Good morning,
The big mover overnight iron ore which drops on broad Chinese property concerns. Sufficient seaborne supply with onshore consumption yet to show any signs of improvement. Indeed, today the developer Dexin gets a winding up order from Hong Kong courts adding to the growing list with bigger names potentially facing the same fate over the coming months. China new loans, aggregate financing and money supply data due any time between now and Saturday but it is the NPC 3rd plenum scheduled for 3rd July whose stakes are raised given last month’s real estate rescue package including a relaxation of mortgage rules and an encouragement for local governments to buy unsold homes has palpably seen a sceptical response.
The reopen of Shanghai sees some arb support on various metals and particularly ali, nickel and zinc. We would stress that the windows are not physically open. Rather they have improved considerably from the depressed levels when our space was making the May peaks. And that likely explains the extremely passive nature of that onshore arb bid where traders are waiting for prices to come down to them rather than chase. Stocks still building onshore in general. No signs of the seasonal draws.
London open brings pressure on this the 3rd day of the roll and there is no doubt that the first 2 days of this 5 session window has seen moc sell pressure on various metals. We also note energies recent outperformance to the BCOM’s metals sub index since 4th June and await signs of that turning.
Length remains in our space although we also have commented on the evidence of some shorts now being established by fast money systematic trading types.
We remain an arena where the flow is about risk reduction with the pool of participants shrinking as a result and thereby increasing the impact of HFT flows. Tomorrow’s CPI data and then FOMC and no doubt Powell’s post rates decision speech will be monitored and likely determine how the macro community next deploys capital.
China and downstream demand in the here and now has felled the May over exuberance. However on copper, Cochilco production headlines and the ongoing wage talks BHP are having with union workers at Spence and imminently Escondida remind us of the parlous state of world production not to mention logistics.
Price performance at cob 10th June 2024:
Ali
- Decent turnover – running up 21% compared to 20d average. A $47 intraday range traded which has achieved its 1Y ATR.
- Shanghai aggregate open interest down 7.7k lots or 1.3%. Long liquidation continues for the 7th consec session.
- Just as it did on move higher, ali now playing catch up to the downside as longs exit. This results in improving arb window which reaches the narrowest level seen since 15th April.
- Furthermore lending across the forwards suggestive we now into an area where we are set to encounter consumer interest.
- On the wires China’s hydro power generation rose 8.4% across Jan-April thanks to heavy rainfall following the 2022 drought. Record rainfall in Guangdong which should also benefit Sichuan and Yunnan provinces which rely on hydro generated power.
- China ali ingot operating rate in May increased to 95.06%, which has been the highest level compared to same period previous years. And its highest output rate was back to October 2023 at 95.10%.
- LME ali on warrant stocks declined to 577kt from the recent peak on 14th May at 926kt. SHFE on warrant stocks increased to 151kt whilst COMEX stocks remained unchanged.
- China imported bauxite port shipments from Guinea seeing a big drop, down to 1.4 million tonnes from the recent peak on 17th May at 1.96 million tonnes.
- Dec 24/25 out to $85 last from last night’s $70c val. On the 2nd May this having traded to a low of $89c and see how ali 3s price settled at $2528 that day.
- Whilst turnover over whole session is up 7% on its 20 day average we note that since 8am and the London open volume is now down 11%.
- Support into $2525 and the rising trend line from $2177 low on 28th Feb. You then have the $2508 low from 13th May when price filled the post Russian sanctions gap. Then $2475 and the 50% retrace of year to date range.
- Resistance $2590/2600.
Copper
- Codelco’s April production the lowest in at least 3 years – at 95.1kt down from 107.3kt in March and 101.3kt in April 2023. This attributed to last year’s rock fall at El Teniente which has resulted in underground repairs. El Teniente down 32% y/y.
- No further news from Spence whose unions entered government mediated wage talks with BHP management last Wednesday. These last 5 days with the potential for a strike to commence tomorrow. There had remained major issues heading into the weekend.
- But note reports that the main union at BHP’s Escondida has already submitted its proposal for a new labour contract. Management having until June 21st to respond. No details around said proposal.
- Today has seen turnover pick up – last running up 15% on average. A $205 intraday range traded which has achieved its 1Y ATR.
- Meanwhile that SHFE aggregate open interest down 11k lots or 1.9% for the 3rd consec session, declined to 555.2k lots which has been the lowest level since 2nd April.
- Onshore arb window did see some minimal improvements but remains shut.
- China 99.5% spot premium seeing further improvement, up to -40 from the low on 21st May at -340. Yangshan premium instead still hold at - $6.
- COMEX and SHFE stocks both seeing small stock draws. COMEX copper declines to 12.8kt and the lowest level since March 2014 at 11.6kt. LME on warrant instead build further.
- Price back into this rising trend line from the $8127 low on Feb. Support into $9725/35 and then $9615 and the 50% retrace of the 2024 range.
- Look at the start of that support line and taking a volume profile since that 25th April and the heaviest exchange has gone through into the lower end of this range ie 10,200 and down.
Nickel
- SMM reports that onshore production in May and June is expected to see a slight increase. But as seen in the press and across our space (refer to copper inflows), the overseas price premium to domestic markets sees producers look to export.
- That said, the SHFE/LME arb window improved today and back to levels last seen 2nd April, suggesting buy LME against sell SHFE.
- Decent turnover – running up 25% compared to 20d average with a $445 intraday range traded.
- Onshore stainless prices gets sold off for another session which brought some downward pressure to nickel prices.
- SHFE on warrant stock seeing a 1.5% stock draw whilst LME in contrast build up to 81.5kt, the highest level since October 2021.
- See how some of the onshore renewable energy equity index bounce back, namely Hunan Yueneng New energy.
- Support into $17,550/600 and lows from 11-17TH April. Then $17,235.
- Resistance above into 8 day ma at $18,593.
Zinc
- Today’s underperformer – with a decent turnover which is running up 48% compared to 20d average. A $90 intraday range traded which only wait to achieved its 4D ATR at $106.
- Pressure in the ferrous and steel space only contributing to the downward pressure on zinc prices.
- Both LME and SHFE on warrant stocks seeing further stock draws.
- As with ali and nickel, see how onshore arb window improved since 22nd May and current level back to where we last seen on 8th April.
- Support into $2700/25 lows from 16th April as well as a 61.8% retracement taking move from the $2409 low on 27th March to $3185 peak.
- Resistance into $2850/65.
Lead
- Good volume – running up 35% compared to 20d average with a wide intraday range traded at $46 so far today. That matching all its atrs.
- Lead stocks have been increasing on LME since 5th June. Today sees another inflow. CTA selling evident.
- Shanghai aggregate open interest up 4.2k lots or 3.0%, increased to 146.7k lots which the highest level since 28th November 2023 at 149k lots.
- According to SMM, some onshore lead and recycled lead smelters have gradually resumed production after maintenance progs over the previous months with lead ingot supply on the increase.
- Shanghai June July spread eases settling at 25 back today, easing from the peak on 6th June at 135 back.
- Both SHFE and LME on warrant seeing stock build up especially LME lead stocks.
- LME cash to 3s spread settled into $58.48 contango yday, easing from the peak on 6th June at $53.40 contango.
- Price testing the $2177 support which is the 50% retracement of YTD range.
- More support into $2134/46 lows from mid April and 61.8% retrace and 200 day ma.
- Resistance into $2225/35 and its 8 day ma.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
