Good morning,
CTA selling is evident since the London open across the majority of the complex albeit that amid light turnover. The stand out overnight has been the iron ore slump. That owing to continued stock builds onshore as shipments increase and with sluggish downstream consumption. The Caixin private PMI measure expands at the fastest pace in 2 years beating expectations. But a number of eminent economists in Paul Krugman and Stephen Roach commenting on China’s unwillingness to support consumer demand whilst they boost production capacity for export. Their reasoning that the admin there will be unable to export itself out of trouble.
Copper is steady but not really bouncing. Turnover running at half its average. That follows the recent bout of long liquidation after which it is natural for the market to breathe. That also eplaining why the likes of zinc and ali came off the hardest on Friday as they played catch up to the downside. Although as we approach big oi levels for Wednesday’s June options expiry expect to see gamma interest increase.
A big week for US data capped off by Friday’s non farm payrolls. Friday also being the first day of the official roll window. And of course it has been around those that the commodity complex has seen such large inflows over the course of March April and the first half of May.
Interesting to see India’s stock market reaction to the anticipated Modi landslide with state owned and especially infrastructure companies fuelling today’s rally. The new administration expected to maintain its focus on this, manufacturing, energy and electric vehicles expected to benefit.
Price performance at cob 31st May 2024:
Ali
- CTA flow has been dissipated of late. Overall a light turnover throughout the session – running down 10% compared to 20d average with a $37 intraday range traded.
- SHFE ali aggregate open interest seeing a 45.9k lots or 6.9% decline. OI has declined 70k lots within 2 sessions. Length get cut.
- LME long adding prog has stalled of late and its net combined reading flipped to negative territory.
- Onshore aluminum ingot social inventory builds for another session, increased to 789.7kt from the low on 16th May at 747kt. The current level is running 35.5% higher than same period last year.
- SMM reported that fundamentally, domestic aluminium operating capacity continues to rise, with good progress in Yunnan's resumption, which may be completed in June, gradually highlighting supply pressure.
- Onshore alumina price edged lower this week, dropped from the peak on 22nd May at 4124 yuan to 3779 yuan as of today. This may not be a supportive factor for aluminum prices.
- China aluminum alloy operating rate for those leading firms stayed at 50%, increased slightly from March’s 49%.
- LME on warrant stocks declined to 591kt from the high on 14th May at 926kt. SHFE on warrant stocks totaled 148kt which is largely unchanged.
- China Shanghai 99.7% aluminum premium increased to -120 today from the previous low back on 30th May at -150.
- See June 24 put and call option nearby strike chart attached below, the big oi sitting at $2800 and $2900 for 6.0k lots and 6.95k lots prospectively.
- This morning has seen price create 3rd point in rising trend line from $2508 low on 13th May.
- More support into 21 day ma at $2618 then the figure.
- Resistance into 8 day ma at $2681. Then the $2700 area.
Copper
- Muted turnover which is running down 49% compared to 20d average with a $107 intraday range.
- Bloomberg on wires reported that Chile registered its lowest month of copper production in more than a year, its production drop 6.7% in April.
- Long liquidation program continues on LME since reaching the peak on 22nd May. Its net combined reading remained in the negative territory for the 2nd consec session and the heaviest supply reading since 2nd May.
- Shanghai aggregate open interest down 6.4k lots or 1.1% for the 3rd consec sessions. Long liquidation continues…
- Far east activities is muted of late, even though the current level has been retraced of late.
- Likewise that COMEX copper also seeing a long liquidation prog since 24th May. And its aggregate open interest decline from the recent peak on 10th of May at 312k lots to 288k lots.
- LME and SHFE on warrant seeing some stock build whist COMEX copper inventory declined further to 16.6kt as of today.
- China copper wire and producers refined copper demand declined to 206.1kt in May, down from the previous peak back in November 2023 at 278kt.
- China copper cathode output in May down to 977kt in May, declined for the 2nd consec month.
- Both Yangshan premium and China 99.5% spot premium improved of late, especially China 99.5% premium increased to -85 from the low on 21st May at -340.
- Option open interest seeing 6.4k lots @ 10000 strike.
- Copper consolidating above the $10k area. More support below into $9967 and the 38.2% retrace.
- Below there and can argue that rising trend line support at $9652 down to the 50% retrace at $9616.
- Resis into 21 day ma at $10,250.
Nickel
- Today’s underperformer. Turnover is running up 9% compared to average with a $700 intraday range traded which has achieved all its ATRs.
- The minimal net long has been liquidated to a flat position. And its net combined reading remained in the negative territory with a minimal supply reading.
- Onshore stainless prices have been under pressure which brought some downward momentum to LME nickel prices.
- Shanghai on warrant stocks seeing further stock inflows and increased to 23kt as of today whilst LME nickel remained unchanged.
- Onshore renewable energy equity index showed some improvement which should provide some support to nickel prices.
- Likewise its feedstock prices – such as nickel sulfate and nickel pig iron prices hold well at its current high level.
- For June expiry, option oi seeing 2.2k lots traded at $18000 and 1.7k lots at $22000 strike.
- Support into $19,140-250 today’s low down to the 50% retrace.
- Resistance into the 21 day ma at $19,834 then the 8 dayer at $20,114.
Zinc
- Decent turnover – running up 20% compared to its average with a $56 intraday range traded.
- LME zinc still seeing long liquidation prog and its net combined reading remained in the negative territory with a lighter supply reading.
- Shanghai aggregate open interest down 4.1k lots or 1.8% for the 3rd consec session.
- Shanghai zinc on warrant stocks increased to 91kt as of today from the low level back in January at 3.8kt. In contrast, LME on warrant stocks seeing a minimal stock draw but the current level remained fairly high.
- Today’s ferrous sell off is not supportive to zinc prices. And SGX iron ore prices has slumped 4.8% as we are writing. This continuous port inventory build-up and sluggish demand is not a bullish signal for ferrous space.
- European natural gas traded higher this morning owing to Norway’s unplanned outages. This in some way could bring some support to zinc prices.
- Onshore arb has been improved further since reaching its extreme level back on 30th April, this could attracts people buying LME against selling SHFE.
- Support now into $2935/40 area – today’s low and that from mid May.
- Below more support into $2889 and the 38.2% retrace.
- Resistance into $3015/25. 21 dayer comes in at $3005. Then the 8 dayer at $3050.
Lead
- Light turnover today – running down 34% compared to 20d average with a slim intraday range at $22 traded.
- LME long liquidation continues since 28th May and the net combined reading remained in the negative territory with a lighter supply reading.
- Shanghai aggregate open interest up 7.8k lots or 6.3%, fresh length.
- LME on warrant stocks remained at the same level as last week whilst SHFE on warrant stocks declined minimally.
- LME cash to 3s spread settled at $57.11 contango last Friday, tightened up from the low on 29th May at $60.72 contango.
- Meanwhile, onshore arb window continue to improve of late.
- Support into $2250 then $2220 and the 38.2% retrace.
- Resistance the 8 day ma at $2300.
Macro
- 14:45hrs S&P Global US Manufacturing PMI
- 15:00hrs Construction Spending
- 15:00hrs ISM Manufacturing
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
