Good morning,
Once again the big mover overnight in our space has been the iron ore. China CPI highlighting the deflationary risks to its economy ahead of next week’s 3rd plenum with loans, financing and money supply data likely to be released on Friday. One of China’s largest steel mills in Angang Steel Co and Vankke both announcing preliminary 1H24 losses illustrative of the demand issues the real estate continues to face. Moreover, reports of fresh production from Simandou in Guinea whose project is seen delivering 5mt in 2025 with that rising to 90mt in 2028.
The base complex comes under further pressure amid an absence of any real Chinese involvement. But as the dollar sells off and gold rallies, that seeing us hold on London open with a consumer bid also evident on the likes of ali. The Fed’s Powell making his 2nd day of testimony in front of Congress, macro attention will then turn to tomorrow’s CPI as well as initial jobless claims – the latter and a softening labour market having seen a pick-up in chatter around potential for an earlier rate cut. That gold and silver are rallying also worthy of note.
Metals sitting on some key tech levels here and at threat of breaking lower. But outside ali the turnover remains muted. And we all know what they say about selling a dull market …especially given the evidence of a consumer bid now emerging.
Price performance at cob 9th July 2024:
Ali
- Ali combined nanolytics supply reading yday the heaviest since 14th June. Not signs of support from this flow reading. But some trade interest emerging on dip.
- Turnover running up 79% on average and overnight we have seen evidence of some Far Eastern consumer buying. Open interest expansion on Shanghai and price action suggestive of spec short selling there.
- Then see how fast money is now building their short positions on SHFE.
- Shanghai on warrant stocks declined further to 149kt whilst COMEX and LME warrant stocks remained flatlining.
- According to SMM, China's aluminium output in June (30 days) was 3.553 million mt, up 5.56% YoY. In June, the capacity awaiting resumption in Yunnan was almost fully put into production, and part of the capacity in Huayun Phase Ⅲ in Inner Mongolia also reached full production. The operating capacity of domestic aluminium continued to rise in June.
- Shanghai July Aug spread traded into 15 contango, bid from the recent low on 8th July at 90 contango.
- Alis volume profile and the exchange into $2480 also providing evidence of some consumer interest. Turnover since 08:00hrs still running up 80% on its 20 day average.
- Price testing lower Bollinger band on daily $2475 and the 18th June low of $2470. You also have the 21 weekly ma coming in at $2473 and price has been above that since early March.
- Intraday resis into $2500 and then $2515/20 basis 8 and 21 dayer
Copper
- Underperformer this morning with light turnover running down 20% with a $88 intraday range traded.
- Long adding prog continues on LME since 28th June thanks to the fast money build up their long positions.
- Shanghai aggregate open interest down 3.1k lots or 0.6% for the 2nd consec session.
- SMM expects domestic copper cathode production in July to be 1.0166 million mt based on the scheduled production of various smelters, up 11,600 mt MoM, an increase of 1.15% MoM, and up 114,500 mt YoY, an increase of 9.8% YoY.
- Both Yangshan premium and China 99.5% spot premium remained at the same level as yday.
- LME on warrant seeing another stock build since 1st July to 183kt whilst Shanghai warrant stock down to 249kt from the high on 13th June at 269kt. COMEX copper stocks instead remained at its low level.
- Shanghai July Aug spread settled into 290 contango, bid from the low on 1st July at 460 contango.
- Sep Dec comex has gone bid again today having eased from Friday’s peak of $7.80 to yesterday’s $0.70 low.
- Look for price to find support between its 8 and 21 day mas - $9745 to $9825.
- Then $9600/25.
- Resistance into $10k.
Nickel
- In June, China's refined nickel production totaled 26,600 mt, up 3.7% MoM and 40.54% YoY, in line with expectations. Some nickel producers completed equipment maintenance in June, allowing them to operate at nearly full capacity. On the other hand, nickel producers that had previously reduced or halted production due to raw material shortages resumed normal production, releasing capacity smoothly.
- But in signs of a market that has been building shorts, Shanghai July Aug spread traded into backwardation today, from the low on 8th July at 540 contango.
- Both LME and SHFE on warrant stocks seeing minimal build up.
- 2nd/3rd July and on those day’s moves into $17k area we noticed evidence of a consumer bid.
- But its nanolytics readings remain pretty bearish as they have largely been since late May.
- Onshore stainless steel prices continues to get sold off which is not supportive to nickel prices.
- Onshore renewable energy equity index edged lower of late which brought further downward pressure to nickel prices.
- And that its Bollinger bands on the daily chart tighten that raises potential for move. Although you could say same about end of Dec 2023 only for market to chop sideways until mid Feb before moving.
- Support into $16,965 low from 27th June followed by the $16,535/40 lows from late March.
- That latter level would see us into an area with a lot of options oi – Sep $16,500s x 1.6k, Oct x 1k, Dec x 3.1k then another strip across Jan-March2025.
Zinc
- LME zinc started to see a long liquidation prog and the net combined reading registered a negative supply reading for the 2nd consec session.
- Shanghai aggregate open interest down 3.9k lots or 2.0% for the 3rd consec session. Long liquidation.
- According to SMM, in June, China's refined zinc production was 545,800 mt, up 9,700 mt or 1.81% MoM but down 1.2% YoY. SMM expects that in July, domestic refined zinc production will decrease by 38,900 mt MoM to 507,000 mt, down 8% YoY.
- Both LME and SHFE on warrant stock seeing a minimal stock withdraw.
- Zinc prices also get downward pressure from ferrous prices, which get sold off for another session today.
- Shanghai July Aug spread settled into 110 contango, easing from the recent high on 5th July at 40 contango.
- Looking at LME daily 3s chart zinc has been in this rising trend channel since mid June with support into $2900/20 provided by that lower line down to the 21 day ma.
- Break of that and $2850 the next key level.
- We would remind you that the recent move has been driven by 1) increasing cost of prodn raising floor 2) tight concentrate supply situation onshore. No signs of that alleviating.
- But Marex nanolytics have shown two heavy supply bars so far this week with longs liquidating on LME and onshore.
Lead
- Flat position on LME and fast money’s short position now covered.
- Shanghai aggregate open interest up 1.4k lots or 0.8% for the 2nd consec session. Minimal changes.
- Shanghai on warrant stocks continues to build up but slowly whilst LME warrant stocks remained unchanged.
- Shanghai July Aug spread traded into 65 backwardations, bid from the low on 9th July at 55 backwardation.
- LME cash to 3s spread traded into $53.83 backwardation into yday close.
- Support into $2175 and then $2150 area.
- Resistance into $2225.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
