Good morning,
This Thursday 27th June 2024 the desk will be hosting a call with Ian Roper from Astris Advisory Services:
Topic: The outlook for Chinese demand in H2 2024
Time: Jun 27, 2024 02:30 PM London
Join Zoom Meeting
https://marex.zoom.us/j/88631711624?pwd=A9B7qjJnmDKwD2oxCrIavZgOzBtVlv.1
Meeting ID: 886 3171 1624
Passcode: 214831
We have chosen this time as the best opportunity for ALL our clients to join (late though it might be for some). We wanted to avoid the US data dump at 13:30hrs BST then China’s evening session open at 14:00hrs BST. We do hope all of you will be able to join us. A quick summary:
Metals price divergence to widen further as fundamentals reassert
The economic split in China between the “old” and “new” economy continues to show increasing divergence, and the upcoming Third Plenum, which is focused more on the structural direction of policy, will likely add to these divisions especially if there is a further uplift to the support for the green energy sector in particular.
In contrast to China, the Indian economy continues to exceed my bullish expectations, and while the election result was a surprise to many, the structural direction of economic development remains in-tact and may even see a further acceleration in the months ahead.
As markets now refocus on fundamentals, I believe the outlook 2H24 remains positive for copper and aluminium prices, while zinc and nickel should remain under pressure.
Good morning,
Shanghai Comp may have only settled up 0.76% but it saw a sharp recovery off its session lows. But the standout this morning is iron ore which then stages a sharp bounce mid-session with stops apparently triggered through the $106 area. The base metals which had all been under pressure then seeing a bid emerge into the last hour of the Shanghai day session. Volume increasing and the power in those moves exacerbated by the limited pool of participants now sitting in our space. Short vol and the resultant gamma also likely to exacerbate the scale.
This the first time we have seen any sort of positive reaction from China and given the imminent plenum (3rd July) coupled with the lack of any currency support, we would not be surprised if whispers are emerging as to the policy measure announcements. These likely to include real estate measures and how to absorb the excess housing. Ditto focus on improving domestic consumption. And on the wires, Xinhua reports that China’s lawmakers are set to draft a new financial stability fund including a bailout fund for banks in moves to protect its financial industry. This financial stability law having been first drafted by the PBOC in 2022 as it looked to provide a backstop to troubled institutions. Expectations of imminent stimulus also fuelled by China’s benchmark bonds falling to multi decade lows.
Prices pause soon after the London open amid continued pressure from systematic types and poor technical closes yesterday. This afternoon we have US new home sales data although the greater interest will be how we price in the US zone with the potential for half year end rebalancing to emerge in the final sessions leading up to it.
Price performance at cob 25th June 2024:
Options Summary:
Tighter ranges continued on the way down yesterday, lower volumes spread into the option space. Aluminium saw the most interest, Sep 2600s Calls and Dec 3500 Calls were the main trades of note on the call side, the others were quiet with most interest in the market centring around book tidying for Jul expiry.
With that said, base metals have found a small bid this morning, it remains to be seen whether it can hold and build over the course of the day.
China's onshore 10-year government bond yield has falled to 2.2%, the lowest since 2002 as investors pile in reflecting the increasing concerns around growth potential in the world's second largest economy. Signs of the slowdown can be seen in Chinese logistical hubs having their rents cut as they lose tenants previously assumed to be long term. Vacancy rates in eastern and northern are approaching 20%
Two large-cap stocks took a hit after both Nvidia and Airbus suffered heavy losses.
Expectations are growing that central banks will continue to cut into mid-2025, 300 bps of cuts into that period is now showing as possible based on recent wagers on the Fed.
Copper LME stocks : Singapore and Taiwan see further inflows but as the result of a cancellation in Gwangyang, on warrant levels decline for the first time since the 17th May.
Ali
- The market has tipped out the majority of length with fast money having built a short since the 10th June which is when the market started to break back down through the $2550 area.
- Worth reminding ourselves that policy around the imminent 3rd plenum is likely to focus on the importance of ali and its role in substitution.
- Ranges and turnover having contracted of late. Today volume running down 25% on its 20 day average.
- China aluminum ingot social inventory seeing a 0.66% stock build compared to last Friday and its current level is running 44% higher than same period last year.
- This on the back of a steady resumption in onshore production and particularly Yunnan. The national 118kt daily output figure a historical high. Domestic downstream demand not meaningful enough yet.
- Shanghai daily on warrant seeing further stocks withdraw, down to 159kt from the recent peak on 17th June at 179kt. Instead, COMEX and LME stocks remain unchanged.
- China Shanghai 99.7% aluminum premium declined to -70 from the previous high on 17th June at 20.
- Support into $2475 and the 50% retrace of the ytd range along with the $2470 low from the 18th June.
- Resistance into $2525/35.
- Ahead of next Wednesday some decent open interest sitting on July with the $2500s x 4.2k lots.
Copper
- A stock draw on LME this morning thanks to a cancellation in Gwangyang although Singapore and Taiwan see further inflows.
- LME on warrant stock levels decline for the first time since the 17th May. Meanwhile SHFE daily on warrant stocks also see a small decline from the previous high on 13th June at 269kt.
- China social inventory seeing another stock draw since 3rd June to 261.6kt. Shanghai bonded inventory instead continues to build and yet to see signs of stock draws.
- Longs on LME continue to liquidate further and those fast money re-build its short positions.
- COMEX copper aggregate open interest has dropped to 254k lots from the peak on 10th May at 312k lots. Meanwhile we have seen a long liquidation program emerge since 24th May.
- Shanghai July Aug spread settled at -260 this morning, easing from -150 on 18th June.
- Looking at the weekly chart support into $9519/50 provided by the high from 20th Jan 2023 down to the 38.2% retracement taking move from the $6955 low in July 2022 to the $11,104.5 peak.
- Then the 21 week ma at $9403.
- Resistance now into $9675/9725 – last week’s close up to this week’s high.
Nickel
- Consumer buying was evident in the market yesterday.
- Short has been building and with fast money having become the dominant flow across many of these metals, that short is beginning to look stretched and we compare it to previous incarnations.
- And this could be a driver of a counter trend move.
- Nickel sulfate prices continues to weaken further, and now range between 28500-29000 yuan. The decline in the feedstock prices is not supportive to nickel prices
- Onshore stainless prices bounced back this morning which is supportive LME nickel prices.
- All of the onshore renewable energy equity index still getting sold off is not so supportive.
- Shanghai on warrant stocks seeing a minimal draw to 20.3kt whilst LME on warrant continues to build up to a high at 88.5kt which last seen since October 2021.
- Support into $16,850/17k then those $16,535/40 lows from 27/28th March.
- Resistance into 8 day ma at $17,313 below which price has been trading since 23rd May.
- Then $17,555. Although short covering momentum if triggered could target the 21 day ma at $18,147.
- Some decent options open interest for next Wednesday’s expiry. July $16,500s / $17,000s / $17,500s x 1.6k, 1.2k and 1.3k respectively.
Zinc
- Thin contractive turnover with a narrow range of late. Today’s outperformer.
- SMM seminar in HK today sees calls for higher prices over the coming months as smelters are likely to cut production in 3Q24 on the back of such low treatment charges.
- We have been commenting on the very light concentrate inventory currently held at Chinese ports which sits substantially below its 10 year average.
- Zinc smelters in a weaker position than their copper counterparts as many are privately owned.
- LME zinc now seeing its net long rebuilding again which is mainly owing to the short covering prog from the fast money.
- Shanghai aggregate open interest up 9.0k lots or 4.9%.
- Ferrous and steel price noted a rally early this morning which support zinc’s prices.
- Both LME and SHFE on warrant stocks seeing stock draw today, especially Shanghai warrant stocks.
- Price has this morning breached its 21 day ma (last at $2884) and highs going back to the 7th June. Its $65 range compares to a 10 and 20 day atr of $69 and $80.
- Next resis into $2925/35. Then $2961 which is the 50% retrace taking move from the $3185 high to the $2737.50 low.
Lead
- LME short has now covered and taken net positioning back to flat. That mainly owing to the fast money having covered their short positions.
- Shanghai aggregate open interest up 19.2k lots or 12.6% after 4 consec declines. Fresh length there.
- Very minimal changes on both LME and SHFE warrant stocks.
- Shanghai July Aug spread bid to 45 this morning, tightening from the recent low on 25th June at 30.
- Lead still suffering on a RV basis compared to zinc. That switch out to $715 from yesterday’s close of $661.50 and the recent low settle of $567.5 on the 7th June.
- Lead still suffering on a RV basis compared to zinc. That switch out to $715 from yesterday’s close of $661.50 and the recent low settle of $567.5 on the 7th June.
- Resistance into $2225/45.
- Support into $2150/75.
- As with zinc the 8 and 21 days showing signs they could cross soon. Last at $2190 and $2212 respectively.
- That would be positive.
Macro
- 12:00hrs MBA Mortgage Applications
- 15:00hrs New Home Sales
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
