Good morning,
Strong price action yesterday afternoon with metals a little “sold out” but after the recent sell off and risk reduction and especially ahead of this afternoon’s NFP we remain somewhat range bound amid a smaller pool of market participation and therefore a stronger impact from HFTs. Overnight the rallies stall even as China exports come in as a big beat. May rose 7.6% y/y versus exps of 5.7%. However, imports at 1.8% a miss given the 4.3% exps. Strong South Korean exports also relate to solid chip export demand and that tin is up this morning speaks volumes. We see this “minor” metal as symptomatic of that AI drive and the medium-term demand fillip we all know the metals world is facing.
However, it has been GOLD which has received the major attention this morning on the back of the headline that Chinese central bank has halted its reserve buying after 18 months. That immediate $15-20 plunge and the light CTA selling thereby having a greater impact. This somewhat counter to the FX which is supportive at the margins – the Bloomberg Dollar Index having peaked on 30th May with chatter around the US rates curve and that when the FED starts to cut it will be quicker than other central banks even if they have commenced easing earlier.
Shanghai is now shut reopening Tuesday morning London time. Today being the first day of the official 5 day index roll window, that will mean any index flows into settle this afternoon could have a greater impact in the absence of the arb. Ali lower with open interest declines onshore the theme of late. We read with interest Harbor’s bearish outlook predicated on the increase in availability of secondary material.
So as London morning progresses our complex and the wider commodity and precious metals space all under pressure.
Price performance at cob 6th June 2024:
Ali
- Muted turnover – running down 46% compared to 20d average.
- Harbor conference and their price outlook is $2200-2500 throughout 2026.
- Today further colour and they see 22mt of annual secondary production facilities will have been added by 2026 as consumers call for greener metal.
- China to have added 15mt of that total. And Harbor sees a net increase of 6mt secondary prodn there as those smelters will struggle to obtain enough scrap to feed total capacity.
- Meanwhile SMM reported that domestic aluminum operating capacity has entered a stable transition period, with capacity awaiting resumption mainly concentrated in Yunnan, Sichuan, and Guizhou, leading to a slowdown in production growth.
- China aluminum spot inventory seeing a further withdraw, down 1.64% to 782kt. However, the current level is still running 43% above than same period last year.
- LME aluminum continued to liquidate, and the net combined reading flipped to positive territory.
- Shanghai aggregate open interest down 12.9k lots or 2.1%. Long liquidation continues for the 6th consec session.
- LME on warrant and COMEX stocks have been largely unchanged. SHFE weekly deliverable and daily on warrant seeing builds.
- Weekly chart and see if price can hold its 8 week ma at $2610. Above which it has been trading since mid March.
- $2575/2600 key if the market is to establish a higher range.
- Resistance into $2650/75 today.
Copper
- On wires the new Sprott ETF copper fund started trading in Toronto on Thursday.
- And we read with interest re wage talks between BHP and unions at Spence which reportedly produced 250kt last year. The key here is that Escondida wage talks follow in coming months. Usually we see a lot of brinkmanship and settlement at “final hour” but it certainly adds a degree of uncertainty especially given comex stocks continue to decline and now down to 14.5kt – having more than halved since March and lowest since 2014.
- This morning price stalled into area of resistance on the rally, then came under pressure amid light CTA selling but as gold plunged following the China central bank headline.
- But light turnover today – running down 52% compared to 20d average with a $217 intraday range.
- LME copper continues to see a long liquidation prog from the peak on 22nd May. The net combined reading flipped to positive territory yesterday as we move into this consolidation / chop.
- Shanghai aggregate open interest down 2.7k lots or 0.5%, declined to 566.1k lots which has been the lowest level since 3rd April.
- Both SHFE and LME seeing stock builds today. Comex stocks in contrast decline further to 14.5kt which has been a fairly low level.
- China copper wire producer refined copper demand declined to 206.1kt in May from the April peak at 222.9kt.
- See how offshore yuan under pressure of late which brough some downward movement to the price.
- Weekly price action sees copper set to close below its 8 week ma last at $10,095 for the first time since the week ending 9th February 2024 and which could be seen as bearish.
- Although this week has created the 3rd point of a rising trend from the $8143 low mid February.
- $9800/60 is first area of support today. Daily charts shoeing more supot
- Major resistance into $10,000/250 now.
Nickel
- The only metal whose turnover is higher than its 20d average. A $385 intraday range has traded but yet to achieved any of its ATRs
- LME nickel now seeing a minimal net short established and its net combined reading remained in negative territory for the 3rd consec session.
- Shanghai aggregate open interest down 5.2k lots or 2.5% since 30th May.
- Shanghai June July spread traded into $1040 contango this morning, easing from 240 contango on 4th June. This has been the widest level since July 2023.
- Onshore nickel pig iron prices hold at 1005 yuan per ton and so as nickel sulfate price stayed at 32000-33000 range.
- Both nickel cathode and nickel briquette inventory flatlining of late, total at 4060 tons and 100 tons perspectively.
- Stock building has been the main theme across both LME and SHFE inventory.
- Meanwhile see how those onshore renewable energy equity index get sold off bringing further downward pressure to the price.
- Support into its 21 week ma at $18,008 then $17,400-600 basis the lows from mid April.
- Intra day resistance into $18,550/650 area. But the big area into 8 week ma at $19,500.
Zinc
- Light turnover – running down 18% compared to 20d average with a slim intraday range at $43.
- LME zinc continues to see a long liquidation prog but its net combined reading flipped to positive territory with a demand reading yesterday after Wednesday’s heavy sell pressure culminating in it closing on the lows.
- Shanghai aggregate pen interest down 5.5k lots or 2.6%, long liquidation.
- China zinc concentrate inventory at ports declined to 16kt, the current level is much lower than same period previous years.
- Ferrous and steel prices under pressure this morning which is not supportive to nickel prices.
- Shanghai daily on warrant and weekly deliverable stocks seeing stock draws whilst LME on warrant stocks continues to build further.
- Price set to close below its 8 week ma last at $2936 for first time since end of March.
- Support into $2800/25 and then the major support into the 50% retrace at $2732.
- Resistance into that 8 weeker then $2975/3000.
Lead
- The only metal to have been seeing a CTA bid this morning.
- LME lead’s long liquidation prog continues but its net combined reading flipped to the positive territory with a minimal demand reading.
- Shanghai aggregate open interest down 3.7k lots or 2.6% after 4 consec increase.
- Shanghai June July spread offered to 30 backwardation from the peak on 6th June at 135 backwardation.
- LME on warrant stocks and Shanghai weekly deliverable stocks build up further whilst SHFE daily on warrant seeing a 1.1% decline.
- LME cash to 3s spread settled at $53.40 contango, bidding from the low on 3rd June at $65.03 contango.
- Close below its 8 week ma at $2244 would be the first since the week ending 29th March.
- Support into $2200/20 and the lows back to early May. Break of that and $2153 is the 21 week ma.
- Resistance into $2250/60. Then the $2300 area.
Macro
- 13:30hrs Change in Nonfarm Payroll
- 13:30hrs Unemployment Rate
- 15:00hrs Wholesale Inventories MoM
LME Stocks
Shanghai Weekly Deliverable Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
