Good morning,
Friday’s Non Farm Payrolls contributed to Friday’s motive move lower although long liquidation had already been in evidence across most of the metals complex as the macro unwound. Wednesday’s FOMC key now as to how the wider financial space next deploys risk given markets have recently had to push back on their expectations for FED’s first rates cut. That higher for longer theme having supported the dollar.
China being out has removed any potential arb buy LME support although later in the day whilst this is only the 2nd session of the official 5 day index roll window, we would not be surprised to see some mean reversion types provide a bid ahead of their return tonight / tomorrow given our prices are down between 2.5-5% since their exit Friday morning. It will also be interesting to see on the back of these price declines as to whether a put offer emerges.
But the technical price action unsurprisingly has triggered some systematic selling on this morning’s London open albeit copper, in particular, seeing very light turnover. Markets holding so in truth its only the brave which will call the next move.
Price performance at cob 7th June 2024:
Options comment:
Vols under pressure across the complex last week, particularly in the belly of the curves. 1 year copper vol -60bps; ali -43bps.
In copper, with the extreme choppiness in spot, front end gamma feels in demand with July trading up 1.5% on Friday to 26%, while vega was offered with jan25 26.3% offered, jun25 26.5% offered and jun26 26.5% offered. Clearly the market was short risk reversal and is picking up vol with the spot move lower. We continue to see FE granting of puts in the $9000-9300 range, and unwinds of calls from the market.
In nickel, we are seeing put buying for July 17500p, while the longer dated flows remain geared towards put spreads. The market is short 18-20k strikes which accounts for the extreme sell off in the last 2 weeks (15% lower in spot).
We like owning nearby calls in zinc given we are trading 5% below where China left us last week. Buy a jul24 2800c for 45usd/mt.
Grid to show you scale of moves since Shanghai shut on Friday morning:
Ali
- Light turnover with a $35 intraday range traded.
- China imported bauxite port inventory seeing another week’s stock draw, down to 22.33 million tons from recent high on 17th May at 23.07 million tons.
- See how China ali alloy and wire producer’s operating rate in May declined slightly compared to April, suggesting a weakening consumption.
- LME ali continues to see a long liquidation program and its net combined reading flipped to the negatice territory.
- LME ali on warrant stocks declined to 582kt today, down from the recent peak on 23rd May at 654kt. Both COMEX and SHFE stocks have been largely unchanged.
- China Shanghai 99.7% premium increased to -70 from the recent low on 30th May at -150.
- LME cash to 3s spread settled into $57.39 contango Friday, easing from the recent high on 3rd June at $42.14 contango.
- Intra day support into $2550 then the $2525/35 area.
- Resistance into $2585/2600.
Copper
- Copper price range bound initially but finding some support from a stronger offshore yuan.
- Volume running at around half its average again suggestive of a dissipation in those long liquidation progs.
- LME copper’s long liquidation momentum has slowed down with the heaviest net combined reading since 8th February.
- LME and SHFE continued to see the stock build whilst COMEX stocks declined further to 13.7kt from the high on 21st March at 30.9kt.
- COMEX aggregate open interest declined to 282k lots from the peak on 10th May at 312k lots, also seeing a long liquidation program.
- China copper smelting and refinery medium plants output totaled at 9768 MT/ day in May which increased slightly and reached a record high level.
- Volume profile since 20th May showing you the biggest volume bar traded lower, from the higher price range around $10950 to $10140 and $9950 area.
- Support into $9725/35 then $9600/25.
- Price breaching its 21 hour ma to topside which comes in at $9821.
- Resistance into $9860 then then $10k area.
Nickel
- Light turnover – running down 31% compared to 20d average with a $245 intraday range traded.
- LME nickel saw a minimal short established with the heaviest net combined reading registered since 5th February. And our breakdown of Marex position ests seeing fast money flipping to short whilst slow money remained short but covered slightly.
- LME nickel on warrant stocks remain unchanged today whilst SHFE on warrant stock stayed at a high level.
- Onshore renewable energy equity index get sold of late which brought some downward pressure to nickel prices.
- Likewise, that so far this month’s onshore stainless prices continue to trade lower which has not been supportive to nickel prices.
- Yet onshore nickel feedstock prices on like of Nickel sulfate and nickel pig iron prices remained strong.
- Support into $17750/900. Then $17,500/600 area of lows mid April.
- Resistance into $18,250/300 then $18,500 area.
Zinc
- Today’s outperformer – price dipped overnight managing to bounce back after the LME data release saw a 8.6kt stock cancellation. This likely the result of wider spreads and some financing interest.
- LME has been seeing a long liquidation prog culminating in Friday’s net combined reading seeing the heaviest supply reading since 10th February 2023 when price was at the outset of building a short. This heaviest net supply reading is not surprising when you consider the more than 5% price decline on Friday.
- Ferrous prices have been not supportive of late and are still getting sold off today, which brought that initial further downward pressure. From our Iron ore systematic model, our model's conviction rating flipped to a short position of -0.35 from last Friday’s +0.07. Today’s bearish tone comes from both the supply and demand sides as the global seabourne shipping volume sees a pickup and downstream product margin weakened further. The macro side however, remains more or less unchanged but still marginally supportive.
- Both LME and SHFE stocks seeing further stock draws but both remain at a fairly high level.
- See the volume profile since 21st May attached to show the largest bar still traded into $ 3060 area but also noted some pick up to the downside around $2770 area.
- LME cash to 3s spread settled into $62.90 contango last Friday, easing from the peak back on 12th April at $4.46 backwardation.
- Support between $2700/25,
- Price finding some resistance into its 21 hour moving average at $2799. More into $2835/50 and last low.
Lead
- LME lead long positions continue to liquidate and now nearly back to flat. The net combined reading flipped to the negative territory with the heaviest supply reading seen since 13th Feb.
- LME on warrant stocks increased to 153kt from the low on 5th June at 145kt. In contrast, SHFE on warrant stocks declined to 56.0 kt.
- LME cash to 3s spread settled into $55.2 contango, easing from the recent peak on 6th June at $53.40 contango.
- Support into $2175 and the 50% retrace. Then $2125/45.
- Resistance into $2215/20 then $2245/55.
LME Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
