Good morning,
Aside from evidence of some CTA selling being processed into the close last night, the standout was the offer seen on lead and nickel with the latter seeing a pick in interest into settle and a sharp plunge. The driver of this given the heavy turnover most likely a real money offer on the 2nd day of this new half. Disappointing settles given the exuberance seen earlier in the session.
Overnight prices bounce and we would further comment that the speed of yday’s moves saw arbitrage windows become far more attractive (buy London / sell Shanghai). But overnight volumes remain light with China unlikely to be the driver of further gains. Today’s Caixin services PMI expanding at the slowest pace in 8 months. 3rd plenum 15-18th July. We also have options expiry this morning with certain strikes across the complex sitting in July providing a “natural” draw.
But we also reiterate that there is increasing inflationary chatter raised by longer shipping routes and the likely increasing trade tensions globally. See this morning’s reports of US warnings that China is edging closer to providing lethal aid to Russia that western officials have previously warned against. That in itself should reignite that argument to own commodities with recent evidence of their having been inflows across the broad sector irregardless of last night’s moc flows.
Our space is so much cleaner and aside from the positioning and the fast money shorts that sit in our space – not to mention the risk premia RV shorts in metals versus length in energies (as an example) we would also remind you that so many on the demand side now sit on a hand to mouth basis. So it will be price and further gains that could drag people back in on the bid. Price and timing so key.
Since those May peaks and the subsequent long liquidation progs during first half of June, metals have been going through a consolidation phase chopping between their 8 and 21 day mas.
Noticeably all the metals except nickel are now trading above their 21 days with daily charts having already seen the 8 dayers cross up through the 21 dayers on zinc and lead. The rest shaping up to do so as well. This would be bullish technically.
And on that note, from Marex position estimates we are seeing the fast money shorts start to cover across the whole complex bar zinc where that community has already gone lone. Positioning remains key and per our opening note Marex risk premia relative value positioning estimates shows that community holding some RV shorts on likes of copper, ali, nickel and zinc.
Tomorrow US Independence Day so one might expect interest from that side of the pond to dissipate into end of week.
Price performance at cob 2nd July 2024:
Europe’s Stoxx 600 Resource Index and see how retracements on weekly chart have found support into its 21 week ma at 577 with price now challenging down trend from May peak.
Aside from that inflationary narrative would also comment on those who see the potential for more choppy price action in the US stock markets 2H24. See therefore also a ratio of the BCOM vs Dow Jones which saw the latter outperform since 29th May but which is now turning since 2nd July. Buy commods / sell stock markets?
Ali
- Ali is the one metal that is always likely to get tied up into options expiry. And that will contribute to the more muted trading activity of late. As has the fact that the market has just seen a big position exit.
- Marex position estimates seeing the net long positions start to rebuild again thanks to the fast money covering its short position.
- Shanghai aggregate open interest down 3.4k lots or 0.7%. Long liquidation continues.
- In June, China ali alloy producer’s operating rate total at 53.88% increased from May’s 50.20%.
- All three exchanges seeing minimal stock changes today.
- See the volume profile since 29th May when price made the $2799 peak. Biggest exchange has transacted in $2500 area.
- Price doing work around its 21 day ma at $2535. More support into its 8 dayer at $2513.
- Resistance into $2550 area. And then $2590/2600.
Copper
- Today’s outperformer initially – with a wide $192 intraday range traded which has achieved all its ATRs.
- The change in “inflation” tone has helped us rally off lows. Fast money shorts are covering which has supported the recovery.
- Moreover, worth noting that despite the underlying copper price (LME) being $90 off the highs the arb is catching a bid along the entire curve. Following the initial bid on the back of the underlying price move we have seen a further bid of circa $10 - $20 (back to front end) as the underlying price on LME has come lower. Potentially illustrating a renewed interest from the bigger institutional funds that want CME over LME exposure?
- Marex position estimates and LME seeing signs of length rebuilding, Shanghai aggregate open interests up 6.5k lots or 1.3%, increased for the 2nd consec session. Again signs of some re-engagement there.
- Onshore arb provided support into the back end of last week although easing since.
- Shanghai daily on warrant stocks seeing small stock draw but remained at a high level. LME on warrant stocks instead seeing a 2.0kt stock build. COMEX stocks remained low at its 8947 metric tonnes.
- Since making the peak of $11,104.50 on 20th May see how the heaviest bars transacted on the volume profile have transacted into $9650 area.
- Has this morning breached its 21 day ma – that now providing support around $9745 with more support into its 8 dayer at $9627.
- But to the topside see resistance into its 8 week ma at $9955 below which it has been trading below since 1st week of June and plunge down through $10k.
- Looking at daily chart you have those $9890 area of highs from 20/21st June and then trend line resistance into $10k area.
Nickel
- Last night we spoke about the 2.2k lots that traded in a 20 min window into settle – must have been index related basis the timing and scale. NOT cta type in this writer’s opinion.
- But price held that 27th June low of $16,965 and on last week’s move down to that $17k area we definitely saw evidence of a consumer bid from the lending across the fwds. Likely autos pricing.
- So looking at volume profile since open 20th May which was day price made the $21,750 peak and what is stark is that by far the biggest bars have exchanged into $17,000-$17,400.
- See also how Dec 24/25 has also eased from $700c on the 17th May to $888 contango at last night’s settle. Again evidence of that consumer.
- We know the market is short on LME and Shanghai and according to our estimates they have started to cover since Friday. The fast money short having gotten as big as it has been since November 2023.
- On Shanghai top 20 broker positioning report also showing signs of the net short covering.
- Shanghai aggregate open interest up 4.9k lots or 2.7%, short building.
- Nickel sulphate and nickel pig iron prices also stabilizing which is supportive.
- SHFE nickel on warrant stocks continues to see stock draws, down to 19.5kt from the high on 3rd June at 23kt. LME nickel on warrant stocks build up minimally again to 90.3kt.
- Onshore renewable energy equity index started to pick up which should be supportive to nickel prices.
- Daily LME chart seeing 8 and 21 day start to converge. Some way to go but if they cross would be bullish.
- Support into $16,950 a break of which could open up test of that $16,540 low from 28th March.
- Resistance $17,550/17,600 and then $18k area.
Zinc
- Zinc is the only metal where length has been building that due to fast money engaging. And noticeably it has been the first metal to see its 8 day ma cross up through its 21 day ma in a bullish tech fashion. It having done so last Thursday.
- It has been the tight concentrate story onshore which has been supportive coupled with the rising cost of production with our trade contacts telling us this has raised from $2600/2700 area previously.
- Shanghai aggregate open interest down 3.5k lots or 1.8%.
- SMM reported that on Tuesday, Ivanhoe Mines announced the restart of production at the Kipush mine. On May 31, 2024, the Kipush concentrator officially started operation and produced the first batch of zinc concentrate on June 14. The production target for zinc concentrate from Kipush in 2024 is 100,000 to 140,000 tons. Currently, the basic engineering design of the expansion plan is underway, which will increase the processing capacity of the Kipush concentrator by 20% to 960,000 tons per year.
- Ferrous and steel prices have been trading higher especially feedstocks on the like of iron ore.
- On wires there are a few headlines incl China may implement targeted RRR cut in early 3Q. Also China notified underwriters of government bonds to re-submit their demand for an upcoming auction. Market may still live in the hope of the stimulus…
- Both LME and SHFE on warrant stocks seeing minimal stock draws.
- Shanghai July Aug spread traded into 60 contango, tightened up from the low on 1st July at 130 contango.
- Price support into 8 dayer at $2917 and then 21 dayer into $2869.
- Resistance into $2993 peak from 28th June and up to $3015 and the 61.8% retracement.
Lead
- Onshore lead tight supply situation of lead concentrate has not improved. But on the flip side, see how the onshore arb of lead has been improved and physically opened of late. This has brought some risk to the recent SHFE’s strong price performance. Chatter around potential for stock movements and builds.
- As we mentioned, see how onshore aggregate open interest declines 18.3k lots or 9.6%, and down for the 2nd consec session. Signs of long liquidation.
- In contrast, LME lead seeing a flat position owing to the covering program for the fast money whilst slow money remained their length on LME.
- Shanghai July Aug spread traded into 35 backwardation, easing from the high on 1st July at 115 backwardation.
- Whilst SHFE on warrant stocks is largely unchanged, LME warrant stocks increased to 200kt as of today off the low on 25th June at 192kt.
- Support into $2195/2205 and its 8 and 21 day mas.
- Then $2180 and the rising trend line.
- Resistance into $2240/50. Then $2300.
Macro
- 12:00hrs MBA Mortgage Applications
- 13:15hrs ADP Employment Change
- 13:30hrs Trade Balance
- 13:30hrs Initial Jobless Claims
- 14:45hrs S&P Global US PMIs
- 15:00hrs ISM Services Index
- 19:00hrs FOMC Meeting Minutes
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
