LME COTR - Long liquidation dominates, shorts less active

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

London 26/10/2016 - Key notes:

  • Long liquidation was seen across the metals held by money managers.
  • There was fresh short selling in copper and nickel.
  • Money managers hold relatively large short positions in tin considering the price action - there could be more short-covering
 
Copper  Total OI   Shorts   Longs  Net
14/10/2016 445,036 84,988 121,007 36,019
21/10/2016 431,164 86,696 118,526 31,830
Change -13,872 1,708 -2,481 -4,189

Net impact: Bearish

Comment: The money managers' net long position dropped for the third week running via long liquidation and short selling.

The gross long and short positions are both in mid-range.

 
Aluminium  Total OI   Shorts   Longs  Net
14/10/2016 975,998 142,763 303,274 160,511
21/10/2016 931,180 142,221 294,465 152,244
Change -44,818 -542 -8,809 -8,267

Net impact: Bearish

Comment: Long liquidation by money managers was the main feature last week. 

The gross long position reached a multi-month high recently but was still low compared with last year.

The gross short position was climbing off a low base but it also retreated slightly last week. 

With the fundamentals less than bullish and with higher prices likely to attract more production, we wonder whether the shorts will get bolder. Still, the rebound in prices may well get the trend-following funds more interested, especially since the gross long position is still in mid-range.

 
Nickel  Total OI   Shorts   Longs  Net
14/10/2016 318,590 32,463 97,654 65,191
21/10/2016 305,163 34,147 94,570 60,423
Change -13,427 1,684 -3,084 -4,768
Net impact: Bearish

Comment: The net long money managers' position dropped 4,768 lots last week via long liquidation (3,084 lots) and short selling (1,684 lots).

With the gross long position already high and near its extreme, it is not surprising that there has been some profit-taking. Likewise, the gross short position is low and, with prices struggling on the upside, it looks as though shorts are becoming more interested again.

Throughout most of this year, the gross short position has been falling (i.e. shorts have been covering), which has provided buying power. With shorts now selling again and with the gross long position already high, there may be a lack of fresh buying - at least from money managers. Key therefore will be whether the trade categories return as buyers.

There may be a danger that stale long liquidation creeps in should other potential buyers wait on the sidelines.

Lead  Total OI   Shorts   Longs  Net
14/10/2016 160,366 25,641 46,930 21,289
21/10/2016 152,513 22,572 38,936 16,364
Change -7,853 -3,069 -7,994 -4,925
Net impact: Bearish

Comment: Profit-taking among longs is setting in but shorts are not getting bearish - they are taking advantage of lower prices to reduce their exposure. 

If fresh shorting does not materialise, dips may well attract bargain-hunting again. The drop in the gross short position shows far-from-bearish underlying sentiment.

 

 
Zinc  Total OI   Shorts   Longs  Net
14/10/2016 419,800 71,105 145,630 74,525
21/10/2016 406,677 70,216 141,807 71,591
Change -13,123 -889 -3,823 -2,934
Net impact: Bearish


Comment: Money manager longs took profits last week for the fourth week but shorts reduced their exposure too for the second week.

The net long position remains high so the market is vulnerable to further long liquidation. But the absence of fresh shorting suggests the market is not that bearish.

Tin  Total OI   Shorts   Longs  Net
14/10/2016 22,332 2,954 5,309 2,355
21/10/2016 21,030 2,763 4,978 2,215
Change -1,302 -191 -331 -140
Net impact: Mildly bearish

Comment: Longs and shorts both reduced their exposure last week.

The gross short position is quite high compared with most of this year, especially given that prices are breaking higher - this may well lead to short-covering, especially given the tighter spreads too.

 
(Editing by Mark Shaw)



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