LME COTR - Money managers net sellers in all metals bar lead

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William Adamswilliam.adams@fastmarkets.comHead of Research+44 (0)20 7264 2489

London 07/09/2016 - Key notes:

  • The shift from short selling to shorting copper has changed the dynamics of the market.
  • The emergence of short selling combined with long liquidation has turned the tide in aluminium
  • There was good volume short-covering in lead.
 
Copper  Total OI   Shorts   Longs  Net
26/08/2016 463,143 80,472 107,498 27,026
02/09/2016 469,568 90,451 108,484 18,033
Change 6,425 9,979 986 -8,993

Net impact: Bearish

Comment: The money managers' net long position dropped for the fifth week - shorts added 9,979 lots while longs added 989 lots for a net change of 8,993 lots. 

The pick-up in short selling (as the rising red line on the chart shows) marks the biggest shift in sentiment of late. What is more, we are now seeing short-selling rather than the previous short-covering, which had been one of the main drivers on the upside.

We will now need to see whether fresh buying returns to counter the shorting.

 
Aluminium  Total OI   Shorts   Longs  Net
26/08/2016 923,171 114,689 265,442 150,753
02/09/2016 937,451 118,211 252,084 133,873
Change 14,280 3,522 -13,358 -16,880

Net impact: Doubly bearish

Comment: Short-covering had been a stronger driver in lifting aluminium prices (as the steady fall in the red line shows) but a shift from short-covering to fresh shorting suggests a change in attitude. 

Long liquidation has added to the downward pressure. The gross long position is relatively low compared with its recent range.

Given how low the gross short position has become, the market is now at risk should the shorts build up their position. The gross short position dropped to 114,689 lots late in August from a high this year of 257,377 lots and a peak last year of 322,433 lots.

 

 
Nickel  Total OI   Shorts   Longs  Net
26/08/2016 317,761 33,896 94,529 60,633
02/09/2016 318,818 34,320 93,186 58,866
Change 1,057 424 -1,343 -1,767
Net impact: Bearish

Comment: The net long money managers' position has climbed considerably this year (see shaded area on the chart), but it is starting to drift lower on profit-taking. the gross short position remains in low ground.

The net long position remains extended at 58,866 lots, having started the year at 15,305 lots. The gross short position is already low so there may not be much short-covering to be done but, with nickel prices still low compared with recent years and with money managers still holding 34,320 lots of shorts, which is a lot of metal, any break higher in nickel prices could prompt even more short-covering. 

We would get less bullish if we saw a marked pick-up in fresh short selling.

 
Lead  Total OI   Shorts   Longs  Net
26/08/2016 149,361 27,450 41,758 14,308
02/09/2016 151,362 26,269 42,619 16,350
Change 2,001 -1,181 861 2,042
Net impact:  Strongly bullish

Comment: The money managers' net long position continues to climb, rising 2,042 lots via short-covering and fresh buying.  

The gross short position is already low so the short-covering may dry up but the gross long position is relatively low at 42,619 lots - the high in February was 53,944 lots.  

 
 
Zinc  Total OI   Shorts   Longs  Net
26/08/2016 411,028 79,796 157,218 77,422
02/09/2016 417,844 79,245 151,960 72,715
Change 6,816 -551 -5,258 -4,707
Net impact: Slightly bearish


Comment: Money managers are starting to take some profits: the gross long position fell 5,258 lots to 151,960 lots. The recent peak was 167,781. 

But while the short position had also been climbing, making the market more polarised, shorts have recently been cutting exposure too. 

For now we remain bullish but profit-taking, combined with possible producer hedging, are likely to either cap the upside or slow upside progress.

Tin  Total OI   Shorts   Longs  Net
26/08/2016 21,770 2,057 4,692 2,635
02/09/2016 21,861 2,134 4,689 2,555
Change 91 77 -3 -80
Net impact: Mildly bearish

Comment: A pick-up in short selling, albeit from a very low level, has started but it does not seem to be slowing the rally. 

Despite tin prices breaking higher, it is interesting that the gross long position is not at an extreme, which may mean there is room for further buying.

 
(Editing by Mark Shaw)



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