Good morning,
D-Day and risk was already bouncing yesterday on lates as the dollar peaks appear to have been made short term and the US stock market continues to make fresh records. Copper benefitting from the re-emergence of a back across July Sep comex and the resultant increasing CME premium to LME. Remember it was that arb short cover which really drove the copper at the end of its move to its record peak. ($11,104.50).
As for the other metals, zinc and nickel having seen such a heavy offer throughout yesterday’s session really manifesting itself into the closes and following which our markets just feel a little sold out. This afternoon we have initial jobless claims although it will be tomorrow’s Non Farm Payrolls coupled with it being the first day of the 5 day official index roll window which is going to be telling as to how we end this week.
China demand remains the thorn in the bull’s side albeit we have noted an arb bid on some of these metals on the moves lower. Passive in nature with these windows providing paper rather than physical opportunities (arb remains closed). But whilst property (Shanghai property index and individual names) remains pressured today we note the reports that its National Energy Administration will accelerate transmission projects as its looks to harness and more effectively distribute the renewable power it is now able to capture. Grid operators having increased spending 25% over Jan-April. Ahead of July’s 3rd plenum it would appear likely that Pres Xi is set to unveil power reforms from which grid investment is set to increase.
We have just seen a big position unwind and are of the opinion that markets need to breathe. Expect broad choppy price action short term but surprise lies to the topside now.
Price performance at cob 5th June 2024:
Retracements from recent peaks to yesterday’s trough:
Tin!!
Given AI and all things related are seen as the big driver of demand in our space over the coming years, we do see Tin and its usage in chips as being a good indicator for the wider complex. It has also faced supply issues in Myanmar and Indonesia which drove the original gains in 2024.
- Tin has been slow to benefit from Nvidia making new peaks. But ASML now also spiking higher.
- Added to which LME on warrant stocks have been drawing this month and from 4,855t on the 28th May to 4,500t last.
- Tech price having held its lower daily Bollinger band yesterday (today coming in at $31,386) and ahead of the upper line on the rising trend channel we broke up through on 8th April. Indeed see how tin has been making lower highs but also higher lows in classic consolidation mode after big gains. Would argue basis tin’s relation to the chip industry and it having been the first metal to achieve its price peak this year that its worth monitoring. Keep an eye on that momentum CMCI indicator for a move back thru 100...
- Would like to see LME cash to 3s react in some way – a similar line across majority of complex….all so offered,
- But note that onshore the rolling front month spread has gone bid (as has the majority of the complex). Still in contango but from 2410c yesterday to 480c this morning.
Ali
- Mixed CTA flows this morning. But muted turnover which is running down 29% compared to 20d average. The intraday range has been slim, only $26 as we are writing.
- China aluminum ingot social inventory seeing a 1.5% decline to 777.5kt. But the current stock level is still running 40% higher than its same period last year.
- LME ali’s long adding prog has slowed of late. The net combined reading yesterday flipping to the negative territory with the heaviest supply reading since 14th May.
- Shanghai aggregate open interest down 0.1k lots or 0.2%. Long liquidation continues for the 5th consec session.
- Both LME and SHFE on warrant inventory seeing a stock draw whilst COMEX inventory remained largely unchanged at 39.4kt.
- July August on LME has been the focus of attention in the front of the curve of late.
- We saw a significant move from 12c trading in to 3b across the back end of last month and the start of Jun.
- Initially as the price rallied in to $2800 on the 29th May we noted short covering out of June against options expiry yesterday and most likely against the 2700/2750/2800 OI. This coupled with market makers likely being short of July-Aug on a cents per day basis vs Jun-Jul and Aug-Sep, led to short covering into a small contango.
- Then as priced dipped we noted July short covering from CTA and funds, which continued to put a bid theme across Jul-3m.
- The majority of the volume was then transacted across the average pricing period at the start of Jun which led to Jul-Aug trading for good size out to 2b (7k lots)
- Once this business was priced, the market then started with index pre rolls (04th Jun).
- We are of the opinion that the index is the large holder of the OI on July (see spec length estimates).
- The index has inadvertently created a squeeze across July-Aug with what is likely a mismatch of timings short rolls vs index length.
- China aluminum premium 99.7% settled at -70, improved from the low on 30th May at-170.
- Shanghai rolling front month into 35c from 90c and its widest point yday.
- Price did close below its 21 day ma at $2631 last night but looks like it may be forming a new range the lower end of which looks like $2575 and even $2600.
- Lest we forget all the Chinese grid investments involves UHV cables. Ali production onshore also under closer scrutiny from a clean air perspective. Close one if you want to open another.
- Although Harbor Intel sees price between $2200-2500 through 2026.
- Resis into yesterday’s $2663 peak then the 8 day ma at $2680.
Copper
- July Sep comex remains in a back – last at $1.30 although has eased from last night’s settle of $2.4b and yesterday’s peak of $3.65.
- Turnover running down 58% on average.
- Shanghai aggregate open interest. Low this year 366k lots. Reached 634k lots on 17th May. Last at 569k lots.
- Shanghai front month spread bid into backwardation. 90b from 470c on the 30th May.
- Premiums having increased from the lows albeit still in a discount – Yangshan at 4 from 20 at its nadir.
- Positioning profile is similar to 1Q21…watch for a turn in fast money direction. This having gone small short of late.
- Overall LME copper continues to see a long liquidation prog.
- Stock wise, only LME on warrant stocks continuing to see further builds whilst Shanghai warrant and COMEX inventory declined for another session.
- And finally both Shanghai bonded inventory and China social inventory declined especially Shanghai bonded inventory declined to 85kt from the peak at 92.8kt on 27th May.
- July Sep comex copper out to $3.65back at its peak yesterday – last at $1.55b from 4th June’s $0.45c settle.
- July Comex to 3s London and the arb is naturally bid yesterday.
- Today’s rally stalls into down trend taken from the $11,104.50 peak. Also ahead of its 8 day ma at $10,146. It having been trading below this ma since close 22nd May.
- So there lies the resistance with $10,250 area and the 21 day ma at $10,261 crucial.
- Support into $9800/50 area now and then the rising trend line from the $8127 low which comes in at $9711.
Nickel
- Nickel get aggressively sold off yday and especially into close but managing to bounce today.
- Volume is running down 9% compared to 20d average with a $340 traded so far.
- LME nickel seeing a net minimal short established and its net combined reading registered a heavier supply reading.
- Shanghai aggregate open interest down 3.3k lots or 1.6% for the 5th consec session.
- Nickel pig iron and nickel sulfate prices remain steady of late which should provide some support to nickel prices.
- Onshore stainless seeing another sell off day this morning which helped cap nickel’s gains.
- Not only stainless price is under pressure, but also those onshore renewable energy equity indices also getting sold.
- LME on warrant stocks seeing further build but small. In contrast, SHFE on warrant stocks declined from the recent peak on 3rd June at 23kt to 22kt as of today.
- Shanghai June July spread settled at 330 contango, bid from the previous low on 3rd June at 940 contango.
- Support into $18,100-18,240 the 61.8% retracement up to yesterday’s low.
- Resistance $18,700-800.
Zinc
- Turnover is running in line with its 20d average level with a slim intraday range at $39.
- LME zinc continues to see a long liquidation prog and its net combined reading flipped to the negative territory with a supply reading.
- Shanghai aggregate open interest down 9.9k lots or 4.5%, long liquidation.
- Shanghai June July spread settled at 5 contango, bid from the low back on 21st May at $120 contango.
- Ferrous and steel prices have bounced this morning which initially brought support to zinc prices.
- Our systematic iron ore model has been short since 28th May where price settle at $117.79 and flipped to a minimal long as of today, where price reversed at $106.73. Today’s strength mainly comes from the demand side as the days of consumption at steel mills is further decreasing, suggesting improved consumption. However, the supply side remained more or less unchanged especially the continuous stock-building at onshore ports. In summary, demand and macro indicators are all turning to signal as more supportive.
- LME zinc on warrant stocks increased to 237kt today from the low back on 30th May at 223kt. In contrast, SHFE on warrant stocks declined to 87.9kt which still at a fairly high level.
- Price held the 8th May low yesterday. Support into $2850 a break of which opens up potential test of $2800.
- Resistance now into $2935 – yesterday’s peak and close from prior day. Then the 8 day ma at $2985.
Lead
- Turnover has been running slightly higher than its 20d average and lead has been the only metal this week seeing a better volume.
- LME lead’s length continues to get cut since end of May and its net combined reading remained in the negative territory with a lighter supply reading.
- Shanghai aggregate open interest instead up 4.2k lots or 3.0%, increased to 146.2k lots which the highest level since 28th November 2023 at 149k lots.
- SHFE lead on warrant has been flatlining as of today whilst LME on warrant seeing a small buildto 149kt.
- Shanghai June July spread bid to 135 backwardation as of today from the low back on 31st May at 45 contango. This has been the highest level back to 4th September 2023 at 140 backwardation.
- Support into $2200 then $2175.
- Resistance $2255 (last 2 day peaks) then the 8 dayer at $2276 with 21 dayer just above at $2278.
Macro
- 13:30hrs Trade Balance
- 13:30hrs Initial Jobless Claims
- 13:30hrs Continuing Claims
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
