Today 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,
Chinese industrial profits only grew 0.7% in May down from the 4% lift seen in April and it was steelmakers, coal miners and crude oil processors seeing stark declines and even losses across Jan-May. And the takeaway? Over capacity. Deflationary pressures. On the wires it has been announced that China’s 3rd plenum will be held July 15-18th and not the 3rd July as previously suggested. Noticeably its Shanghai Property Index declining to levels last seen 29th April when the market was reacting to the announcement of real estate supportive (?) measures.
So, the Chinese continue to remain largely absent in our space and the news that some of the country’s financial conglomerates have been instructed to impose strict pay limits, even asking for senior staff to forgo deferred pay and return prev bonuses, amid Pres Xi’s drive for common prosperity, illustrative of the uncertain environment that permeates that trading community.
Furthermore, the uncertainty around the FED’s rates path continues with initial jobless claims later today and particularly tomorrow’s US personal income and expenditure key to that outlook now. There is little apparent appetite to hold risk in the current environment with positioning still net long across the majority of the complex bar nickel albeit those CTA sell progs have become rather muted.
So, in the here and now the industrial metals have been dripping lower but this week amid tightening ranges and declining volumes. Month end tomorrow having little impact into yesterday’s closes apparently although we note this morning’s price gains since the London open. Furthermore, next Wednesday’s July options expiry and the increasing theta rot over the next few sessions also having the ability to tie us up.
But we are certainly now running into signs of some consumer activity, that contributing to our prices recovering off the session lows, as well as arb buy London activity if only of a paper nature. Likewise onshore stocks are beginning to see outflows now. On that note how will next week’s new pricing period see 2nd rings set up given the weight of cash selling that has been the overriding theme across the complex over the past few months amid this disappointing demand outlook?
Price performance at cob 3rd June 2024:
One positive in our data is Guy’s Global Macro Index - that peaked 19th April and a month prior to our highs (albeit could argue the last piece was short covering and not length driving the gains).
Ali
- Ali’s turnover has been muted of late with a narrow range at $21. Positioning much cleaner and now getting into evidence of some consumer buy interest.
- LME ali’s long liquidation prog stalled this week and the fast money short positions covered slightly.
- Shanghai aggregate open interest up 3.1k lots or 0.6% after 18 consec sessions’ declines.
- China aluminum spot inventory seeing a minimal stock draw, down 0.13% to 758kt, but again the current level is running 60.6% higher than same period last year.
- Weekly volume profile attached to illustrate the biggest bar traded into $2500 area.
- SHFE on warrant stocks seeing a stock withdraw since 17th June whilst LME warrant stocks and COMEX stocks largely unchanged.
- European and mid-western US ali premium remained largely unchanged. In contrast, China 99.7% premium continues to decline from the previous peak on 17th June at 20.
- July $2450s x 2.1k lots and the July $2500s x 4.2k lots. July around $38 under 3s.
- Support $2470/80. Resistance $2525/50.
Copper
- The onshore spot arb window has brought some supportive buying of LME/selling Shanghai.
- Separately we have also noted some physical pricing into the low $9500s over the past few sessions. We would stress not substantial and not longer dated which would be more structural and of greater note.
- Reuters reports that Codelco’s May prodn was 103.1kt down 8.6% on its target of 112.8kt. Moreover, its Jan-May prodn of 484.5kt was down 6.1% on their guidance. Raises the question how they are going to be able to recover prodn as much as they have suggested 2h24.
- Separately Antofagasta have agreed mid-year treatment charges of $23.25 with Chinese smelters – pretty much mid-level between what the two sides had proposed ($10 from Anto / $30s from smelters). Concentrate supplies remain tight.
- Freeport Indonesia expects its new smelter to start prodn mid August with the smelter expected to reach full capacity in Dec. That is 1.7mt concentrate annually / 650kt cathode.
- LME copper seeing a continuous long liquidation prog since reaching the peak on 22nd May. It has been the fast money build up its short positions again.
- Shanghai aggregate open interest down 8.4k lots or 1.6%.
- Only LME on warrant stocks seeing a small pickup whilst the rest noting minimal stock draws with COMEX stocks remaining at its low level at 9.1kt.
- Somewhat supportive the Bloomberg dollar index slightly weaker today having paused into yesterday’s peak overnight.
- Also we note the fwds which were bid into yday’s close has gone offered this morning. Dec 24/25 at $150c from $135c settle).
- China copper concentrate in May declined to 2.26 million tonnes from the previous peak in August 2023 at 2.7 million tonnes. In contrast, both China refined copper import and copper cathode output seeing some improvement.
- According to today’s data, both Shanghai bonded inventory and China social inventory seeing minimal builds. The latter showing draws on our chart due to it being an average of Monday and today’s release.
- Weekly volume profile seeing the biggest bar traded into $9500-50 area which in line with the July option open interests.
- July $9500s x 2.3k. July $9600s x 3k.
- Copper into down trend resis on hourly chart - break this and see the first meaningful resis into $9675/9725 - moving averages up to the highs from 24/25th June.
- Next support below into $9400/25 which is the low from the week ending 19th April as well as the 38.2% retracement of move from $6955 low to $11,104.50 high.
- Although July $9500s show 2.3k lots of open interest. The $9600s above x 3k. To downside the $9200s x 1.6k.
Nickel
- The only metal exhibiting a net short position and on both exchanges. On London it has been the fast money dominating this short building prog.
- London now encountering evidence of some consumer interest.
- Shanghai aggregate open interest down 4.6k lots or 2.4%, declining for the 5th consec session.
- See nickel pig iron and nickel sulphate prices seeing further declines of late which has not been supportive to nickel prices.
- Onshore renewable energy equity index has been sold of recently which brought some downward pressure to nickel prices.
- Onshore stainless prices traded higher initially albeit Shanghai nickel did not react.
- SHFE on warrant stocks seeing stock draws to 20.2kt whilst LME warrant stocks now build up to 89.1kt.
- Support into $16,800/50 and the lows from early April. Then $16,540 and the low from 28th March.
- Resistance into $17,555 although its 8 day ma comes in at $17,245 and has not settled above that since the 22nd May.
Zinc
- A shortage of zinc concentrate supply onshore has driven the recent price gains. At yesterday’s close up 10.6% ytd or 20.6% qoq.
- Also see how LME zinc is starting to see the net length rebuild into yday’s close thanks to the fast money cutting their short positions.
- Shanghai aggregate open interest down 0.6k lots or 0.3%, minimal changes.
- Both exchanges seeing further stock withdraws.
- LME on warrant stocks having declined 30kt since the 7th June peak (same day as we made that low).
- Shanghai daily on warrant stocks now drawing and to 82.9kt from 90kt peak earlier this month (4th June).
- LME zinc prices have been ignored today’s ferrous and steel prices where it get sold off this morning session.
- $2961 is the 50% retrace if you take the move from the $3185 high in May to this month’s $2737.5 low.
- 8 and 21 day mas set to cross ($2877 / $2878) in a bullish fashion.
- So support into $2875/2900.
- Looking at the weekly chart its 8 week ma comes in at $2913. A clear break of that for tomorrow’s close might also be construed as a positive
Lead
- Light turnover which is running down 37% compared to its 20d average and with a $23 intraday range.
- LME lead now back to a flat position owing to the fast money exiting their short positions.
- Shanghai aggregate open interest up 5.3k lots or 3.1% for the 2nd consec session. Fresh length
- LME lead on warrant stocks seeing a small stock build, up to 195kt whilst SHFE on warrant stocks declined minimally to 52.2kt.
- SHFE July Aug spread settled into 40 backwardation, easing from the previous high on 19th June at 105 backwardation.
- Support $2145/55.
- Resistance $2205/2225
Macro
- 13:30hrs GDP Annualized
- 13:30hrs Personal Consumption
- 13:30hrs GDP Price Index
- 13:30hrs Core PCE Price Index
- 13:30hrs Initial Jobless Claims
- 13:30hrs Continuing Claims
- 13:30hrs Durable Goods Orders
- 15:00hrs Pending 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
