Good morning,
Light turnover overnight, with ali the best but still running down 32% on average, tells us all we know around Chinese levels of engagement. The parlous state of business confidence ahead of plenum 15-18th July coupled with the ongoing real estate concerns with Shenzen province’s new home sales falling 4% y/y in June. The sales slump might be slowing but actual business remains low. Moreover, the increasing likelihood of a Trump win raises the potential for more capital outflows there amid an in inevitable rise in trade tensions and therefore a weaker yuan.
Of course, tomorrow’s LME July options expiry will also hamper price movement as those longs look to pay for their theta rot by catching the range. Risk appetite also likely negatively impacted by Thursday’s US Independence Day celebrations especially amid the current macro and geopolitical uncertain environment.
Our complex remains steady amid a more positive technical outlook. Positioning remains key and we have been discussing the fast money shorts established across the majority with nickel the exception as it has been running net shorts across both exchanges. Those not having covered on the moves to the May peak. But as to whether that presents a sea change and presents us with the potential for a rally back to those highs is doubtful. Price and levels of participation tell us we are fickle with HFTs having a big impact on pricing currently. See how the ECB headline around their cutting sooner than the US results in a dollar rally with our prices then selling off.
But we would make this point. High freight rates allude to the additional shipping costs amid the ME conflict. Furthermore, increasing trade tensions also raise the spectre of stickier inflation. The argument to own commodities will therefore come back to the fore. And we are of the opinion that the gains seen mid London morning are the result of those higher price cost fears coupled with moves in the rates space.
Price performance at cob 1st July 2024:
Ali
- China's production of aluminium is closing in on last year's record highs as previously idled capacity ramps up in Yunnan province. The country increased production by 5% year-on-year to 3.65mn mt in May, according to the latest estimate from the International Aluminium Institute. National output is now running close to an annualised 43.0mn mt, near the record highs seen in September and October last year.
- Domestic aluminum supply continues to grow, while the off-seasonfor consumption weakened the operating rate of downstream aluminum producers.
- Shanghai and LME on warrant stocks seeing small stock draws whilst COMEX ali stock instead picked up to 35.3kt.
- Looking at global ali premium, European ali premium seeing a decline, down to 322.5 from the high on 3rd June at 348. Then China 99.7% ali premium increased to -70 as of today.
- 8 and 21 day mas moving towards crossing in bullish fashion - $2511 and $2541 respectively.
- Resis into $2555 then $2585/2600.
- Support $2500 then $2475.
Copper
- After seeing turnover running down around 50% against average during the Asian day session the market has sprung to life mid-morning apparently on the back of inflationary fears and rates price action. Volume picking up and running up 240% on average between 9:30-10:30hrs.
- LME on warrant stocks seeing another stock build in Asian warehouse locations after yday’s 8kt draw.
- According to SMM, China is seeing a pickup in levels of imported copper and smelters in North China are about to resume production. Not so positive although we know onshore wants lower prices to fuel pick up in interest from down stream.
- COMEX copper seeing the open interest continues to decline, down to 254k lots from the high on 10th May at 312k lots. Meanwhile, last Friday’s CFTC report seeing a long liquidation prog.
- Both SHFE and LME on warrant stocks seeing stock builds resume. In contrast, COMEX stocks flatlined at 8.9kt level.
- China copper wire and producer refined copper demand totaled at 217kt in June, increasing from the previous low in February at 142kt.
- Both Yangshan premium and China spot 99.5% seeing further improvement. Yangshan premium now increased to -4 and China 99.5% spot premium now increased to -70.
- 8 day ma now provides support and into $9600/15 area. More support into $9500.
- Some resistance into 21 dayer at $9753 which sits just above the $9730 high from 24th June.
- And then the $9892 high from 21st June.
Nickel
- Stock draws seeing on both LME and SHFE exchanges this morning. Nickel has been the outperformer this morning. Especially SHFE warrant stocks declined from the peak on 3rd June at 23kt.
- Today onshore renewable energy equity index managed to bounce back this morning which brought some support to nickel prices.
- After last week’s price stronger price performance, this week stainless prices have been stalled which may not be as supportive as last week.
- Shanghai July Aug spread settled at 500 contango this morning, easing from the peak on 27th June at 90 contango.
- This morning’s rally stalls into resistance provided by the $17,550 prior lows and last breakdown point. Then the 21 day ma at $17,642. Break above there opens potential for $18k.
- Support now into 8 dayer and $17,250 area.
Zinc
- Volume has been muted of late, and noticeably overnight was running down around 60% on average. Similar to copper then.
- Its turnover today is down 37% on average with the $31 intraday range yet to achieve any of its ATRs.
- SMM zinc ingot stocks in seven regions totaled 197,900 mt, up 4,100 mt from June 24 and up 3,300 mt from June 27, with domestic stocks increasing. Fundamentals are bearish, with poor downstream consumption and continuous increases in domestic stocks.
- LME zinc stocks have been largely unchanged today whilst SHFE on warrant stocks down for another session, from the peak on 3rd June at 91kt to 80.6kt as of today.
- China refined zinc production in May increased to 536.2kt with its monthly operating rate also picking up to 87.14% in May from its previous low in February at 82.6%.
- Ferrous and steel prices have been fairly supportive this morning.
- Shanghai July Aug spread traded into 70 contango this morning, tightening up from the low yday at 130 contango.
- Shanghai aggregate open interest up 2.7k lots or 1.4% after yesterday’s 7.9% decline.
- Support into 8 day ma and $2900/15 area. Then $2869 and the 21 day ma.
- Resistance into $2990/3015. Then $3075.
Lead
- SHFE lead prices have been benefitting from tight supply of late.
- Both SHFE and LME on warrant stocks seeing small builds.
- LME cash to 3s spread settled into $45.65 contango, bidding from the low on 3rd June at 465.03 contango.
- SMM reported that there have been many shutdowns and production cuts in primary lead and recycled lead smelting enterprises, resulting in a phased reduction in lead ingot supply. Especially before the resumption of production of recycled lead smelting enterprises in Anhui, the tight market supply situation is unlikely to change in the short-term.
- Shanghai aggregate open interest this morning seeing a 3.1k lots or 1.6% decline after 4 consec increase.
- Shanghai July Aug spread settled at 40 backwardation, easing from the peak from yday at 115 backwardation.
- Support into $2200 area where we have the 8 and 21 day mas.
- Then the rising trend line and around $2175.
- Resistance into $2250 then $2285/2300.
Macro
- 15:00hrs JOLTs Job Openings
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
