Good morning,
Iron ore sells off overnight amid reports that a Vanke backed subsidiary is set to offer repayment proposals for its overdue wealth products. Shenzen based Penging having missed deadlines. Further government support and their plans required to stymy ongoing demand concerns. China’s 3rd plenum 15-18th July.
But our base benefitting this week from the macro. Initially inflationary fears raised by the increasing likelihood of the Republicans ousting the current administration and the trade uncertainty many seem that engendering. But then some dovish sounds from the FED and the potential for rate cuts.
Overnight turnover remains muted across the majority bar copper and tin. The former benefitting from the above but also an arbitrage market apparently getting caught short CME again with the term structure there having moved into a backwardation. This having been the precursor to May’s move to the all-time peak. Tin benefitting from the AI demand and production issues.
This afternoon’s Non Farm payrolls going to be key for next week and currently that looks positive. Moreover, as we approach that China leadership meet expect chatter around that to increase. Not to mention we will get Chinese loans, aggregate financing and money supply data by the 15th.
Monday sees the start of the official 5 day index roll window.
Price performance at cob 4th July 2024:
See how the commodities landscape has been bid so far in July.
Industrial metals fighting back against the June energies outperformance. Attach chart of the respective BCOM sub-indices.
Ali
- After some soggy overnight price action a 15kt stock draw on LME on warrant sees support emerge.
- Given the gains seen across the complex of late and these having been macro driven, ali was always likely to underperform if only on a RV basis.
- LME ali sees its net long continue to build but that thanks largely to the fast money covering its short positions.
- Shanghai aggregate open interest down 13.2k lots or 2.7%. Long liquidation
- China imported bauxite port inventory increased for the 3rd consec session to 2.386 million tons.
- China aluminum alloy operating rate last week remained at 50%, it has been largely unchanged since mid March.
- Shanghai daily on warrant stocks and LME on warrant stocks seeing a continuous stock draw, declining from the high on 14th May at 926kt. Shanghai weekly deliverable stocks instead build up since 10th May at 212kt.
- Looking at its switch against copper on a 3:1 basis to give it some $ measure that has expanded from $2004 on the 26th June to $2362 last.
- We are monitoring its 8 and 21 day mas which look to cross in a bullish fashion as did zinc last Thursday which some here see as leading the complex.
- On ali these come in at $2521 and $2528 respectively and which now provide support. More into $2500 area and there is plenty of options oi siting on that strike …..Aug $2500s x 1.9k, Sep x 5.7k, Dec x 6.5k.
- Looking at its weekly pretty telling that since week ending 14th June price has settled weekly in less than a $10 window….
- Resis into $2595/2605 provided by trend line and 38.2% retrace of recent correction from $2799 high to $2470 low.
Copper
- The outperformer so far this week closing up last night 3% week to date. That as its doctor moniker alludes to its relationship with the macro.
- China remains sidelined but we have seen the term structure bite on CME once again with Sep Dec comex trading into a big back. The arb community once again caught short. Those mooted CME stock inflows yet to materialize. The July arb short having been the precursor to copper’s spike to its all-time high we see this flow as being key to how copper behaves. And on that note see how Marex data analysis shows a big risk premia short in September / some lighter length in December.
- And Marex risk premia relative value positioning shows the comex rv short at 100% of its total and maxxed out. Albeit this flow is more difficult to “turn”.
- Copper unlikely to give up much ground with Sep Dec comex copper spread trading out to $3.20back – bear in mind between 26th June and 2nd July you were seeing it trade at beyond $2.00 contango.
- That driving the CME bid over LME. Attach chart of the Sep comex copper versus LME 3s.
- Decent turnover overnight – running up 23% compared to 20d average.
- Dollar weakness helping our space move higher overnight but all eyes on this afternoon’s nfp print.
- See how our currency index improved this week which is providing us some supports.
- On top of the currency supports, China liquidity oscillator also seeing a big pick up with brought some upward momentum to price.
- Some relief onshore with both the Yangshan and onshore 99.5% spot premium finally improving to a positive value off their lows.
- Fresh length building on LME copper and all those fast money’s short positions covered to flat.
- Shanghai aggregate open interest up 2.2k lots or 0.4%, increased for the 4th consec session. Fresh length.
- COMEX stocks stayed at its low level around 8.9kt. Shanghai weekly deliverbale stocks and LME on warrant stocks increased further whilst Shanghai daily on warrant stocks declined tiny.
- LME running into resistance provided by 8 week ma at $9970 and has been below that ma since week ending 7th June and drop through $10k.
- This $9975/10k area also providing resistance on daily taking the rising trend line from the Feb low at $8127 and which we broke down through on 17th June.
- A break of $10k therefore required to generate further tech topside momentum with $10,104 representing 38.2% retrace of the recent corrective move ($11,104.50 down to $9485.50).
- But we have discussed the fact that it will be price that will draw back in market participants – whether FOMO or trade forced to enter…
Nickel
- Today’s outperformer with a light turnover and a $305 intraday range.
- LME nickel seeing further short covering program thanks to fast money cutting.
- Shanghai aggregate open interest up 4.2k lots or 2.4%.
- China nickel cathode inventory increased to 5.4kt from the low on 22nd December 2023 at 1.4kt. In contrast, nickel briquette inventory remained at 100 metric tonnes area.
- Both Shanghai daily warrant and weekly deliverable stocks seeing stock draws from the high in May whilst LME on warrant stocks build up further to 91.4kt.
- Chinese onshore renewable energy equity index has been under pressure of late which is not supportive to nickel prices.
- Onshore stainless prices range bounded initially but manage to trade higher which fuelled nickel’s upward movement.
- Continues to chop on its daily chart between its 8 and 21 day mas which look set to cross and come in currently at 17,220 and 17,431 respectively. Support into the lower end there and then the $16,9590 lows.
- Resistance into $17,600 a break above which opens up potential test of $18,000-18,100.
Zinc
- On wires MMG has halted operations at its Dugald River zinc mine in Australia to conduct 2 months of repair work.
- Concentrate output halted but it will continue to build up ore stockpiles.
- 1Q24 was 44.8kt of zinc in concentrate so will contribute to that tight concentrate story which has driven these recent price gains.
- And as discussed previously unlike copper, Chinese zinc smelters are more privately owned thereby leaving them more vulnerable.
- China concentrate inventory at ports seeing small build up to 16kt but again it is far below than its average level.
- Long adding momentum slowed down as the fast money paused adding its long positions.
- The sell off in iron ore and steel space ignored by zinc thus far which is this morning moving under its own steam.
- Shanghai weekly deliverable stocks largely flatlining since mid April.
- LME on warrant stocks back to 216kt from peak of 239kt on 7th June but up from 203kt mid May.
- Again more choppy than Shanghai but still no real trend since mid March.
- LME cash to 3s tightening to $57.65c at last night’s settle in from $60.36c on 3rtd July and $62.9c at its widest on 7th June.
- Daily resistance into $3015 which is the 61.8% retracement of the move taking retracement from $3185 peak to $2737.50 trough. Also this being the area we broke down through on the 31st May.
- Weekly chart and price held its 8 week moving average at $2922 on this week’s dip and if above tonight will be 2nd weekly close above.
- Indeed any weekly close above $2995.50 and one could argue that price has made another break to the topside with $3150/75 area as the next target.
- Support into $2950 basis 8 dayer if we break back below $2990.
Lead
- LME lead position remains flat with little change of late.
- Domestic onshore supply remains apparently tight while import expectations persist. Onshore arb window still open physically.
- Shanghai aggregate open interest up 3.2k lots or 1.9%, after 3 consec declines.
- Lead stocks on both exchanges seeing minimal changes.
- Shanghai July Aug spread traded into 105 backwardation, bid from the low on 3rd July at 35 backwardation.
- Zinc’s strong story sees its switch against lead out to $770 last from $567.50 on the 7th June and within shot of the $803 peak from 21st May.
- This rv having weighed on lead.
- LME cash to 3s beginning to ease – out to $46.14c last night from $43.675c on 3rd July.
- Resis into $2245/55 then $2275/2300.
- Support $2215 then $2175/2185.
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
