Good morning,
An oversold metals complex saw some relief in the absence of the US yesterday. Marex positioning analysis in the likes of copper and lead illustrative of the “fast” money shorts that had established on the moves lower and which has been covering off the recent lows. Likewise, the rally supported by the pause in the greenback strength.
But onshore market remains passive in its nature with markets still digesting yday’s news that the PBOC is looking at trading government bonds in the secondary market as a means of regulating liquidity. This viewed as a form of monetary easing, an ex adviser also discussing what appears a pivot and acceptance that QE might be necessary to provide economic support. Today’s fixing reference rate the weakest since November, this not helping the yuan today as the markets get used to a FED higher for longer message.
Overnight we have seen very light turnover across the complex although noticeably a bid has emerged across all bar lead since the London open amid some more of that systematic bid no doubt. Copper has cleared its 8 day ma with ali and nickel lining theirs up in the cross hairs. Breaks having the potential to trigger some more bids.
The market has tipped out of risk. US rates path. European elections. And with the vol markets under pressure the natural predilection will be for us to see a range environment. So, the surprise lies to the topside and amid this lighter pool of participation moves can be sharper. Quarter end next week should see some more interest given its importance to the financial community. Although ahead of that we have US initial jobless claims later today with US PMI tomorrow. These the latest data point which will be scoured for indications around the FED’s path. But we have much cleaner markets and amid record temperatures across Europe, Africa and China we note today’s news that Ecuador today has experienced a national black out. 18 million people without power. The fragility of the world’s power infrastructure on full show. Flat is short in our space now as we have commented regards the trade with one and all living hand to mouth. As yet the metals having been driven by supply issues in 2024. But the demand still having the potential to surprise in 2H24.
Attach a grid from Marex Monday’s weekly report to illustrate how quickly industrial metals ETFs have seen outflows.
Price performance at cob 19th June 2024:
Option summary:
Vol compression again yesterday across the complex as we fail to break out of the ranges. We were given aug aluminium at 20.75% (-100bps), which has come down from 28% at the beginning of the month. We saw those 7000 lots of puts sold last week, and the market has not looked back since.
In copper, we saw selling across the whole curve, with dec24 quoted 22/24%, and marked down 40bps day-on-day. We were active in the copper market, buying sep 10/11k call spreads in 300x per 23.4/26.2%, and were trying to lend vol spreads to dec25.
We pitched copper 3 ways last week (selling vol) - oct 10250/11000 1x1.5 v 9000p x0.5 - have worked very well, having accreted 25usd/mt in value due to the vol mark down. We think these types of trades continue to offer value over summer as the 9000/10500 range holds.
In zinc, we saw sellers of Aug 2700/2550 put spreads in the market at 26.5 v 27.4%.
Ali
- Volume remains muted of late owing to the lack of CTA activities. Turnover is running 42% lower than its 20d average with a $26 intraday range traded which has not achieved any of its ATRs yet.
- China aluminum spot inventory seeing further stock draws, down to 744kt from the pek on 13th June at 773kt. However, the current stocks level is still running 56.6% compared to same period last year.
- LME aluminum has been seeing a long liquidation program since 3rd June and see how those fast money expand their short positions.
- SHFE aggregate open interest down 6.0k lots or 1.2% since 30th May. Long liquidation continues for another session.
- Both LME and SHFE on warrant seeing stock withdraws especially LME warrants. COMEX stocks remained flatlining of late at 39.4kt.
- Shanghai July Aug spread settled at 45 contango this morning, easing from recent high on 18th June at 25 contango.
- Plenty of gamma in market at current levels.
- Resistance into 8 day ma at $2523 and the $2523.5 highs back to 17th June.
- More resistance into $2550 and rising trend line then the $2600 area with the 21 dayer just above.
Copper
- On the wires, yday BHP management responded to Escondida union wage proposals. The current contract expires 3rd Aug although Spence settlement suggestive it will be sorted.
- Bloomberg analysis suggests Codelco will struggle to match production guidance for 2H24. China smelters turning to scrap with imports Jan-May amounting to 1mt which sees the pace of imports at the highest since 2018.
- Antofagasta leading TC discussions offering to pay $10/t versus smelter demands mid $30s/t. Last annual talks were set at $80 with CRU saying lowest one year contract having been $43 in 2004 although half year low was $39 in 2010. In April Shandong Humon smelting Co saying its breakeven is about $60.
- Fast money continues to cover their short positions but the length on LME gets cut further owing to the medium money liquidating its long positions.
- Shanghai aggregate open interest down 3.5k lots or 0.7% for the 5th consec session. Long liq continues but slowed down.
- The low stocks on COMEX has been the main drivers for copper prices of late, see how it continue to decline to a yearly low to 9.2kt. Shanghai on warrant stocks seeing stock draws for another session whilst LME build up its inventory further to 160kt as of today.
- A breakdown for China copper stocks, China social inventory seeing further decline from the peak on 3rd June at 317kt to 275.7kt as of today. Shanghai bonded inventory instead seeing a small build up as of today compared to Monday data to 89.7kt.
- Both Yangshan premium and China 99.5% spot premium under pressure, especially for the spot premium declined sharply from 140 on 17th June to -270 as of today.
- Since settling at $9762.50 on the 7th June price has been range bound.
- See the weekly chart to show you. 14th June settle $9741.50 and now we back to within $20ish….
- As for the range 8 week ma comes in at $10,030. Bottom end $9500.
- Daily price seeing price chop around its 8 day ma at $9768 for past few sessions.
- Support into $9642. Resistance $9875/9900 today.
Nickel
- Light turnover – running down 27% compared to 20d average. A $265 intraday range traded which has not achieved any of its ATRs.
- Shorts continue to build on LME nickel and especially the fast money.
- Shanghai aggregate open interest up 2.2k lots or 1.1%, minimal changes.
- Onshore stainless steel price has been picking up since Tuesday.
- All of the onshore renewable energy equity index traded lower which may put some downstream pressure to nickel prices.
- SHFE on warrant stocks continue to decline, down to 20.1kt from the high on 3rd June at 23kt. LME on warrant instead build up further to the highest level last seen since October 2021.
- LME price having held trend line and an area of support into $17,200/250.
- Now needs to breach its 8 day ma at $17,580 which it has stalled into since the London open (high of $17,570 so far). Has been trading below that ma since 23rd Mayb and the break back below $20k.
Zinc
- Today’s underperformer – with a light turnover and slim intraday range.
- LME zinc continues to see a long liquidation prog but the momentum has slowed down.
- Shanghai aggregate open interest down 0.8k lots or 0.4%, minimal changes.
- LME zinc stocks remained at 224kt whilst SHFE on warrant stocks declined minimally to 86.1kt.
- Ferrous and steel prices picked up overnight initially but failed to hold the gains. LME zinc prices mainly followed this movement.
- Shanghai July Aug spread settled at -50 today, easing from recent high on 17th June at -5.
- Weekly volume profile seeing the largest bar traded into $2865 and then a lots of volume sitting around $2790 area.
- Resistance into $2900/25.
- Support $2735/45.
Lead
- Yesterday 10.9k lots traded on select which has been the highest volume since 10th April at 11.4k lots.
- After the Shanghai aggregate open interest surge yesterday, today it has seen a big decline, down 42k lots or 19.5% after 7 consec increase from the peak at 215.2k lots yday.
- LME lead seeing a short covering prog emerged owing to the covering prog from the fast money.
- Shanghai July Aug spread settled at 65 backwardation easing from the high on 19th June at 105 backwardation.
- LME on warrant stocks stopped its stock building as of today. Shanghai in stead still seeing further stock draws to 54.3kt.
- Support $2125/45.
- Resistance $2225/50.
Macro
- 13:30hrs Current Account Balance
- 13:30hrs Initial Jobless Claims
- 13:30hrs Continuing Claims
- 13:30hrs Housing Starts
- 13:30hrs Building Permits
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
