the 100 hour ma.
Zinc
- Volume has been light this morning – running down 41% compared to 20d average.
- See how onshore zinc concentrates inventory at ports continue to drop, down to a record low level of only 11kt. SMM reported that recently TCs in June have entered a concentrated negotiation period, and domestic and imported zinc concentrate TCs may continue to decline. Tight ore supply continues to support zinc prices.
- LME zinc’s long adding program stalled lately. Its net combined reading flipped to the positive territory with a minimal demand reading.
- Ferrous and steel prices range bound this morning with LME zinc prices seeing a similar movement.
- Stock wise, LME on warrant stock remained unchanged whilst Shanghai daily on warrant stocks picked up slightly.
- Support into the 200 week ma at $2941 below which the 8 week ma comes in at $2887.
- Resis into $3175/3200. A break of those opening up potential for test of $3500.
Lead
- According to SMM, primary lead smelting enterprises in Henan, Yunnan and Hunan are in maintenance status, while recycling lead enterprises in Anhui, Jiangxi and other regions have not changed their reduction and shutdown situation, leading to tight regional supply of lead ingots. This probably explaining the sharp Shanghai weekly deliverable stock draw this morning.
- See how speedy LME lead length has been built of late and that is now approaching the peak back in November 2023. The net combined reading seeing a minimal positive demand reading.
- Shanghai aggregate open interest down 0.9k lots or 0.7%, declining for the 5th consec session. Long liquidation.
- Shanghai on warrant stocks seeing a small build whilst LME on warrant flatlining.
- Recent price strength was led by onshore.
- Therefore, interesting to see Shanghai weekly deliverable stocks draw this week and especially given they previously had risen from 48.3kt on the 26th April to 72.9kt last week
- Weekly volume profile seeing the largest bar traded into $2340 area.
- Support into 21 day ma at $2254. Then $2220 and the 38.2% retrace of the year’s range.
- Resistance into the 8 dayer at $2304 and then the $2350 area.
Macro
- 13:30hrs Durable Goods Orders
- 15:00hrs U. of Mich. Sentiment
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
