Good morning,
Coming up to half time and we have seen a mixed game so far this year. A supply side rally amid an improving world economic outlook before China and a lack of demand coupled with slowing growth and a deteriorating world geo-political situation worldwide brought us crashing back lower. Those and the concerns around world elections. Ignoring last night’s US presidential debate, today sees Iranians go to the polls. A hardline win an inevitably juts as there appears a growing realisation that violence between Israel and Hezbollah is only going to escalate. On Sunday we have the first round of French presidential elections followed by the UK on the 4th July which is of course also a US bank holiday.
Chinese PMIs unlikely to tell us much. Their plenum having now been pushed back to the 15-18th July.
Overnight we have seen strength emerge across the complex with tin leading the way. Zinc running in at a close second. Both suffering from supply shortages onshore. And those two metals the only ones to be seeing above average turnover. But, the light draws on the Shanghai weekly deliverable stocks reminds us of the paucity of downstream demand. Xinhua article today quoting Pres Xi stressing the importance of exercising full, rigorous party governance by improving systems. This seen by some as a reflecting his priority of security and power over the economy.
News from South America around flooding in Chile and earthquakes off Peru raise further supply threats to likes of copper and zinc. But in truth today’s gains likely also impacted by it being last day of the month and that some fast money shorts have been established across complex. Indeed, when you read this morning about the outflows from European stock markets ahead of these elections it reminds us of that commodity underperformance. The dow outperforming between 29th May and 26th June before the commodity complex fights back.
Finally, would comment that we should not forget next Wednesday we have July options expiry. And as we write this the LME release sees stock builds across the majority.
We in for a long hot summer.
Price performance at cob 27th June 2024:
Ali
- Ali benefitting this morning from tonight being half year end.
- Prices this week having uncovered some signs of a consumer bid into the $2500 area but largely rangebound amid plenty of gamma interest ahead of next Wednesday's expiry and even some residual producer selling on any price pick up.
- Most interestingly tom next has seen big turnover this morning. 9.3k lots taking into 0.25c so not into back but which we think is likely the market sifting for certain material. Indeed, of the LME on warrant stocks Port Klang holds 298.6kt of which only approx. 230kt max is Indian and floating. The balance is largely held in Gwangyang and doesn’t seem to be available on a small sift basis. So, the salient point here being that the ali market appears tighter than it has been.
- Weekly China aluminum ingot social inventory seeing another stock build, up to 763kt.
- LME on warrant stocks have been flatlining of late whilst SHFE on warrant and COMEX stocks seeing stock draws. But SHFE weekly deliverable stocks noted stock builds from the low on 10th May at 212kt to 235kt today.
- Long liquidation program continues on LME but that momentum has slowed down. More interestingly the fast money still build up their short positions.
- Shanghai aggregate open interest down 4.0k lots or 0.8%, long liquidation.
- Shanghai July Aug spread settled at 35 contango, tightening up from the low on 21st June at 60 contango.
- China imported bauxite at port from Guinea increased to 2.44 million tons, from the low on 7th June at 1.5 million tons.
- Weekly resistance into $2537.5 and last week’s peak. Then the 8 week ma at $2574.
- Support into $2470/80.
Copper
- A few stories on the wires that have implications for South American prodn. Heavy rains in Chile causing a tailing overflow in Cabildo – the dam operated by Laz Cenizas in central Chile. That’s following Codelco’s continual disappointing prodn so far this year and amid a growing realisation that as ore grades degrade more water and energy is required. By 2034 energy demand expected to increase to 31.4% compared to 20.7% increase in prodn. Energy consumption from 26TW to 34.2TW by 2034. Mining growth share expected to expand from 4.9% to 44.1%. Renewable power sources the focus.
- Then you have the news that a 7.2 earthquake occurred near coast of Peru early today. Shallow depth raises potential for Tsunami and felt more strongly near epicenter.
- LME copper’s longs continues to liquidate further since 22nd May and those medium money’s long has been almost cut to flat. Short positions of the fast money still grow further.
- Shanghai aggregate open interest up 3.7k lots or 0.7%, small change of late.
- This morning’s weakness in dollar has help our space traded higher. However if we revert the imports and exporters currency index into the weekly basis, see our currency index showing below to show the strong dollar of late, which dampen the importer’s purchasing power.
- On the positive side, we started to see some improvement of liquidity index this week which providing some support to copper prices.
- Yangshan premium seeing further improvement to -$7 but still relatively low. In contrast, China 99.5% spot premium declined minimally to -110.
- Only LME on warrant stocks seeing a small build up to 171kt from 89.5kt on 10th May. In contrast, all the rest stocks seeing further stock draws.
- Shanghai July Aug spread settled at 270 contango, easing from the high on 19th June at 160 contango.
- Price has this week held into $9500/25 area of support.
- More support below that into its 21 week ma at $9404.
- Some resistance into its 8 day ma at $9654 followed by the $9722/30 peaks from 24/25th June.#
- Although the more important area now the 21 week ma at $9794.
Nickel
- A consumer bid has emerged as price dipped into the low $17ks.
- And that as this is the only metal seeing a net short position which continues to grow. See how fast money’s short position now back to the level last seen on 28th March.
- Shanghai aggregate open interest down 11.5k lots or 6.1%, declined for the 6th consec session.
- Onshore stainless prices has been trading higher this morning which should bring some support to nickel prices.
- Onshore renewable equity index has been largely sold off recently which is not supportive to nickel prices.
- Shanghai on warrant and weekly deliverable all seeing stock withdraws whilst LME on warrant seeing further stock build.
- Shanghai July Aug spread settled into 250 contango, easing from the high on 27th June at 90 contango.
- Daily chart sees price attacking its 8 day ma at $17,241 which has been below since 3rd week of May.
- Resistance into 21 day ma at $17,845 but 38.2% retrace taking move from high to low comes in just below $18,800.
Zinc
- Today’s outperformer led by a tight supply situation onshore amid rumours of imminent smelter cuts. A big stock inflow seems prices retrace from session high but then recover somewhat amid month end flows.
- LME on warrant zinc stocks jumping the most since May to 230.8kt as of today.
- Decent turnover on LME throughout overnight, up 38% compared to its 20d average. With a $63 intraday range traded.
- Shanghai aggregate open interest seeing a 18.9k lots or 9.8%, the biggest increase since 10th April. Fresh length.
- Interestingly zinc has been the only metal where we see fast money re-establish their long positions on both LME and SHFE after their short covering prog.
- See how LME on warrant stocks jumped to 231kt and now approach to the previous high on 20th February at 240kt. Then both Shanghai on warrant and weekly deliverable stocks seeing small declines.
- Onshore fundamentals still have the expectation of smelter production cuts which supports zinc prices, but would like to remind that off-season is offsetting some of its tightness. We are of the opinion that SHFE price led the LME rally.
- Onshore zinc concentrate stocks at port increased to 16kt but still running much lower than its previous years.
- Ferrous and steel prices have been strong overnight which supported zinc prices.
- Shanghai July Aug spread settle at 60 contango, easing from the recent high on 17th June at 5 contango.
- On top of which ferrous and steel prices manage to trade high and back to $106 area.
- Resis into $3000/25 area, basis June highs and 61.5% retracement taking high $3185 to low $2737
- Support into $2925/35.
Lead
- LME lead seeing a net flat position owing to the short covering prog from the fast money.
- Shanghai aggregate open interest up 4.9k lots or 3.1% for the 3rd consec session. Fresh length
- Both exchanges inventory seeing a small change.
- Shanghai July Aug sread bid to 80 backwardation, tightening up from the low on 25th June at 30 backwardation.
- LME cash to 3s spread eased to $50.68 contango from $39.95 contango on 20th June.
- Support $2145/55.
- Resistance into $2225/50.
Macro
- 13:30hrs Personal Income
- 13:30hrs PCE Price Index
- 13:30hrs Core PCE Price
- 14:45hrs MNI Chicago PMI
- 15:00hrs U. of Mich. Sentiment
LME Stocks
Shanghai On Warrant Stocks
Shanghai Weekly Deliverable Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
