Good morning,
The west returned from Bank Holiday Monday to higher prices with aluminium the outperformer. Systematic buying and topside interest evident in the options space on that one. IMF raising its Chinese economic growth forecasts to 5% in 2024 from previous estimates of 4.6% expansion. This on the back of a surprising strong 1st qtr.
Property supportive measures having brought an onshore bid in our absence even though the Shanghai Property Index has come back under pressure today. Doubts remain around the efficacy of this easing of home buying restrictions. Although we note reports in China’s Securities Daily that local government special bond issuance more than tripled in May month on month in signs that infrastructure investment should accelerate. Funds raised from these bonds earmarked for “cities and industrial parks, transportation- related infrastructure and public services”.
Likewise, the yuan remains under pressure amid sticky US inflation and the reality that rates are going to remain higher for longer. Later tonight we get the Fed’s Beige Book with US unemployment data due tomorrow. However, it will be Friday’s PCE deflator, the favoured price gauge, which is likely to give the greater evidence of the Fed’s likely path.
Two pieces of news on the wires today really sum up the bullish argument for owning base outside the AI drive. And on that note we only need to look at tin’s recovery following last week’s Nvidia results to see the driver of that space. But India suffering near record temperatures as it approaches its general election and amid its industrial build out. Likewise, Pres Biden’s administration unveiling a framework to use carbon offsets to drive climate progress and avoid a “green mirage”. David King, the chair of the global Climate Crisis Advisory Group discussing the global warming as a fight for human survival.
London opens with a systematic bid evident across the majority although we note some mixed flows on the likes of copper and zinc which is likely RV related (sell copper / buy ali) and which was evident at points last week. As was some signs of a producer offer on copper and zinc. Ali did too although that metal’s lack of any meaningful retrace yesterday strongly suggestive the market is gradually working its way through that.
Overall, our complex in consolidation mode following last week’s sharp retracements. We largely await month end then options expiry which being June has some lumpy open interest attached to it.
Price performance at cob 28th May 2024:
Ali
- Continues to outperform this morning.
- Decent turnover– running up 47% compared to 20d average. A $54 intraday range has traded which has achieved its 1Y ATR.
- Overnight, Shanghai aggregate open interest expanded 41.8k lots or 6.9% for the 3rd consec session. Fresh length.
- Long adding program on LME stalled but the net combined reading flipped to positive territory yesterday with the strongest demand reading since 21st May.
- LME/SHFE arb still under pressure and now is approaching to the previous extreme level back on 23rd April. This suggests selling LME against buying SHFE which in line with the expanded open interest onshore.
- LME on warrant stocks seeing a small stock build whilst SHFE down tiny. COMEX inventory instead remained unchanged at 32.8kt.
- SMM reported that alumina spot prices maintained an upward trend during the week, due to production cuts at overseas alumina plants, some imported ore spot cargoes will flow into the Chinese market. And domestic aluminium production costs continued to rise, with the import window remaining closed, which may provide some support for aluminum prices.
- China aluminum profile large producers operating rate in May increased to 62%, increased from 39% in February.
- Weekly volume profile seeing the biggest bar traded into $2700 area whilst the topside turnover is picking up.
- Options space has been seeing a topside bid.
- But June oi for expiry next Wednesday providing some stress to the vol shorts. June $2700s and $2800s still showing 6.7k and 6.2k lots each.
- Resis $2775/2800 then $2842 and the 38.2% retrace.
- Support $2700/25.
Copper
- Light turnover this morning – running down 34% compared to 20d average.
- Long liquidation slightly on LME but the net combined reading remained in the positive territory for the 3rd consec session.
- Shanghai aggregate open interest up 2.9k lots or 0.5%, increased for the 2nd consec session.
- China copper cathode output in May totaled at 977.1kt which declined from the peak in March at 1 million tonne. But the current level is still running higher than its previous year’s level.
- Both LME and SHFE on warrant stocks build up for another session whilst COMEX copper inventory running lower at 18.5kt.
- Weekly volume profile seeing the largest bar traded into $10535 level.
- Copper still struggling to recover through its 8 day ma (10,575) which has capped gains since last Wednesday's price crash. But hourly chart attached to show this shallow rising trend channel. Support into $10,475/500 although we have noted fx is weighing this morning.
- See how the copper / ali ratio has now made a 50% retrace taking move from the Oct 2023 low of 3.4696 to the May peak of 4.1403.
- Market still seeing copper selling / ali buying from CTAs this morning.
- Recent LME stock inflows (likely those much touted Chinese smelter deliveries) and wide contangos in front of copper curve perhaps triggering this flow.
- On a 3 x ali : 1 x copper basis the switch having eased from $2999 at peak to $2212 last.
Nickel
- Slim intraday range at $295 which has not achieved any of its ATRs and light turnover.
- LME’s longs started to get cut this week and now back to flat but its net combined reading remained in the positive territory.
- Shanghai aggregate open interest up 3.8k lots or 1.8% for the 2nd consec session.
- Onshore stainless prices stayed strong which brought some upward momentum to LME nickel prices.
- Both onshore nickel cathode and briquette inventory remained unchanged at 4060 tonnes and 100 tonnes.
- LME on warrant stocks remained at 78.9kt level whilst SHFE nickel inventory increased further to 21.7kt which has been the highest level since November 2020.
- Some of the onshore renewable energy equity index started to pick up which supported the nickel price.
- Resistance into 8 day ma at $20,718 and up to the session high of $20,750. Mor resis into $21k area.
- Support into $20,250/300 then $20k.
Zinc
- Recent spread activity suggest the possibility of stock cancellations around 3rd Wednesday pricing. And yday we firstly seeing cash buying on the 2nd ring for a while.
- Tight supply remained the key theme for zinc prices and onshore zinc ingot inventory still at its lowest level.
- LME zinc continues to see fresh lengths and its net combined reading remained in the positive territory for the 3rd consec session.
- Shanghai aggregate open interest up 12.5k lots or 5.4%. Fresh length.
- Ferrous and steel prices traded higher today after yesterday’s weakness which brought some support to zinc. However, LME zinc prices failed to hold the gains after London kicked off.
- LME on warrant stock declined tiny to 223kt whilst SHFE on warrant stock up slightly.
- Weekly volume profile seeing the biggest bar traded into $3100 but also a pick up in the topside around $3125 area.
- LME cash to 3s spread settled at $61.72 contango yday, easing from the peak on 12th April at $4.46 backwardation.
- Resistance into $3175/3200
- Support into 8 day mat at $3087 and then below that into 21 day at $2994.
Lead
- Underperformer this morning. Light turnover – running down 10% compared to 20d average with a $40 intraday range which has achieved its 1Y ATR.
- Fresh lengths built on LME and its net combined reading has been in the positive territory since 23rd May.
- Shanghai aggregate open interest up 0.7k lots or 0.5%, minimal changes.
- LME cash to 3s spread traded into $55.89 contango yday, easing from the recent high on 23rd May at $45.72 contango.
- Both SHFE and LME on warrant seeing stock build especially Shanghai on warrant stocks.
- Resistance $2350/60.
- Support $2275/2300.
Macro
- 12:00hrs MBA Mortgage Applications
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
