Good morning,
Macro the driver of today’s price pressure. That and China’s reticence to buy metals at elevated levels. Dollar remains bid. No signs of any yuan support basis the weak fixing this week. So, longs baling overnight although volumes were nothing special and only running around average.
Our markets are long so that raises potential for deeper corrections although this desk’s CTA flows have been very light on the London open suggestive of this being more discretionary led to the downside. Copper in particular sits on some key levels here breaching its 21 day ma at $10,242 as well as its previous low of $10,210. Ali’s price decline much more mooted which is probably related to the RV bid (sell copper) which has been evident over the past week or so.
But we won’t change our tune. We have discussed our view that the market is going through a period of chop / consolidation with the reasons to own metals still relevant. Our other observation is this. Overnight price action once again a cautionary tale for those running short vol in this year’s trading environment.
Price performance at cob 29th May 2024:
Ali
- Outperformer this week. Decent turnover – running up 63% compared to 20d average with a $64 intraday range traded with have achieved its 1Y ATR.
- On the wires Press Metal CEO talking about global investments in renewables and EVs continues to drive ali demand.
- Furthermore yday saw China’s State Council tighten capacity controls onshore as it moves to towards its plans for energy conservation and carbon reduction. Reiterating its strict implementation of the swap scheme. New smelter has to be offset by closure of old one.
- China aluminum spot inventory increased further to 797kt as of today, increased 1.1% from Monday’s inventory data. Same stock build momentum seen on its aluminum ingot social inventory as well.
- According to SMM data, as of Thursday, the weekly alumina production rate in China has increased slightly by 0.82% to 82.56% compared with the previous week
- LME aluminum continues to see long adding program but its net combined reading flipped to the negative territory with a minimal supply reading.
- Shanghai aggregate open interest up 42.8k lots or 6.6% for the 4th consec session. Length continues to build…
- Both LME and SHFE on warrant seeing stock draws today, especially on LME down 34kt.
- Weekly volume profile seeing the biggest bar traded into $2750 area.
- China aluminum Shanghai 99.7% premium down to -150 from the recent high on 15th May at 10. The current level has been the lowest compared to same period previous years.
- Support into the 8 day ma at $2687 with $2693 the 50% retrace taking move from $2586.5 low on 23rdf May to $2799 peak.
- Below the 200 hour ma at $2655.
Copper
- Discretionary length exiting this morning into a China spec bid around $10,200. Expect some onshore arb traders to come in on the bid when Shanghai evening session opens.
- Decent turnover which is running up 22% compared to 20d average with a $276 intraday range nearly achieved all its ATRs.
- LME copper seeing long liquidation prog since 22nd May but its net combined reading remained in positive territory for the 4th consec session.
- Shanghai aggregate open interests down 11.1k lots or 1.8% after 2 consec sessions decline.
- Both Shanghai bonded inventory and China social inventory continue to see stocks build of late and no clear signs of draws yet.
- See how LME/SHFE arb has improved substantially today, It is not open yet but if LME sees much more pressure those big arb buyer of LME will emerge. Premiums at least steadying up onshore.
- And this also pertinent given our feedback was that $10,000-$10,200 was a Chinese downside target.
- Both SHFE and LME on warrant stocks seeing further stock build of late. In contrast, COMEX stocks declined further to 17.9kt.
- Has breached its 21 day ma at $10,241 today for first time since mid February. Volume picking up since 8am.
- Price having already made a $276 range – essentially matching its 10 day atr of $277 and besting others. RSI on hourly moving into oversold territory.
- This probably explaining the pickup in turnover into move below $10,250 although the big options strike to the downside is the $10ks now with 6.9k lots of June and 3.3k lots in July alone.
- Also we have month end tomorrow and will be interesting to see if we get inflows as has been the theme last few months.
- So this a key area and there is a bit of a battle around $10,200 this morning.
- For the bears $9967 represents 38.2% retrace of year’s range ($8127- $11,104.50). And if you wanted to go turbo to downside then $9615 is the 50% fibo and ties in with rising trend line from that $8127 low.
Nickel
- Decent volume this morning – running up 16% compared to 20d average.
- Long liquidation prog continues but its net combined reading remained in the positive territory with a stronger demand reading.
- Shanghai aggregate open interest up 8.5k lots or 3.9% for the 3rd consec session.
- Nickel feedstocks prices have been supportive of late – see how onshore nickel pig iron price traded higher since yday to 1050 yuan/ton.
- Initially onshore stainless followed the nickel move lower but that saw a sharp recovery into the close of their day session.
- On warrant stocks on both exchanges largely unchanged but overall theme of builds remains.
- Those onshore renewable energy equity index managed to trade higher which should provide some support to nickel prices.
- Rising trend line ties in with the 21 day ma at $19,785.
- $19,756 also the 38.2% retracement.
- Below there $19,140 and the 50% retrace.
Zinc
- A $77 intraday range has traded this morning which has achieved almost all of its ATRs.
- Length continues to build on LME whilst its net combined reading remained in the positive territory with a stronger demand reading.
- Shanghai aggregate open interest down 18.3k lots or 7.5%. The biggest decline since 28th Sep 2023 at 10.3%.
- According to SMM, as of Thursday (May 30th) this week, the total inventory of zinc ingots in seven regions of SMM was 209,400 tons, which decreased by 3,500 tons compared with May 23rd and by 10,000 tons compared with May 27th. Domestic inventory was recorded to decrease.
- See how LME/SHFE arb improved of late, and now back to its mid-April level.
- Ferrous and steel prices dropped to its 2-week low due to China steel capacity pledge. This has brought some downward pressure to zinc prices.
- LME on warrant stock seeing further stock draws whilst SHFE on warrant stocks build further to 90.1kt.
- Support into 21 day ma at $2998.
- Then $2889 and the 38.2% retracement.
Lead
- LME lead seeing early signs of long liquidation and its net combined reading flipped to the negative territory with a minimal supply reading.
- Shanghai aggregate open interest up 0.5k lots or 0.4% for the 3rd consec session, minimal changes.
- Both LME and SHFE on warrant stocks flatlined today.
- Weekly volume profile attached seeing the largest bar traded into $2315 and $2340 to the topside.
- LME cash to 3s spread traded into $60.72 contango yday, easing from the recent peak on 23rd May at $45.72 contango.
- Support into 21 day ma at $2268.
- $2220 then represents the 38.2% fibo retrace.
Macro
- 13:30hrs GDP Annualized QoQ
- 13:30hrs Personal Consumption
- 13:30hrs GDP Price Index
- 13:30hrs Core PCE Price Index
- 13:30hrs Initial Jobless Claims
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
