Good morning,
Ahead of China’s 3rd plenum meet 15-18th July, China remains largely sidelined. Iron ore’s sell off since Thursday’s close symptomatic of the parlous state of their real estate sector. Likewise, Wednesday’s CPI and PPI data likely to reinforce deflationary fears and the tough ask the ruling administration has in triggering a consumption led recovery. Their new loans, aggregate financing and money supply data is due to be released any time between 9-15th July.
Demand concerns remain but the likes of lead and zinc’s recent strength has been driven by concentrate supply shortages onshore which have resulted in plunges in smelter treatment charges resulting in their considering or already having reduced production capacity. As for the other metals copper benefitting from an improving macro outlook as well as a CME term structure bid – that strong arb having been the driver of May’s price gains to the all time record peak. That easing today but no signs of stock inflows on comex yet. Positioning remaining key (as have seen of late from our estimates around fast money flows).On that note, nickel benefitting from the fact shorts have been established on both exchanges with a consumer bid having been evident on last week’s move into $17k.
Today being the first day of the official 5 day index roll window, we would comment that the theme in July has broadly been a story of commodity inflows. Prices steadying up since London open thanks largely to a dollar offer.
Price performance at cob 5th July 2024:
Ali
- LME on warrant stocks seeing another stock draw, down to 447.9kt as of today. Fast money has covered its short positions but not seeing fresh length built yet.
- Shanghai aggregate open interest down 1.3k lots or 0.3% for the 2nd consec session. Long liquidation.
- Weekly China aluminum ingot social inventory seeing further build up, increased 2.29% from last Thursday to 791kt.
- SMM commented that domestic aluminum supply is increasing, with some capacity yet to be resumed. Downstream aluminum processing and end-user demand have entered the off-season, expecting weaker consumption.
- China ali ingot operating rate in June increased to 95.34% which somewhat supported the prices.
- Shanghai and COMEX stocks have been largely unchanged whilst LME on warrant stocks declined to 448kt from the high on 14th May at 926kt.
- China aluminum production in June dropped to 3.55 million tonnes from the high in May at 3.63 million tonnes.
- 8 and 21 day mas crossing in a bullish fashion. Support into those and the $2520/25 area then $2500.
- Resistance $2555/65 then $2595/2605.
Copper
- Copper price dipped initially but managed to bounce back thanks to the weakness in dollar.
- Again it has been the COMEX price movement which has supported LME prices trading higher last week. See how Friday’s COMEX copper aggregate interest increased to 262k lots from recent low on 28th June at 255k lots.
- Light turnover which is running down 17% compared to 20d average with a $120 intraday range.
- Both China spot 99.5% spot premium and Yangshan premium increased further which may brought some support to copper price.
- Long adding program continues since 28th June on LME and see how fast money now build up their long positions.
- Shanghai aggregate open interest up 6.7k lots or 1.3%, increased for the 5th consec session. Fresh length
- COMEX and LME on warrant stocks have been largely unchanged whilst SHFE stocks seeing stock withdraw of late.
- Shanghai July Aug spread settled into 400 contango, easing from 2nd July at 280 contango.
- Sep Dec comex easing from Friday’s peaks but still backwardated. Last at $2.25b from Friday’s $7.80 high.
- Support into $9850/75. The the 9 and 21 dayers and into $9750 area.
- Resistance into $10,000/25 then then 38.2% retrace and $10,104.
Nickel
- Last week, LME strengthened restrictions on the delivery of Russian nickel, announcing a suspension on acceptance of refined nickel products from Norilsk Nickel PJSC's Harjavalta plant in Finland starting October 3.
- LME nickel continues to see a short covering prog since 28th June and the fast money’s short position almost cover to a flat position.
- Shanghai aggregate open interest up 1.0k lots or 0.5% for the 2nd consec session. Minimal changes.
- However, all the on shore renewable energy equity index continues to sell off which is not helpful with nickel prices.
- Onshore stainless prices get sold off this morning which brought some downward pressure to nickel prices.
- LME on warrant stock build up further to 91.6kt whilst SHFE warrant stock down to 19.2kt from the high on 3rd June at 23kt.
- Shanghai July Aug spread settled into 540 contango, easing from the high on 27th June at 90 contango.
- Resistance into $17,600 and then the $18,000/100 area.
- Support into $16,950 and then $16,535/40 lows from late March. Although look to see if price can hold its 21 dayer at $17,398.
Zinc
- Domestic and overseas zinc concentrate TCs continue to decline, providing support for zinc prices.
- Onshore zinc concentrate still faced a tightening situation along with extremely low port inventories.
- LME zinc’s long continues to grow thanks to the fast money.
- Shanghai aggregate open interest down 3.0k lots or 1.5%.
- LME zinc on warrant stocks only see a minimal change whilst SHFE warrant stocks picked up tiny last Friday.
- Shanghai July Aug spread traded into 135 contango this morning, eased from the recent peak on 5th July at 40 contango.
- Ferrous and steel prices get sold sharply overnight, putting zinc prices under pressure as well. Looking at our systematic iron ore model, our model's conviction rating flipped to short of -0.87 from last week’s +0.23. Today’s weakness comes from the supply and demand side where we noticed a improvement in the seaborne shipping volume especially from Australia. All four supply indicators giving a bearish signal which implies an ample supply situation. Meanwhile, the downstream product margins declined further along with a lower operating rate at the steel mills reflecting sluggish consumption.
- Zinc remains in this rising trend channel with resistance into $3015 and then $3075/3100.
- Price has held support ahead of its 8 day ma this morning at $2960. More into $2915.
Lead
- LME positioning largely flat and fast money has covered its short positions.
- Shanghai aggregate open interest down 2.9k lots or 1.7%.
- Onshore arb window still physically open but weakens slightly today. As we discussed in our previous reports this ongoing attractive arb raises the likelihood of onshore imports and therefore offset some of the recent tightness. This is in line with the recent decline in Shanghai aggregate open interest number.
- Shanghai July Aug spread offered to 85 backwardation from the peak on 5th July at 105 backwardation.
- LME on warrant stocks seeing a 4.2kt stock draw but the current level remained fairly high.
- A narrow range to kick off the week.
- Support into $2200 then $2180.
- Resistance into $2250 then $2300.
LME Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
