Good morning,
Given iron ore led us lower we note its recovery overnight even amid deteriorating fundamentals. That the result of short covering ahead of Monday’s 3rd plenum meeting (15-18th July) and would remind you that this market often sees onshore spec community reduce on Thursday. That there has been so little Chinese interest even ahead of such an important economic meet is a timely reminder of the parlous state of Chinese economy with the consumer so nervous. Today’s news is that financial regulators look to safeguard its banking sector by asking some rural lenders to shorten duration of bond holdings. Furthermore, reports of support for the Shanghai Comp with China’s Securities Regulatory Commission increasing short sellers margin requirements from July 22nd. Ditto Chinese Securities Finance Corp is set to suspend its lending of securities to brokerages as of July 11th. So not bullish per se but supportive at margins as it encourages short covering. See the bounce on Shanghai Property Index today – that having only been moving south this month. But see how that held the same low made twice already in 2024.
Separately and ahead of US CPI data and initial jobless claims later today, between the Fed’s Powell and recent jobs data, there appears to be a growing sentiment that the Fed could now cut as early as September. That no doubt encouraging some of the pressure on the dollar this week.
Nickel having seen another dose of really heavy moc selling yday and having broken lower, we note this morning’s news of a suspension to operations at BHP’s western Australian operations from October. That sparking a short covering bounce albeit not shifting s&d meaningfully short term. Copper’s price action a function of the macro but also the predominant driver the CME arb which has seen a fresh bout of tightness this week and which drove the rally yday. Ali still encountering a heavy systematic flow but running into evidence of some consumer buy interest.
Today being the penultimate day of the official index roll window we note its impact frequently dissipates into the back end of its 5 day prog. Monday sees LME price cash for 3rd Wednesday.
Price performance at cob 10th July 2024:
Marex Risk Premia RV positioning estimates as a % of their max. No changed from that narrative : industrial metals shorts as are some grains. Energies long as is sugar and cattle…
Ali
- Ali looked vulnerable yday as it tested the mid June low at $2470 but a consumer bid emerged.
- LME ali net combined reading yday seeing the heaviest supply reading since 19th Feb where price made a dip but then managed to bounce back.
- Shanghai aggregate open interest down 11.4k lots or 2.3% after 2 consec increases. Some shorts covering.
- Weekly China aluminum ingot social inventory has been building for the past two weeks but came off this morning, down to 789.2kt from the high at 791kt.
- China downstream operating rate in June seeing a mixed picture – both ali ingot and alloy producer operating rate picking up slightly whilst ali profile and plate output rate came off.
- SHFE and LME on warrant stocks seeing a minimal stock withdraw whilst COMEX ali inventory remained at 35.2kt.
- Support into $2455/70. Mid June low down to the 50% retrace taking move from Dec low to May peak.
- Resistance into its 8 and 21 day mas between $2513-17 then the $2545/65 area.
Copper
- A 12.6kt LME stock inflows sees copper’s recovery stall.
- But the CME arb premium has also contributed to the recovery albeit those comex stocks are now seeing inflows as they should given the premiums and backwardations there out of September.
- Also you have on wires confirmation that the Sprott fund now owns 10kt of copper mainly in Asian warehouses. Basis the $500m it is looking to raise as investors can hold physical copper that would equate to another 50kt. At $2 billion Bloomberg estimates it would need circa 200kt…
- Out positioning estimates for LME showing some signs of light long liquidation as fast money cuts.
- Shanghai aggregate open interest also down 5.6k lots or 1.1% for the 3rd consec session. Signs of long liquidation.
- See how LME on warrant build up further from the low on 1st July at 163kt to 195kt as of today. SHFE also seeing aa a stock build but very minimal. More importantly is that the COMEX copper inventory is finally seeing builds – small as yet though.
- China social inventory seeing further withdraw, declined to 250.8kt from the peak on 1st July at 271.3kt. Instead, weekly Shanghai bonded inventory seeing a build up to 94.2kt.
- China 99.5% spot premium increased to 10 today whilst Yangshan premium seeing weakness again, down to -2.
- China copper plate/sheet producers’ demand seeing a small pick up in June, to 99.5kt.
- Price chopping between its 8 and 21 day mas. Support into $9750/9800.
- Resistance into $10k then $10,1000 area and the 38.2% retracement of recent move off highs.
Nickel
- Price has seen some heavy MOC sell pressure this month. Last night’s 2.3k lot in a 30 minute window matching the substantial selling also seen on 2nd July. To put into perspective 2024 average daily turnover 5.2k lots.
- Price broke lower but today price has rallied early doors on the headline that BHP will suspend operations from October. No real change to the S&D but market is running short with potential for some mean reversion buy signals tonight.
- Turnover running up 75% compared to its 20d average with a $490 intraday range traded achieving all of its ATRs.
- The net combined reading yday registered the heaviest supply reading since 5th February, where there was a very similar set up and potential that yesterday was some sort of exhaustive move.
- Yday nickel closed below its lower Bollinger band and with a narrower range for the first time since 27th March. We are now looking for today’s close above $16894 to send us a potential mean reversion bullish buy sign.
- Shanghai on warrant stocks came off again from the high on 3rd June at 23kt to 18.7kt as of today. In contrast, LME on warrant stocks seeing continuous inflows and built up to the highest at 92.5kt since October 2021.
- Onshore stainless prices traded higher this morning which brought some support to nickel prices.
- Onshore renewable energy index also managed to bounce back off lows which benefitted nickel prices.
- Shanghai July Aug spread traded into 620 contango, easing from the peak yday at 780 backwardation.
- Resistance into its 21 week ma at $17,2775-17,325 its 21 day ma and the session high. Then $17,600 area of highs back to mid June.
- Support into $16,525/50 and those late March lows.
Zinc
- Price peaked on 5th July and came under pressure on back of the ferrous sell off. But that having held and bounced has seen market hold and recover.
- Light turnover overnight which is running down 19% compared to 20d average. A $37 intraday range traded which has not achieved any of its ATRs yet.
- LME seeing a long liquidation prog for zinc and mainly owing to fast money.
- SHFE and LME both seeing a stock withdraw especially on SHFE.
- Ferrous and steel prices rallied overnight but failed to hold the gains really which zinc has been following this price movement.
- Shanghai July Aug spread traded into 15 contango, bid from the previous low on 8th July at 135 contango.
- Price is in this rising trend channel from the mid June trough and which it held yday.
- Support into $2900 provided by that low and also the 21 day ma. Then $2855.
- Resistance into $3000/15 and then $3075/80.
Lead
- Today’s outperformer – with an average turnover and a $29 intraday range traded.
- LME lead position remained flattish from our Marex positioning estimates. The minimal net long positions mainly built by slow money.
- Shanghai aggregate open interest down 3.5k lots or 2.0%
- Shanghai on warrant stocks build up further to 56.2kt off the lows on 1st July at 51.8kt. In contrast, LME lead warrant stocks declined to 194kt.
- LME cash to 3 spread settled into $59.33 contango yday, easing from the recent high on 3rd July at $43.65 contango.
- Support into $2155/75. Then the $2125 area.
- Resistance into $2225 then $2250 area.
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
