Good morning,
If base metal price action was a source of disappointment yesterday check out the precious complex which had only just posted break outs on Friday and reversed hard. High conviction trading is tough to source currently amid so many uncertain and shifting inputs. Nick singles rather than strike for the boundary!
Today we see the start of 2 days of Powell testimony and his semi-annual monetary policy report to Senate Banking Committee today then Financial Services Committee tomorrow. Any more dovish commentary and the potential for earlier rate cuts likely to send dollar lower and therefore be supportive our complex. But certainly, ahead of China’s 3rd plenum 15-18th July, that community remains sidelined although that the Shanghai Comp rallied today saw iron ore bounce after selling off since 4th July. That also seeing our metals recover off the session lows. Remember we have China new loans, aggregate financing and money supply data from today to 15th July.
So, interest remains muted as reflected in light turnover and contracting ranges. But one article we see in today’s Financial Times discusses Rystad Group’s outlook for China’s electricity grid. Its solar industry may have reached saturation with Bloomberg reporting that central govt is drafting regulation to stem further expansion. But whilst harvest they might, it is the storage and then transmission of energy which is now going to be the likely focus. Electricity demand across Jan-April up 7.4% y/y versus GDP growth of 5.2%. Yunnan proving is facing a shortfall of around 10% on its supply with its neighbour Qinghai facing similar. This raising the importance of the plenum and how the central admin looks to handle local government debt. China’s grid likely to see investment of $800 billion over the next 6 years.
The paucity of demand in the very here and now battling the macro and that potential dovish rates cut outlook. The picture remains murky.
Price performance at cob 8th July 2024:
Ali
- Muted turnover which is running down 32% compared to 20d average. A narrow $16 intraday range traded.
- China’s supply of its electrolytic aluminum is increasing whilst there are still some capacities to resume. See how China electrolytic aluminum operating rate increased to 95.57% in June from the low in March at 93.54%.
- China imported bauxite port inventory seeing another stock build to 2.4 million tonnes from the low back on 7th June at 2.22 million tonnes.
- LME ali seeing long liquidation prog and the fast money’s short back to flat really.
- Shanghai aggregate open interest up 1.3k lots or 0.3% after 2 consec decline.
- Both ShanghaI and LME on warrant stocks seeing small stock draws whilst COMEX remained flatlining at 35.2kt.
- Shanghai July Aug spread traded into 50 contango, bid off the lows on 8th July at 90 contango.
- Resistance into $2555/65 and then $2595/2615.
- Support $2520 then $2500 area.
Copper
- Shanghai’s Comp positive close sees copper bounce off its overnight lows and rally into London open.
- Sep Dec comex copper spread which eased yday from its Friday $7.80 back peak also steadying up and remaining backwardated. This so key as to how market prices.
- Although there is a clear discrepancy whom view current paucity of demand and elevated onshore stocks versus those more positive and looking for the macro support. Powell speaking today and tomorrow and its impact on the dollar likely to determine if we can move out of the current torpor.
- There has been some evidence of a producer type offer on move into $10k.
- Moreover Bloomberg reports that around $4m premium spend yesterday on bearish CME structure with instigator buying a 1 x 2 put spread in March 2025 $5.50 put versus $4.20 put. Hedged with a total premium of $16.50 per spread.
- Refined copper output in China totaled at 1.005 million tons in June, rising 9.5% from same period last year. Bloomberg estimated that output may rise to 1.107 million tonnes in July, as more smelters return from maintenance.
- China copper smelting and refinery large plants output in June total at 21kt per day off from high in February at 21.8kt per day.
- Long adding program continues on LME and see how fast money build up their long positions.
- We still see this as bearing similar comparison to 1Q21. That is long positioning liquidates and gets back to almost flat coupled with those different speeds of money flow and we can argue that this price action is typical of a corrective move in a bull market.
- Also both SHFE and LME on warrant stocks build up minimally whilst COMEX remained at its low level at 8.9kt.
- Copper wire producer refined copper demand seeing a small pickup in June to 217.5ktt from the low in February at 141.9kt.
- Shanghai July Aug spread settled at 350 contango, bid from the low on 1st July at 460 contango.
- Support into $9865 and then its 8 day ma at $9806.
- Resistance into $10k and then $10,104 and the 38.2% retracement.
Nickel
- The underperformer this morning along with a narrow range at $180.
- Nickel has been the only metal who is seeing a net short position established on LME and a short covering prog continues thanks to the fast money covering its short positions.
- Shanghai aggregate open interest down 3.1k lots or 0.6%, decreased after 5th consec increase.
- Stainless prices onshore seeing a big sell off which is not supportive to nickel prices.
- LME nickel continues its stock building momentum whilst SHFE warrant stock still seeing further stock draws.
- Onshore renewable energy equity index still largely under pressure which is not supportive to the price.
- Nickel pig iron price and nickel sulfate prices have been holding.
- Shanghai July Aug spread settled at 510 contango, bid from the low on 8th July at 540 contango.
- Yday saw a close above its 21 day ma at $17,372 for first time since 30th May.
- But price continues to see a heavy MOC offer which first manifested itself last week and is likely index related.
- Bollinger bands tightening in such a way to suggest that when we move we can go motive albeit that Nov 2023- Feb 2024 period illustrative of their potential for staying tight for a period.
- Some options activity and buying of August and September straddles suggestive a market player betting on the move.
Zinc
- Price has once more stalled on move above $3k area – last time it having seen evidence if a producer offer.
- The tight onshore concentrate supply situation has been met recently by stock builds on Shanghai. The long there also having reduced from its peak.
- Refined zinc output increased 1.8% to 545.8kt in June from May. However, it may drop to 507kt in July due to maintenance on concentrate shortage and regular repairs.
- See how all three component seeing a net long position build on LME.
- Shanghai aggregate open interest down 5.9k lots or 2.9% for the 2nd consec session. Long liquidation.
- SHFE seeing another stock build and now approaching the recent high on 3rd June at 91kt. In contrast, LME seeing very minimal stock draws.
- See how ferrous and steel prices get sold initially but managed to bounce back with LME zinc prices following this movement.
- Price in this rising trend channel on daily. Support into $2895/2915. The lower end down to its 21 day ma.
- Resistance into $3000/15 then $3075.
Lead
- Onshore seeing length get cut this morning.
- Refined lead output to drop to 542.1kt in July, down 11% from June due to low scrap supply, removal of tax breaks on scrap-based production.
- SMM reported that the resumption of production in recycled lead smelters did not meet expectations in June, and the increase in production was relatively limited.
- LME lead position remain flat and fast money has covered all its short positions.
- Lead LME on warrant stock seeing a small stock draw whilst SHFE stocks up 0.74%.
- Shanghai July Aug spread eased to 55 backwardation from the peak on 5th July at 105 backwardation.
- Support into its 21 day ma at $2197. Then the $2175 area.
- Resistance $2235/50.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
