Good morning,
The week sees risk kick off on the back foot. The dollar remains bid with hawkish comments from the Fed’s Kashkari over weekend, as he says the central bank is in a good position to take its time b4 cutting rates. Moreover, you have IMF analysis show that even amid the moves to diversify away from the dollar, the US saw more than a third of the world’s capital inflows since Covid outbreak up from 18% pre pandemic levels.
Then you have a Chinese economy seeing a lack of domestic consumption and crucially a deepening housing slump with property sales in May showing no reaction to the supportive measures announced previously. Furthermore, overall FAI rose 4% Jan through May which was down from the 4.2% increase seen Jan through April. Again, this decline even as the government has increased bond issuance in moves to fund infrastructure spending. Given exports remain its saviour what implications this has as tariff talks ratchets up? Today’s data triggering a quick sell off on the iron ore which drops 2%. The importance of the 3rd plenum meet on July 3rd only increases. Shanghai Property Index now back to 9th May levels…
Also contributing to the dollar strength has been the looming European elections which sees market uncertainty around shifting political tides and the impacts that will have on budgets and growth. This only likely to add to the risk off sentiment as we enter the summer slowdown and our complex (bar nickel) still enduring long liquidation progs.
Today LME prices cash for 3rd Wednesday after which natural business across the 2nd half of the month naturally declines. Tech pictures looking ugly. Copper and Ali now approaching 50% retracements. Breaks below will be disappointing to the bulls. These big areas.
Price performance at cob 14th June 2024:
Ali
- Confirmation that the recent rain deluge in Yunnan province has resulted in increasing prodn. Last month reaching a record with another 330kt of annual capacity expected to restart this month.
- May’s daily rate having slipped from April it was still up 7.2% y/y to 3.65mt.
- China aluminum ingot social inventory seeing another draw, down to 768.7kt today from the recent high on 11th June at 782kt. Again, the current level is still running 47.3% higher than same period last year.
- LME on warrant stocks continue to see stock draws, and have halved to 484kt from the peak on 14th May at 926kt. SHFE on warrant stocks instead surged to 179kt which has been the highest level since April 2023. COMEX inventory instead remained largely unchanged at 39.4kt level.
- LME ali continues to see a long liquidation program since 3rd June and the net combined reading remained in the negative territory with a heavier supply reading.
- Shanghai aggregate open interest down 15.3k lots or 2.7%. Long liquidation continues for another session.
- Shanghai July Aug spread settled at 35 contango, bid from the previous low on 31st May at 75 contango.
- Like copper market approaching $2476 and the 50% retrace of the YTD Move $2152.5 to $2799.
- More support into $2450 then $2430 which is both the 21 and 200 week moving averages.
- Length having halved approx. since its 22nd May peak – at Thursday’s close showing long 71.4k lots or 14.6%.
- Pricing cash for 3rd Wednesday and ali is the one metal that usually sees a heavier offer.
Copper
- Light turnover – running down 11% with a $152 intraday range traded. Dollar remains relatively strong which weighs on our space.
- That workers at Spence have accepted terms with BHP management removes the threat of strike there and raises likelihood of settlement at Escondida although Codelco has just reported the lowest April output figure at its copper mines in 3 years.
- Long liquidation prog on LME has been stalled of late, fast money’s short started to cover.
- Shanghai aggregate open interest down 9.5k lots or 1.7% for the 2nd consec session. Long liq
- LME stocks having been seeing builds as that rumoured Chinese smelter delivery hits LME Asian locations.
- LME on warrant stocks continue to build to 134kt from the low on 10th May at 89.5kt. In contrast, COMEX and SHFE stocks seeing stock draws. COMEX copper stocks declined to 9.7kt as of today.
- China 99.5% spot premium continues to pick up to 40 whilst Yangshan premium also seeing a small uptick to -$11.
- Shanghai July Aug spread settled at 200 contango, bid from the low on 29th May at 280 contango.
- Shanghai arb in front getting close to opening but Chinese bid has been passive in nature as evidenced from price action.
- Regarding positioning we would comment that comex aggregate open interest which peaked at 316k lots on 14th May and just prior to the price peak on 20th May has since declined to 265k lots. That’s the lightest since mid March when LME price was low $9ks.
- Copper- into a big technical area. $9615.75 is the 50% retracement of the YTD range ($8127 to $11,104.50) and it is the area the market broke up through mid April.
- Looking at options open interest July which is around $82 under 3s shows 3.1k lots of the $9600s with 2k lots of $9500s.
Nickel
- Today’s underperformer – with a light turnover and a $455 intraday range which achieve its 4D ATR at $431.
- Nickel now has been the only metal seeing minimal short established on both exchanges. And looking at LME nickel’s component, it has been the fast money building up their short position and the slow money’s short covering prog stalled of late.
- Shanghai aggregate open interest up 0.8k lots or 0.4%. Minimal changes
- The recent arb window continues to improve which still suggesting buy LME and sell SHFE.
- Shanghai on warrant stocks continues to decline, down to 21.3kt from recent high on 3rd June at 23kt. LME on warrant instead continues to see further stock builds, surging to 83.4kt.
- Recent feedstock prices on the like of nickel sulfate and nickel pig iron dropped further which brought downstream pressures to Nickel prices.
- Onshore renewable energy equity index also get sold off, which is not supportive.
- Price in June has now achieved 112% of its 12 month average trading range.
- Some light support into $17,235 which is the 76.4% retracement and then $17k.
- Below that would target the late March lows of $16,530/540 although last time down there saw calls that price was into even Indonesian cost of production.
- Resistance into 8 dayer at $17,863
Zinc
- Short covering along with the continuous small stock draws has supported Zinc prices which are the outperformer this morning.
- See our net specs component chart attached below with the fast money short continuing to cover and the overall long liquidation prog having stalled into Thursday’s close.
- Shanghai aggregate open interest down 2.1k lots or 1.1%.
- Shanghai on warrant stocks seeing a 5.2% or 4.3kt increase. However, LME on warrant stocks continues to draw from 7th June.
- Ferrous and steel prices get sold initially overnight but manage to bounce back slightly. LME zinc prices have been following this movement.
- Our systematic iron ore model's conviction rating remained long with the conviction rate at 1.04 from last week’s 0.11. Today’s bullishness coming from the demand side as all four demand indicators turned to a bullish signal. The downstream product profit margin improving further and the steel mills run rate seeing some increase. Supply side also providing some support with a decline in the seaborne shipping volume.
- Shanghai July Aug spread bid to 5 contango today, tightening up from previous low on 14th June at 15 contango.
- Some support into $2705/45. The recent lows, trend line support down to the 61.8% retrace taking low of $2409 to peak of $3185.
- Resistance into $2875/2900.
Lead
- The only metal whose turnover is running higher than 20d average this morning. A $28 intraday range traded which has not achieved any of its short-term ATRs yet.
- LME lead continues to see a long liquidation prog and see its net combined reading registered the heaviest supply reading on record. The last time we saw a similar supply reading was on 5th December 2023. Price made a lower close on the 8th December before then posting a recovery. Similarly on 15th February 2023 when the supply reading was 2,799 lots presenting an exhaustive
- Shanghai aggregate open interest instead up 11.5k lots or 7.4% for the 5th consec session, increased to 165.9k lots, the highest level since 28th September 2023 at 171k lots.
- Both exchanges seeing further stock builds.
- Shanghai July Aug spread bid into 65 backwardation which tightens up from the low on 12th June at 5 backwardation.
- LME cash to 3s spread settled into $47.99 contango last Friday from the low on $65.03 contango on 3rd June.
- Support into $2125/35 then the $2094 low from 8th April.
- Resistance into 8 day ma at $2180.
Tin
- Reuters reports that Myanmar’s Wa state is to allow tin concentrate shipments. The notice showed an unsold inventory of 11,852 tonnes of tin concentrates as of June 10 in the Manxiang district.
- That unsold inventory of 11.8 ton is still not enough to alleviate the current tight situation.
- Onshore tin production total of 16,7kt in May, up 6.77% yoy. Some smelters in Yunnan still under maintenance due to environmental protection moves.
- Also Indonesia's exports of refined tin in May fell 53.58% year-on-year to 3,299.75 tons, according to data released by the country's trade ministry on Thursday.
- The rally in Semiconductor indices has paused. ASML and NVDA stock prices also off their highs.
- Onshore glass prices also under the pressure of late, however this morning seeing a bounce back, will this provide some support to Tin prices?
- LME COT investment fund’s net position seeing a long liquidation, down to net long 2422 lots.
- Resistance into $32,750/850
- Support into $30,950-$31,150. Then $30,250 low from 1st May.
Macro
- 13:30hrs Empire Manufacturing
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
