Good morning,
The metals all settled up market to market on Friday as the long liquidation across the majors has apparently run its course with recent price action of a consolidatory behaviour. The dollar’s rally having paused on Friday with so much length having tipped out in our space, noticeably certain metals such as nickel, ali and even copper encountering some sort of consumer bid. That amid lighter volume and a shrinking pool of participants.
China having been largely sidelined ahead of their plenum meet now scheduled for 15-18th July and having been delayed. Weekend PMI sees official manufacturing data come in in contractionary territory sub 50 but today’s Caixin private release a beat. Iron ore reacting and rallying thanks to preliminary data from China’s Real Estate Information Corp which sees the value of new home sales for the 100 biggest companies in June rise 36% m/m albeit still down y/y. But supportive at the margin. Marex iron ore model still increasing its length thanks to a cut in onshore domestic production with support seen from this manufacturing sector. Shanghai property index reversing last week’s losses and back to levels last seen on the 25th June.
Wednesday’s July options expiry on LME and the associated theta rot could mean gamma interest increases not to mention we have a US holiday on Thursday. But it is the flows around this half year end which are pertinent in the here and now with the BCOM Index having seen some substantial inflows – its Dec 2025 future seeing 2 x $600m inflows alone last week.
Our metals having so underperformed in June – its BCOM sub index down approx.6% compared to the energies approx. 4% gains. There also is the potential for rotational flows.
Or see the BCOM ratio with the Dow Jones:
Indeed, note how South Korea’s copper products maker Solus Advanced Materials spikes higher (approx. 29%) thanks to reports that it will provide Nvidia next generation AI accelerators.
Aside from the continuing bullish narrative we also have bullish tech outlooks on some with fast money shorts established and plenty of graphs showing the 8 and 21 day mas set to cross in a bullish fashion.
New pricing window and 2nd ring closes have been predominantly sellers the past few months. The timing of these providing a potential entry point for those looking for a rotational bid to emerge.
Price performance at cob 28th June 2024:
Marex Global Risk Index and see how that has been turning back up since the 18th June low which has been supportive to our prices. Its psychology input in blue leading its recovery but which could now do with its growth input in green also recovering…
And as a reminder Marex estimates around Risk Premia RV positioning continues to show shorts in the industrial metals. Length in energies in contrast.
Options Summary:
Good morning, the theme last week remained fairly constant as we saw very little substantial trades transact in options, there were some moments in flat price during the week, with Friday morning providing the most interesting price action, Zinc gave back all of its overnight gains after the 9am stocks data, retracing most of the dip over the course of the day before finishing at the lows.
Aluminium held on to more modest gains, and as we have option expiry this week we expect the 2500 area to become a strong channel for price as there is over 4k lots open on this strike in July.
The most interesting macro events last week came in the form of political movements, firstly from China. The third plenum will now be held on July 15 -18.
In Europe, the markets were soothed slightly in France after the "worst case" scenario the markets had priced in now seems very unlikely following yesterday's round of elections, a stalemate or coalition scenario has become the expectation.
In the US, after a poor debate showing the Democrats have started to consider the possibility of replacing Biden on the ticket, Biden retreated to Camp David to discuss his next move with his close aides and family. If he was to pull out, Kamala Harris or Gavin Newsom would be the most likely replacements, they would surely provide tougher competition for Trump, but polls show he still leads both of these potential replacements by 4-5 points as it stands. The Democrats would be happy to avoid changing this late in the campaign as they acknowledged it would cause several weeks of chaotic infighting leading up to the party conference in around 6 weeks time
Ali
- Turnover remain light with a $29 intraday range traded, which has not achieved any of its ATRs yet.
- China aluminum ingot social inventory seeing a minimal stock build, up to 769 kt from the low on 20th June at 756kt.
- According to SMM, onshore fundamental wise seeing the domestic electrolytic ali supply maintains growth. And due to the off-peak season has suppressed the downstream operating rate, the onshore ali ingot social inventory seeing recent stock build.
- LME ali’s long liquidation prog momentum has slowed down of late thanks to the fast-money short covering prog.
- Shanghai aggregate open interest up 1.6k lots or 0.3%, minimal changes.
- LME on warrant stocks have been flatlining whilst both COMEX and SHFE stocks seeing withdraws.
- Shanghai July Aug spread settled at 55 contango, easing from the recent high on 28th June at 35 contango.
- Daily chart with price decisively through its 8 day ma at $2511 now providing support. Som resis into 21 dayer at $2548. Break of that $2550 area opens up potential for test of $2575/2600 resistance.
Copper
- Another LME on warrant stock draw helps copper traded higher this morning. Turnover has picked up significantly since 9am stock print. A $105 intraday range traded which has not achieved any of its ATRs just yet.
- LME on warrant stocks declined to 163kt from the previous peak on 28th June at 171kt. In contrast, SHFE on warrant build minimally. COMEX stocks still hold at their lows and the 9.1kt level. No signs of any deliveries against those July shorts as yet.
- Both Shanghai bonded inventory and China social inventory seeing further stock builds, which is less supportive of price.
- Both Yangshan premium and China 99.5% spot premium picked up slightly. Yangshang premium increased from the low on 19th June at - $14 to - $5 as of today.
- Long liquidation has been the main theme for LME copper in terms of the net positioning but this is mainly owing to the fast-money continuing to build their short position and which is now the largest fast money short since February 2023.
- Shanghai aggregate open interest down 4.8k lots or 0.9%, small change of late.
- Shanghai July Aug spread traded to 450 contango, easing from the high on 18th June at 150 contango.
- Copper to benefit on a RV basis against ali?
- Price is breaching its 8 day ma at $9635.
- Down trend resistance at $9716 then the 21 dayer at $9775. Breach of those opens up potential for move to $9892 21st June peak then the $10k area.
- Support into $9500.
Nickel
- Nickel has been the only metal seeing a net short position across the complex.
- Short positions on LME continue to grow and especially those fast-money flows.
- Shanghai aggregate open interest up 2.4k lots or 1.3%, increase after 6 consec declines.
- FT on wires published that the Philippine scouted for western investment to further develop its nickel reserve, pitching itself as an alternative to the China-dominated supply chain for the battery metal.
- See how those onshore renewable energy equity index gets sold of massively especially Hunan Yueneng New energy index, this is not supportive to nickel prices.
- LME on warrant stocks increased to 90.5kt from the low in early April at 68.3kt. The in contrast, the SHFE on warrant stocks declined to 19.7kt from the peak on 3rd June at 23kt.
- Onshore stainless prices have been ranging bound this morning which LME nickel have been largely traded in a narrow range as well. But stainless having led the bounce off the lows.
- LME also having encountered a consumer bid into low $15ks.
- China nickel briquette inventory remained at 100 metric tonnes whilst China nickel cathode inventory seeing a pick up to 5400 metric tonnes last Friday.
- Shanghai July Aug spread settled at 480 contango, easing from 90 contango on 27th June.
- Price through its 8 day ma at $17,241 with its 21 dayer coming in at $17,733.
- Above there resistance into $18,100-250.
- Support into $17k.
Zinc
- The outperformer this morning and the only metal whose turnover is running up than its 20d average.
- LME on warrant stocks seeing another draw, down 14.2kt which helped with this price trading higher.
- LME zinc seeing the length continues to grow and the fast money now re-establishing length.
- Narrative has been fueled by tight concentrate situation onshore and reports that this might well result in some smelter closures as these privately held unlike copper.
- Shanghai aggregate open interest down 16.5k lots or 7.9% after last Friday’s 9% increase.
- Both LME and SHFE on warrant stocks seeing a stock draw today.
- Ferrous and steel prices also helped with this morning’s price performance.
- Iron ore kicked off strongly this morning amid tentative signs of recovery in China’s property market, and speculation that Beijing could do more to support the sector. On top of that, our systematic iron ore model also seeing an increase conviction rate owing to the domestic production cut and recovery from China’s manufacturing sector.
- Shanghai July Aug spread traded into 130 contango this morning, easing from the high on 27th June at 50 contango.
- Daily chart saw its 8 and 21 day mas cross on Thursday. Last $2901 and $2871 respectively so worth noting how price held its former on the overnight retracement before the LME draw fuelled the bounce.
- Resistance into $3000/25 then the $3075 area into which some producer type activity was noted previously.
- Support into $2900/25.
Lead
- Onshore tight supply has been the main factor pushing onshore lead price higher.
- Meanwhile, the onshore arb has been physically opened and attractive of late, which suggestive of buying LME against selling SHFE.
- LME lead seeing a minimal long position established on LME now thanks to recent short covering prog from the fast money.
- Shanghai aggregate open interest up 10.9k lots or 6.0% for the 4th consec session. Fresh length
- Both LME and SHFE on warrant stocks seeing a small withdraw this morning.
- Shanghai July Aug spread bid to 115 backwardation, tightening from 30 backwardation on 25th June.
- Lead saw its 8 and 21 day mas cross on Friday. These last at $2203 and $2201 respectively.
- Support therefore into $2200 and then $2175.
- Resistance $2245/55. Then $2275.
Macro
- 14:45hrs S&P Global US Manufacturing PMI
- 15:00hrs Construction Spending
- 15:00hrs ISM Manufacturing
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
