LME copper

The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.

Metals – LME copper on-warrant stocks decline Recent LME data show on-warrant copper stock outflows of 19,175 tonnes, leaving total on-warrant stocks at 30,125 tonnes, the lowest since October 2021. Cancelled warrants rose by 14,850 tonnes to 50,275 tonnes, while total exchange inventories fell by 4,325 to 80,400 tonnes. In zinc and lead, data from the International Lead and Zinc Study Group (ILZSG) show that the global zinc market remained in a supply surplus of 137kt in the first four months of the year compared to a supply surplus of 156kt a year earlier. Total refined production rose by 1.2% year-on-year to 4.56mt, while total consumption rose by 1.6% YoY to 4.42mt between January and April 2023. As for lead, total production reported gains of 2.2% YoY to 4.09mt, while consumption remained almost flat at 4.15mt over the first four months of the year. The lead market was estimated to have seen a supply deficit of 46kt between January and April, lower than the 122kt deficit during the same time last year. As for nickel, the latest data from the International Nickel Study Group (INSG) show that the global nickel market remained in a supply surplus of 20,500 tonnes in April, compared to a marginal deficit of 2,600 tonnes in the same period last year. In its recent bi-annual press release, the group forecast a surplus of 239kt for the global market this year.

Metals – Risk-off sentiment weighs on the complex The prevailing risk-off sentiment in the broader financial markets weighed on the industrial metals complex with prices of most of the metals trading under pressure this morning. LME copper extended the declines for a third consecutive day after falling by more than 1% yesterday to close at the lowest level since 2 June. LME copper cash/3m backwardation eased to US$4.5/t as of yesterday, after reaching its year-to-date high of US$31/t of backwardation early this week. Meanwhile, copper exchange inventories at LME warehouses extended the declines for a second straight session with total stocks falling by 1,775 tonnes to 75,275 tonnes as of yesterday, the lowest since 9 May. A stronger US dollar, following hawkish comments from the US Fed and a soft set of economic data from China, weighed on the complex. A stronger USD has also weighed on precious metals with gold prices softening to US$1,905/t in the morning session today, the lowest levels in around three months. Hawkish comments from the Fed and the ECB at this week's Sintra conference in Portugal have pushed money away from gold. Total ETF gold holdings have dropped by around 0.8mOz over the past week and around 1.5mOz from the recent peak in May 2023.

Metals – Risk-off sentiment weighs on the complex The overall risk-off sentiment across the financial markets weighed on the industrial metals yesterday. Rising US treasury yields along with a stronger dollar further soured the sentiments in the complex. LME copper extended the declines for a third straight session yesterday, while nickel led the decline amongst the base metals. Recent data from the Chilean copper commission Cochilco show that Codelco’s total copper production stood at 120.3kt in June, the highest since the start of the year. However, cumulative output fell by 12.7% year-on-year to 642kt over the first half of the year, primarily due to delays in structural projects. Codelco also trimmed its annual production guidance to the lowest in 25 years. However, BHP’s Escondida copper mine reported gains of 8.7% YoY (32.8% month-on-month) to 111.4kt (the biggest monthly output in at least 3.5 years) last month, while year-to-date production rose by 5.5% YoY to 558.8kt in the first half of the year. Meanwhile, officials from the China Iron and Steel Association (CISA) are proposing the cancellation of night-time trading of futures for metals, which includes iron ore and steel futures. The recommendation came primarily to ease the volatility and to facilitate stable prices and trading for major metals.

Asian stocks fell with US futures as yields on 10-year Treasuries reach a 16-year high above 4.54% while China Evergrande Group missed a debt payment adding to fears about the sectors massive debt pile. Broad dollar strength continues with the greenback trading at its highest level since December as another Fed member said another rate hike this year will be needed. Crude oil trades softer amid macroeconomic concerns and a stretched speculative long while gold holds support despite multiple headwinds. The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. Equities: S&P 500 futures are under pressure this morning with the US 10-year yield hitting 4.55% extending its relentless move higher. If the US 10-year yield moves to 4.75% we will most likely begin seeing widening cracks in equities as the prevailing narrative of falling inflation collapses. Yesterday’s session saw no meaningful rotation between defensive and cyclical sectors. Today’s key events are US consumer confidence figures and Costco earnings tonight after the market close. FX: Higher Treasury yields, particularly in the long end, pushed the dollar higher to extend its gains. USDCHF rose to near 4-month highs of 0.9136 with immediate target at 0.9162 which is 0.382 retracement level. EURUSD broke below 1.06 support despite better-than-expected German Ifo. USDJPY attempted a move towards 149 with verbal intervention remaining lacklustre. AUD slipped on China woes while NZD and CAD were relative gainers, and the outperformer was SEK with the Riksbank starting its FX hedging today. Commodities: Crude trades lower for a second day with macroeconomic concerns, a stronger dollar and a stretched speculative long and easing refinery margin weighing on prices. Gold prices continue to defy gravity, holding above $1900 support with demand for stagflation protection offsetting the current yield and dollar surge. LME copper is trading at the widest contango (oversupply) since at least 1994 as inventories expand and China demand concerns persist. Wheat continues to face downward pressure from huge Russian harvest despite weather related downgrades in Australia. Fixed Income. The Federal Reserve’s higher-for-longer message reverberates through higher long-term US Treasury yields. Unless there is a sign that the job market is weakening significantly or that the economy is slowing down quickly, long-term yields will continue to soar. With 10-year yields breaking above 4.5% and selling pressure continuing to mount through an increase in coupon supply, quantitative tightening, and waning foreign investors demand, it’s likely to see yields continue to rise until something breaks. This week, our attention turns to US PCE numbers and Europe CPI data while the US Treasury will sell 2-, 5- and 7-year notes. It will be interesting to see if investors buy the belly of the yield curve as a sign that they are preparing for a bull rather than a bear-steepening. Overall, we continue to favour short-term maturities and quality. Volatility: VIX Index still sits at around the 17 level, but the downward pressure in equity futures this morning could push the VIX much higher. This could be a cycle where the market tests the 20 level. Macro: Fed’s Goolsbee (voter) kept the door open for more rate hikes while emphasizing higher-for-longer. Moody’s warned of a protracted government shutdown saying that it could weigh on consumer confidence and markets. Meanwhile, after PMIs, Germany’s Ifo also showed a slight improvement in business outlook to 85.7 vs. 85.2 expected, while the previous was revised higher to 85.8. There were several ECB speakers once again. Lagarde largely repeated what was said at the ECB Press Conference, noting policy rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to target. Schnabel said there is not yet an all-clear for the inflation problem. In the news: Interest rates will stay high 'as long as necessary,' the European Central Bank's leader says (Quartz), Teetering China Property Giants Undercut Xi’s Revival Push (Bloomberg), Russia dodges G7 price cap sanctions on most of its oil exports (FT), Global trade falls at fastest pace since pandemic (FT), Dimon Warns World Not Ready for 7% Fed Rate: Times of India via Bloomberg Technical analysis: S&P500 downtrend support at 4,328 & 4,200. Nasdaq 100 support at 14,687 &14,254. DAX downtrend support at 14,933. EURUSD below strong support, resuming downtrend to 1.05. GBPUSD downtrend strong support at 1.2175. Gold rangebound 1,900-1,950. Crude oil correction: WTI expect to 87.58. Brent to 80.62. US 10-year T-yields 4.55, uptrend but expect minor correction Macro events: US New Home Sales (Aug) exp 699k vs 714k prior (1400 GMT), US Consumer Confidence (Sep) exp 105.5 vs 106.1 prior. Speeches from Fed’s Bowman (voter) as well as ECB’s Lane, Simkus and Muller. Earnings events: Costco reports FY23 Q4 earnings (aft-mkt) today with estimated revenue growth of 8% y/y and EPS growth of 14% y/y. H&M reports FY23 Q3 earnings (bef-mkt) with estimated revenue growth of 7% y/y and EPS growth of 47% y/y. Micron Technology reports FY23 Q4 earnings (aft-mkt) with estimated revenue growth of -41% y/y and EPS of $-1.18 vs $1.37 a year ago. Accenture reports FY23 Q4 earnings (bef-mkt) with estimated revenue growth of 4% y/y and EPS unchanged from a year ago. Nike reports FY24 Q1 earnings (aft-mkt) with estimated revenue growth of 3% y/y and EPS growth of –20% y/y.