LME COTR - Are money managers turning less bullish on zinc?

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William Adamswilliam.adams@fastmarkets.comHead of Research+44 (0)20 7264 2489
London 8/03/2017 -
Key notes:
  • The money managers trading copper seem to be sitting and waiting - there was little change last week.
  • Long liquidation and short selling by money managers in zinc suggest a possible change in sentiment.
  • Money manager buying into nickel again.
 
Copper  Total OI   Shorts   Longs  Net
24/02/2017 434,587 59,549 130,037 70,488
03/03/2017 439,102 59,493 130,073 70,580
Change 4,515 -56 36 92

Net impact: Little changed

Comment: The money managers' net long position climbed a net 92 lots, with 56 lots of short-covering and 36 lots of fresh buying.

The short position remains near an extreme low while the long position is in mid-ground. 

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. 

 
Aluminium  Total OI   Shorts   Longs  Net
24/02/2017 886,256 131,802 310,685 178,883
03/03/2017 935,110 137,388 318,000 180,612
Change 48,854 5,586 7,315 1,729

Net impact: Bullish 

Comment: The longs and shorts both increased exposure last week.

The net long money managers position is high, mainly due to the overall low level of gross short postions. 

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.

 
Nickel  Total OI   Shorts   Longs  Net
24/02/2017 314,999 58,459 95,686 37,227
03/03/2017 311,732 58,605 97,711 39,106
Change -3,267 146 2,025 1,879
Net impact: Bullish

Comment: Money managers bought 2,025 lots last week, while shorts only added 146 lots.

The build up of the gross short position is noteworthy; it suggests the shorts are considerably more confident, while at the same time it does raise the threat of short-covering should prices push higher. At $10,500 per tonne, nickel prices are not high relative to recent years. That said, the shorts have on their side the mountain of stock.

However, the stock may well be needed if nickel ore stocks from the Philippines are reined in later in the year. 

Should Indonesia turn on the nickel ore export taps, then there is potential for long liquidation should prices break lower (i.e. sub $9,500 per tonne).

For now, we expect net Indonesian and Philippine nickel ores to fall this year, so we remain quietly bullish, but the market may well be in for a choppy time until a clearer picture emerges.

Lead  Total OI   Shorts   Longs  Net
24/02/2017 130,196 17,925 37,670 19,745
03/03/2017 128,526 18,944 38,076 19,132
Change -1,670 1,019 406 -613
Net impact: Bearish

Comment: The failed break to the upside in lead prices has led to a price drift.

Shorts have started to get bolder, albeit from a very low level; shorts sold a further 1,109 lots last week, while dip buying saw the longs add 406 lots. The gross long and short positions remain relatively low.

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.

 
Zinc  Total OI   Shorts   Longs  Net
24/02/2017 368,805 50,152 138,619 88,467
03/03/2017 364,684 52,372 137,533 85,161
Change -4,121 2,220 -1,086 -3,306
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. 

Has the wall of supply above $3,000 led to a change in outlook by money managers? If prices cannot go up, then maybe its time for a correction.

Last week saw shorts increase exposure for the first time in five weeks; longs also liquidated 1,086 lots, making this the third week of long liquidation.

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, but we would not be surprised if there was more stale long liquidation and some jobbing on the short-side as the market undergoes another correction, similar to what was seen in December.

Tin  Total OI   Shorts   Longs  Net
24/02/2017 17,261 2,665 3,838 1,173
03/03/2017 17,299 2,511 3,787 1,276
Change 38 -154 -51 103
Net impact: Short-covering outweighs long liquidation

Comment: The trend in long liquidation continued but in light volume.

The rebound in prices last week, however, prompted some short-covering. With a potential double bottom in place on the chart, there may be further short-covering. The gross short position climbed to a high of 2,665 lots in late February, up from 2,123 lots in early February.

A look at the green line on the chart suggests most of the selling this year has come from long liquidation with the gross long position falling to 3,787 lots from 5,410 lots in late-October. This leaves room for the investors to get bullish again.



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