Good morning,
The Fed’s call for only 1 rate cut in 2024 sees commodities come back under pressure and the dollar rally initially following yesterday’s CPI inspired moves. Powell commenting that the data essentially came too late. Price action in our space typical of that post risk reduction consolidation where the market is uncertain as to the next meaningful move. This results in a heavier footprint from HFTs as the pool of market participants has shrunk. As for that chop we would comment on the manner in which gold and copper were skirting around their 8 day mas yesterday. Closes above having the potential to see a short-term bid.
Systematic flows have been uninspiring as length has been cut. Indeed, we now see shorts established from fast money systematic types across the whole complex now and even ali. We attach the relevant charts below to illustrate (from Guy Wolf’s channel on the portal).
We note a steady iron ore price overnight with China’s Securities Times reporting that the daily transaction volume in new homes between 8-10th June was up 60% from the May Day holiday. No panacea but some support. The People’s Bank of China also holding a meeting Wednesday to promote its relending policies for affordable housing, encouraging state-owned companies to buy unsold homes. The central bank unveiled last month a nationwide program of 300 billion yuan ($41 billion) in funding to help local governments buy excess inventory from developers.
And that’s how this desk views the base complex. We recognize the dearth of meaningful downstream demand and the rising onshore inventory. China money new loans and aggregate financing data over the next 48 hours likely to highlight their admin’s reticence around returning to the old play book and pump credit to boost the economy. However, after the recent price corrections and risk reduction we prefer owning the dips. Monday the LME prices cash for 3rd Wednesday.
Price performance at cob 12th June 2024:
Ali
- LME on warrant stocks see another draw – now down from 926kt on 14th May to 511.3kt this morning. Financiers.
- China weekly aluminum ingot social inventory seeing a minimal stock draw, down 0.19% from Monday to 780.5kt.The current stock level running much higher than same period last year.
- Onshore alumina operating rate and electrolytic aluminum operating rate both seeing further pick up, especially alumina unit operating rate surged to 83.55% in May from the low back to December 2023 at 70.57%.
- LME on warrant stocks seeing another 54.3kt stock draw, down from the high on 14th May at 926kt to 511.3kt as of today. SHFE on warrant stocks noted a minimal declined as well. COMEX in contrast still flatlining at 39.4kt.
- Shanghai June July spread settled at 110 contango this morning, easing from 40 contango yday.
- With July to 3s ali showing around $35 under 3s we see the importance of the $2525 area below given the size of the open interest on the $2500 strike down to Dec. July x 4.2k lots. Sep x 6.2k lots. Dec x 6k lots.
- Support into $2500/25. We also have the rising trend line from the $2177 low on 28th February.
- Then $2475 and the 50% retrace of year to date range.
- Resistance into $2580/2595. Highs this week and 8 day ma.
- To illustrate how fast money is going short ali now.
Copper
- An improving onshore arb window has seen some light buy interest from onshore traders which continues. Nothing stand out and remains passive in nature.
- Earth I and its satellite technology shows a 5th of Chinese smelters were off line in May. 20.8% up 3.4% y/y as smelters go through maintenance.
- Apropos wage talks between BHP and unions at Spence. It appears a wage agreement is imminent. Escondida unions should follow having submitted their wage proposals with management having until 25th
- Macro has been weighing on copper price of late but yesterday’s lower than expected CPI print helped copper price bounce back off the low. That raising the importance of this afternoon’s PPI.
- Copper plate/sheet producer refined copper demand declined slightly to 94.3kt from the high in January at 129.3kt.
- See how LME copper long liquidation stalled and net combined reading remained in the positive territory with a stronger demand reading yday.
- Shanghai aggregate open interest up 4.7k lots or 0.8% for the 2nd consec session.
- Both weekly Shanghai bonded inventory and China social inventory declined minimally.
- Both LME and Shanghai on warrant stock build up further whilst COMEX still seeing stock draws.
- China 99.5% spot premium increased to -5 from the low on 21st May at -340. Yangshan premium flatlining at -6.
- Copper bounce continues to stall around its 8 day ma at $9907 today.
- Resistance into $10k area then $10,225/50.
- Support $9750/75 then $9600/50 area.
- See how even copper has seen fast systematic models establish shorts now.
Nickel
- Has made a fresh low today and whilst technical picture looks poor as with ali it now approaches the big options open interest sitting on the $17,500 strike. Moreover nickel beginning to look oversold on a ratio basis against the other metals.
- On the wires, Indonesian nickel miner PT Ceria Nugraha Indotama is set to get backing from Glencore Plc to build a battery metal plant ahead of an initial public offering planned for next year.
- According to SMM Chinese customs clearance volume of refined nickel in April was 1,793 mt, a significant increase compared to March, primarily as cargoes under long-term orders began to be shipped to the domestic market from April.
- The only metal whose turnover is running in line with its average volume. Today’s underperformer with a $350 intraday range yet to achieve any of its ATRs.
- LME nickel seeing short adding prog of late but its net combined reading flipped to the positive territory with a minimal demand reading yesterday.
- Also see the fast money flipped to short position since 6th June. Medium money’s long positions get liquidated.
- Onshore stainless prices have been under pressure this morning which is not supportive to the nickel price.
- LME on warrant stocks seeing further build up since 13th May whilst SHFE on warrant stocks declined to 21.4kt from the recent peak on 3rd June at 23kt.
- Shanghai June July spread eased to 1440 contango from the recent peak on 12th June at 300 backwardation.
- Per above the $17,500 strike shows significant open interest. 1,2k lots in July then over 1k lots every month from October through June 2025.
- Last chance saloon at $17,235 basis the 76.4% retrace taking move from $15,840 low in Nov 2023 to the $21,750 peak.
- You also have some support into $17,500 area and those mid April lows.
- Resistance into 8 day ma at $18,175.
- See how nickel has underperformed zinc of late. That ratio back to levels last seen in September 2022.
Zinc
- SMM data showed that China's refined zinc output in May 2024 was 536,200 mt, up 31,600 mt or 6.26% MoM, and down 5.02% YoY. SMM expects domestic refined zinc output in June 2024 to decrease by 9,300 mt MoM to 526,900 mt, down 4.63% YoY.
- Onshore arb has been a key driver for the LME zinc prices, thanks to the continuous improved of the onshore arb, attracting people to buy LME against sell SHFE. However, arb seeing some weakness today. Illustrative of how sensitive the onshore bid has been across the whole complex.
- See how those fast money seeing a short position established whilst medium money’s longs liquidated further.
- Ferrous and steel prices managing to trade higher having dipped initially but picking up later on. LME zinc prices have been following this movement today.
- Both LME and SHFE on warrant stocks continue to decline.
- Shanghai June July spread settled at 60 contango, easing from the high on 12th June at 5 contango.
- Yesterday saw the first close above its 8 day ma since 29th May. Today that comes in at $2858.
- Resis above into $2925/35 then the 21 dayer at $2974.
- Support into $2825 then then $2775 area.
- Or against copper whose ratio is back to levels last seen in June 2021. Attach a weekly chart on this one.
Lead
- The only metal who traded higher this morning – the outperformer.
- LME lead fast money seeing the short position continue to build whilst its medium and slow money stalled. This probably the most significant fast money short given it is getting close to similar levels as late March when price made the $1985.5 low close.
- LME and SHFE has been seeing ongoing stock build especially LME.
- Shanghai June July spread eased to 5 backwardation from recent high on 12th June at 90 backwardation.
- LME cash to 3s spread settled at $53.56 contango, tightened from $65.03 on 3rd June.
- The July $2150s and $2200s the most significant options open interest with 1.3 and 1.4k lots respectively.
- Support into $2145-55 basis recent lows down to 200 day ma.
- Then the $2100/25 area.
- Resistance into 8 day ma at $2206.
Macro
- 13:30hrs Initial Jobless Claims
- 13:30hrs Continuing Claims
- 13:30hrs PPIs
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
