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London 28/03/2017 - Key notes:
- Money managers continue to liquidate copper longs, while short-covering continued.
- Fresh buying in aluminium has taken the money mangers' net position to another record high.
- Money managers' gross short nickel position remains elevated and the funds therefore look quite polarised. Short-covering can be a powerful force in nickel.
| Copper |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
433,164 |
65,181 |
125,216 |
60,035 |
| 24/03/2017 |
435,331 |
63,249 |
120,462 |
57,213 |
| Change |
2,167 |
-1,932 |
-4,754 |
-2,822 |
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Net impact: Bearish
Comment: Long liquidation continues (see downward sloping green line). The gross long position has fallen to 120,462 lots from a peak of 156,117 in December. Earlier in the year, short-covering was giving prices a lift. The short-covering petered out in late-February and since then there has been a mixture of short-selling and short-covering.
The gross short position is near the lows, suggesting there is little bearishness around, but a lack of fresh buying suggests investors do not feel comfortable chasing prices higher and indeed they are reducing exposure. In the absence of fresh buying by money managers, the market may lack buying pressure. Consumers seem to feel prices are already high and that there is good cathode availability so there is little reason for prices to rise.
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| Aluminium |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
885,783 |
123,302 |
310,553 |
187,251 |
| 24/03/2017 |
915,128 |
127,668 |
322,147 |
194,479 |
| Change |
29,345 |
4,366 |
11,594 |
7,228 |
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Net impact: Bullish
Comment: Short-covering ran out of steam last week and was replaced by fresh selling (4,366 lots), but that was dwarfed by 11,594 lots of fresh buying by money-managers.
The net long money managers position is at a record high, mainly due to the overall low level of gross short positions.
The price trend is strong and, on a long-term chart, aluminium's rebound only just seems to have started, so we would not be surprised to see further buying by money managers as they follow the trend.
The gross long position stands at 322,147 lots; the high we have on record is 384,861 lots.
The gross short position remains low, suggesting little appetite to be short.
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| Nickel |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
303,763 |
59,101 |
89,682 |
30,581 |
| 24/03/2017 |
309,789 |
59,800 |
87,323 |
27,523 |
| Change |
6,026 |
699 |
-2,359 |
-3,058 |
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Net impact: Bearish
Comment: Money manager longs liquidated 2,359 lots last week, while shorts added 699 lots - meaning the net long money managers' position dropped around 10%.
The build-up of the gross short position of late has been noteworthy; it suggested the shorts are considerably more confident and, given the weaker prices, they have been proved right. However, it raises the threat of short-covering should prices rebound. At $9,800 per tonne, nickel prices are not high relative to recent years. That said, the shorts have on their side the mountain of stock.
Long liquidation by money managers now seems to be an important driving force, the gross long position has dropped to 87,323 lots from a high of 106,114 lots on December 12.
The money managers' position on LME nickel has become quite polarised. We are more concerned about the elevated gross short position in that it could lead to short-covering than we are the gross long position.
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| Lead |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
125,698 |
18,881 |
36,159 |
17,278 |
| 24/03/2017 |
131,429 |
17,073 |
38,368 |
21,295 |
| Change |
5,731 |
-1,808 |
2,209 |
4,017 |
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Net impact: Doubly bullish
Comment: Fresh buying (2,209 lots) combined with short-covering (1,808 lots) gave lead prices double support last week.
The gross long and short positions are both low, meaning either camp could see a pick-up in interest, which would likely have quite a directional impact on prices.
Our overall take on lead is for it to trade at the $2,200-2,400 range until exchange stocks start to reflect a supply deficit.
The net fund position remains quite elevated due to the low gross short position.
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| Zinc |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
363,105 |
54,687 |
137,441 |
82,754 |
| 24/03/2017 |
368,331 |
54,718 |
133,191 |
78,473 |
| Change |
5,226 |
31 |
-4,250 |
-4,281 |
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Net impact: Bearish
Comment: The downward-sloping red and green lines of late suggest money managers' interest has been waning, even though the net money managers' zinc position was holding up at a high level.
Looking further ahead, the low level of shorts means there is ample room for shorting should the fundamentals weaken, which would probably require Glencore to announce that it is restarting idle capacity. We do not expect that anytime soon.
Stale long liquidation remains present with the gross long position drifting lower. The short position remains low, although it has edged higher since February 24.
With the gross short position in low ground and the gross long position still relatvely high there could still be room for stale long liquidation. So far, long liquidation has been stretched out - the peak in the gross long position was seen last August.
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| Tin |
Total OI |
Shorts |
Longs |
Net |
| 17/03/2017 |
16,205 |
2,137 |
3,770 |
1,633 |
| 24/03/2017 |
16,343 |
1,907 |
3,639 |
1,732 |
| Change |
138 |
-230 |
-131 |
99 |
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Net impact: Short-covering outstrips long liquidation
Comment: The trend in long liquidation paused two weeks ago, but resumed last week. The extent that the green line has fallen highlights how money managers have been voting with their feet
But price dips do seem to be giving shorts the opportunity to take profits and cover.
Given how low the green line is, any return of long money manager interest could quickly turn sentiment bullish again.
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